Nobody wants to raise taxes on the middle class. That’s what the White House and congressional Republicans say, anyway.
But if the tax cuts run out at the end of the year as scheduled, the typical Iowa family of four making $76,777 per year would see an additional tax bite of $3,383, according to the Tax Foundation, a nonpartisan research group.
Much like the fiscal cliff is not really a cliff, but more of a rolling set of fiscal impacts, the tax bite would not be felt immediately. Still, it would hurt, economists say.
The nonpartisan Congressional Budget Office says the expiring tax cuts, coupled with the automatic spending cuts, could tip the country back into recession. Ernie Goss, an economist at Creighton University in Omaha, says consumer spending softened in September and October. The prospects of a tax increase, he adds, will not help.
“No one can argue it’s a plus. The question is how much of a negative is it,” he said.
For the typical Illinois family of four, the impact would be $3,417.
Most of the bump in taxes would come losing the payroll tax cut that lowered individual withholding for Social Security. By going back up, the $1,536 increase for the typical Iowa family of four would be felt in each paycheck.
The next-biggest impact would come from losing the increased tax credit for children, part of the Bush-era tax cuts. For a couple with two children, that would mean a tax hike of $1,000 when the provision expires, the foundation study says.
Couples would not feel that until they submitted their 2013 taxes in 2014, says Nick Kasprak, an analyst at the Tax Foundation.
Another $847 comes from other expiring provisions.
Dave Swenson, an economist at Iowa State University, says the average job holder in Iowa makes $38,960. The expected hit for that person, he said, would be $1,480 a year, or $123 per month. That includes the payroll tax impact and marginal rate increases.
There has been some suggestion that the damage to the overall economy could be averted if a deal is reached soon after the start of the year. Goss does not think that is true. He surveys manufacturing businesses in 12 states each month, and he says the latest report included several comments from businesses that were worried about the fiscal cliff and were adjusting their behavior already.
“I still think there’s significant damage to the economy,” he says.