Tags: fiscal cliff, fiscal cliff deal, have we reached fiscal cliff deal, What the Fiscal Cliff Deal Could Do to You
Depending on the deal Congress makes for the fiscal cliff, middle-class Americans could face a total average tax burden of nearly 50%.
Middle-class Americans already pay an average of 43.12% in taxes, according to the non-partisan Tax Foundation.
Money Morning Chief Investment Strategist Keith Fitz-Gerald detailed the possible increase in the tax tab, citing data from FOX Business Network's expert on consumer and personal finance, Gerri Willis.
Absent a fiscal cliff deal, the mean middle class federal tax rate would climb from 25% to 28%, as Bush-era tax cuts expire in 2013. Payroll taxes would rise from 13.3% to 15.3%.
"Keep in mind that doesn't include state income tax hikes, city or county taxes, many of which are on the rise no matter where you live, thanks to decades of poor fiscal management," Fitz-Gerald said.
Add in state taxes, which average 4.82%, and the middle-class tax burden would average a whopping 48%.
As Fitz-Gerald put it, the possible tax increases amount to "an assault on the middle class."
The Most Painful Fiscal Cliff Hit to the Middle Class
The biggest tax increase threatening individuals for the 2012 tax year is a hike in the alternative minimum tax. The AMT was enacted in 1969 to prevent affluent Americans from taking advantage of tax breaks that avoided federal taxes.
The tax must be adjusted regularly to reflect inflation and was last tweaked in 2010, when about four million taxpayers paid it. Without a fresh adjustment for this tax year, the AMT will affect an additional 28 million taxpayers, swelling their tax bill by an average of $3,700. The Internal Revenue Service says the tax would affect individuals making more than $33,750 and married couples making more than $45,000.
This adds to the 70 tax breaks for individuals and businesses that have expired since the end of 2011.
Tax preparer H&R Block Inc. (NYSE: HRB) has warned that if Congress doesn't extend the tax breaks retroactive to the start of 2012, a typical American middle-class family could be looking at a $4,000 tax increase when it files its 2012 tax return in the spring.
Included in a lengthy list of expiring tax breaks for individuals are deductions for college expenses, deductions for local and state sales taxes, and the $250 deduction for teachers who buy school supplies with their own funds.
Businesses stand to lose myriad tax breaks like generous credits for investing in research and development and write-offs for expansions and upgrades. Also set to vanish are tax breaks for financial companies that have subsidiaries abroad.
Workers would see less in their paychecks if the temporary reduction in the Social Security payroll tax, known as the Payroll Tax Holiday, is not extended.
With less disposable income, middle-class Americans will have less to spend, invest and save.
And depending on what kind of fiscal cliff deal is reached in Washington, a 2013 recession is considered likely, with unemployment apt to rise and the slowly recovering housing market further pressured.
Bottom line: The middle class is about to get pinched from Washington's fiscal cliff disaster.