It's the end of cliff-related metaphors for the U.S. economy as we know it, but local residents will most likely still see an increase in taxes.
Past its own New Year's deadline, Congress sent President Barack Obama legislation to avoid a national "fiscal cliff" of middle class tax increases and spending cuts late Tuesday night in the culmination of a struggle that strained America's divided government to the limit.
While the tax package Congress passed New Year's Day will protect 99 percent of Americans from an income tax increase, most of them will still end up paying more federal taxes in 2013.
That's because the legislation did nothing to prevent a temporary
reduction in the Social Security payroll tax from expiring. In 2012, that 2-percentage-point cut in the payroll tax was worth about $1,000 to a worker making $50,000 a year.
Payroll tax increases of 2 percent will be felt right away, said State Rep. Rich Murray, R-Albert Lea, giving a person making $1,000 every two weeks
an about $20 increase in taxes each paycheck. That 2 percent payroll tax saved
a typical Minnesota family of four making $87,000 about $1,700 last year.
"It's certainly going to have a negative impact on the state," said State
Sen. Dan Sparks, DFL-Austin, highlighting Minnesota's February budget forecast
as the point when any damage done would become most visible.
Sparks said many Minnesotans still trying to recover from the recession
would be hurt by the increase in taxes.
The Tax Policy Center, a nonpartisan Washington research group, estimates
that 77 percent of American households will face higher federal taxes in 2013
under the agreement negotiated between President Barack Obama and Senate
Republicans. High-income families will feel the biggest tax increases, but
many middle- and low-income families will pay higher taxes too.
Households making between $40,000 and $50,000 will face an average tax
increase of $579 in 2013, according to the Tax Policy Center's analysis.
Households making between $50,000 and $75,000 will face an average tax
increase of $822.
"For most people, it's just the payroll tax," said Roberton Williams, a
senior fellow at the Tax Policy Center.
The tax increases could be a lot higher. A huge package of tax cuts first
enacted under President George W. Bush was scheduled to expire Tuesday as part
of the "fiscal cliff." The Bush-era tax cuts lowered taxes for families at
every income level, reduced investment taxes and the estate tax, and enhanced
a number of tax credits, including a $1,000-per-child credit.
U.S. Rep. Tim Walz lauded the bill though it left out funding for the
Beginning Farmer and Rancher Program, among other things.
"While I'm disappointed that it isn't the larger, 'Go Big' type deal I
have been advocating for, this bill is a good first step and I'm pleased a
compromise was finally reached to avert the fiscal cliff," Walz said in a
statement.
U.S. Democratic Sens. Amy Klobuchar and Al Franken both backed the
measure as well. Franken, up for re-election next year, expressed reservations
but praised the bill's extension of tax cuts for the middle class and
unemployment insurance. He says he was glad it doesn't cut safety net
programs.
Klobuchar also says the bill was worth supporting but that she wanted a
