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Thursday, December 27, 2012

Taxes To Rise, Even If ‘Fiscal Cliff’ Is Avoided

(Tax Credits/Flickr)

(Tax Credits/Flickr)

Whether or not the U.S. goes over the “fiscal cliff,” new taxes on higher-income Americans will go into effect on Jan. 1, to help fund President Barack Obama’s health care plan.

The top two-percent of earners – couples with more than $250,000 of adjusted gross income per year, or $200,000 if you’re single – will see a 0.9 percent Medicare tax increase on the portion of their wages above those amounts.

Those top earners will also face an additional 3.8 percent tax on investment income above $250,000.

David Cay Johnston is an investigative journalist, author and visiting professor at Syracuse University College of Law.

David Cay Johnston is an investigative journalist, author and visiting professor at Syracuse University College of Law.

But according to journalist David Cay Johnston, who won a Pulitzer Prize in 2001 for his reporting on the U.S. tax code, the impact of these tax increases on these higher earners will not be as significant as it sounds.

“Let me give you an idea of how small that is,” Johnston told Here & Now. “It appears to me that among people making $1 million to $10 million income from all sources, that the average increase in tax for this will be about $13,000 – that’s six-tenths of one-percent of their income. Now why is it the tax rate goes up 3.8 percent, but only six-tenths of one-percent of their income? Because only a minority of the income comes from investments, and then the first $250,000 is excluded.”

In addition, the non-partisan Tax Policy Center estimates that if “fiscal cliff” negotiations fail, the average American will end up paying about $3,500 more in taxes in 2013.

“What I believe we’re going to see happen is some kind of changes will come after the first of the year,” Johnston said. “But it’s very clear now that Speaker Boehner is not really in charge in the House, that he’s not able to reach a deal. And I believe in the next two years, we’re going to see some of the strangest political experience in American history because there is a segment of House Republicans who will not make any compromise on anything.”

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Robin Young and Jeremy Hobson host Here & Now, a live two-hour production of NPR and WBUR Boston.

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