The average American wage earner can relax: The new budget-cutting bill doesn't lay a glove on your income-tax return. Tax rates don't change, and exemptions and deductions don't either. Virtually all of the tax hikes hit the top 2.3 percent of taxpayers, who report adjusted gross incomes of $100,000 and up.
Only one change in tax rates reaches further down the income scale, to earnings above $51,300. That's the tax increase for Medicare.
Today, each worker and employer pays 7.65 percent, on the first $51,300 of earnings, to support Social Security as a whole. The self-employed pay 15.3 percent, half of which can be deducted. Of that tax, 1.45 percentage points (2.9 points for the self-employed) goes for the Medicare program; the rest goes for retirement and disability.
Beginning next year, that 1.45 percent will be levied on incomes up to $125,000. For a majority of upper-middle-income families, this may prove to be the biggest tax increase of all. If you make $125,000 or more, you'll pay an extra $1,068.65. If both you and your spouse are in that rarefied income bracket, you'll pay an extra $2,137.30. The self-employed will take an even heavier hit.
What will affect the average taxpayer, rich and poor alike, are the new excise taxes. But the changes will be mild.
Take cigarette smokers, who will pay an extra 4 cents a pack. If you smoke a pack a day, you'll contribute an additional $14.60 a year toward reducing the federal budget deficit.
Wine drinkers will ante up an extra 18 cents a bottle -- barely noticeable on a $5 wine, let alone a $20 wine. For beer drinkers, it's 16 cents a six-pack.
Motorists were among the interest groups shrieking the loudest when the budget proposal first came out. Their outrage paid off. Instead of the extra 10 cents a gallon they were originally asked for, the bill now calls for only a nickel. If you drive 20,000 miles a year, in a car that gets 25 miles to a gallon, the new 5-cent gas tax nips you for $40 a year.
What's so ironic about the great gas-tax battle is that, adjusted for inflation and the improved gas efficiency of vehicles, it is actually cheaper per mile to drive today than it was in 1973 before the first oil embargo. Gasoline is one of the great bargains in America today and a principal reason we remain so dependent on the Middle East. For national-security reasons, this tax should have gone higher still.
Even for some upper-middle-income people, the new income taxes won't be as onerous as they sound. In fact, if part of your income is currently taxed in the 33 percent bracket, your tax bill might stay just about the same. You'll pay a higher Medicare tax, but your income-tax rate will drop to 31 percent.
Depending on your earnings, the rate cut might actually save you money -- especially if you have few or no itemized deductions.
But taxes will rise for higher-income people with itemized deductions. Under the new law, these deductions will be reduced by 3 percent of your adjusted gross income over $100,000, whether you file singly or jointly. If you report an income of $150,000, for example, your deductions will be reduced by $1,500. This raises not only your federal tax but your state tax, too, if your state keys its taxes to federal taxable income.
For the very rich, there are no outs. Their tax rate goes up from 28 percent to 31 percent and their deductions will be slashed.
For the lowest-income families, taxes have been cut. The working poor get an income-tax credit if they work to support a child at home, and the size of that credit is being raised. This could wipe out any taxes due, and could even entitle the worker to a payment from the U.S. Treasury.