Buffett Rule? Payroll Tax Hike Hits Lower Income Earners Harder than the Rich

As a percentage of income, the payroll tax hike that struck with little warning — none, to some — on January 1 hits a worker who makes $30,000 per year harder than it hits someone who pulls down half a million.

Middle-class workers will take a bigger hit to their income proportionately than those earning between $200,000 and $500,000 under the new fiscal cliff deal, according to the nonpartisan Tax Policy Center. 

Earners in the latter group will pay an average 1.3 percent more – or an additional $2,711 – in taxes this year, while workers making between $30,000 and $200,000 will see their paychecks shrink by as much as 1.7 percent – or up to $1,784 – the D.C.-based think tank reported. 

Overall, nearly 80 percent of households will pay more money to the federal government as a result of the fiscal cliff deal.

For years, Barack Obama has made the “Buffett Rule” a staple of his tax talks and policy. The “Buffett Rule” is supposed to address the outrage of billionaire Warren Buffett’s secretary paying a higher tax rate than Buffett himself pays. Obama ignores all kinds of inconvenient facts about the different types of income Buffett and his secretary earn, and why they’re taxed at different rates, and how many times they’re taxed. He also ignores the fact that our highest earners pay the lion’s share of taxes to the government, while our lowest earners may be paying no income taxes at all. He also ignores that our highest earners create jobs when they invest.

The payroll tax hike that President Obama allowed to hit on January 1 blows the “Buffett Rule” out of the water.

‘The economy needs a stimulus, but under the agreement, taxes will go up in 2013 relative to 2012 – not only on high-income households, as widely discussed, but also on every working man and woman in the country, via the end of the payroll tax cut,’ said William G. Gale, co-director of the Tax Policy Center.

‘For most households, the payroll tax takes a far bigger bite than the income tax does, and the payroll tax cut therefore – as [the Congressional Budget Office] and others have shown – was a more effective stimulus than income tax cuts were, because the payroll tax cuts hit lower in the income distribution and hence were more likely to be spent,’ he added.