'Fiscal cliff' would hike taxes

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WASHINGTON — Taking the country over the “fiscal cliff” would cost American households $3,500 in higher taxes next year, on average, if Congress and the White House fail to reach agreement to stop automatic rate changes, according to a report released Monday.

Almost 90 percent of Americans would see their taxes rise through a combination of higher rates on incomes and investments, and the loss of certain tax breaks, including some enacted as part of President Barack Obama’s stimulus program that are set to expire.

The temporary payroll tax break, which has been in place for the past two years to help put more cash in consumers’ pockets to boost the economy, is also set to sunset.

The report from the Tax Policy Center (www.bit.ly/cDCBvT) warned that not all taxes are created equal.

“The components of the fiscal cliff have different effects on households at different income levels,” said the report from the center, which is a joint project of the Urban Institute and Brookings Institution.

The loss of specific tax breaks hits households in different ways. Upper-income earners particularly benefit from the President George W. Bush-era tax rates.

If Congress fails to renew the top rates, which expire in December, they would rise to 39 percent, from 35 percent. Rates would also spike on capital gains and dividends, and wealthier Americans would be hit with a new tax under the health care law, which Romney has vowed to repeal.

Households at the lowest end of the income scale would pay about $400 a year more, the report said.

Overall, the report said middle-income Americans would see an average $2,000 tax hike, largely from the expiration of those combined tax breaks and others.

Virtually all workers earning $106,000 or less have been benefiting from the two-year payroll tax holiday, which has been providing a break of up to $2,000 a year on the amount paid in Social Security taxes.

Congress and the White House used the tax break as a way to boost the sluggish economy by allowing more take-home pay, but are essentially in agreement that the tax should expire Dec. 31.

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