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Tuesday’s tax increase is the biggest in decades

The broad increase in taxes likely to occur Tuesday is highly unusual by historical standards.

Based on data from the Treasury Department and Moody’s Analytics, here’s a chart showing, for tax increases since 1940, the magnitude of the tax hike in the year following enactment as a percentage of gross domestic product. The three red bars represent options for what will happen starting tomorrow.

But tax hikes have been a rarity recently. Also drawing on data from the Treasury study, here is a chart showing the one-year revenue effects, as a percentage of GDP, of different policy actions.

Assuming we have a fiscal cliff deal, a little over half of the tax hike next year will come from the expiration of the payroll tax cut, which affects every American worker. That tax cut has been in place for two years, replacing a similar tax cut that was in effect in 2008 and 2009.

Because of the expiration of the payroll tax cut, all workers will pay 2 percent more in tax on their salary next year. A worker earning $50,000, for instance, would pay $1,000 more in taxes in 2013 than in 2011 or 2012.

Payroll taxes haven’t gone up since the late 1980s, as this chart based on data from the Social Security Administration shows.

It’s been even longer since middle-class Americans have experienced an income tax hike. On the other hand, wealthy Americans have seen both sizable tax cuts and increases over the past 20 years, as this chart from Owen Zidar of the University of California, Berkeley, shows.

Zachary A. Goldfarb is policy editor at The Washington Post.
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