This is what the other side of the “fiscal cliff” looks like.
If President Obama and Congress fail to reach a deal to avoid hundreds of billions of dollars of tax hikes and federal spending cuts, many Americans will feel the pain with less money in their paychecks in the first week of the New Year.
On Friday, Jan. 4, middle-class Americans who get paid that day would see take-home pay decline by an average of about $25, according to calculations based on data from the nonpartisan Tax Policy Center. That’s the effect of higher taxes on just under one week of pay in a bimonthly check. In wealthy areas such as Washington, the average tax hike for someone earning more than $100,000 would be roughly $130, reflecting higher taxes on nearly one week of pay.
The tax hikes would result from the expiration of the payroll tax holiday, which has been in effect for two years, and the George W. Bush tax cuts, which have been in effect for a decade. The impact in the first week would be modest. The following weeks would be much uglier.
“It’s going to be a gradually increasing wave of anxiety that’s going to go over people day by day in January,” said Steve Bell, senior director of economic policy at the Bipartisan Policy Center and a former senior member of the Senate budget staff.