WASHINGTON — Americans will be pummeled by a barrage of tax hikes — not just higher income-tax rates — if the White House and Congress let the country dive off the fiscal cliff next week.
The debate has focused on the President George W. Bush-era tax rates that are set to expire New Year’s Day, imposing higher income taxes on nearly everybody.
But there is also a smorgasbord of tax-policy changes, ranging from higher payroll deductions to lost tax credits set to take effect. It adds up to $536 billion more that Uncle Sam would pick out of America’s pockets next year.
The fate of these tax hikes depends on the outcome of the fiscal-cliff talks.
The payroll-tax cut would expire, increasing the tax paid by workers from the current 4.2 percent to 6.2 percent.
The change would cost the average worker $1,000 next year.
About 28 million more Americans would get snagged by the alternative minimum tax, costing them about $64 billion in higher income taxes for 2013.
The alternative minimum tax, or AMT, was created in the 1960s to stop the rich from using accounting tricks and tax havens to get out of paying their fair share.
But the law wasn’t indexed to inflation. Over the years, it hit more and more middle-class taxpayers. Congress usually passes a “patch” each year to fix it, but this year, the AMT is at the bottom of the fiscal cliff.
Along with higher income-tax rates, there would be higher tax rates on investment income.
HOW THE FISCAL CLIFF WILL AFFECT YOU
FOLKS FREAK OVER SIZE OF TAX HIKES
The tax rate on capital gains — the profit realized from the sale of capital assets such as stocks, bonds and real estate — would go from 15 percent to 20 percent for most taxpayers.
Dividends, which are currently treated like capital gains and usually taxed at 15 percent, would be treated as regular income, subject to tax rates as high as 39.6 percent.
The marriage penalty would return, imposing higher tax rates on married couples filing jointly than on single filers separately.
The inheritance tax would go from 35 percent for estates valued over $5.12 million to 55 percent for estates valued over $1 million.
The $1,000 child tax credit for each qualifying child would be slashed to $500 per qualifying youngster.
Child-care and dependent-care tax credits also would be reduced. The $3,000 deduction for one child would be lowered to $2,400, and the $6,000 deduction for two children would be cut to $4,800.