NEW YORK (CBS 2) — Get ready for a tax increase.
The Bush-era tax cuts are set to expire at the end of the year and that could put a dent in the wallets of tens of thousands of families all over the tri-state area, come Jan. 1.
CBS 2′s Don Dahler crunches the numbers.
If Congress fails to extend President George W. Bush’s tax cuts, middle- and upper-class families in New York, New Jersey and Connecticut would suffer a disproportionate hit to their wallets.
The top rate for families and small businesses would go from 35 percent to 39.4 percent.
For those making $400,000 a year that’s about $12,000 a year more in taxes. Families making $125,000 would see a $4,208 increase in their federal taxes. A single person making $75,000 would see a $1,487 increase.
But it’s unlikely middle-income earners will see that happen.
President Barack Obama said he wants to extend the tax cuts for families making $250,000 or less. As for the 2 percent of Americans who make more than that, well, the president said they’re going to have to pay more.
“Borrowing to finance tax cuts for the top 2 percent would be a $700 billion fiscal mistake. It’s not the prescription the economy needs right now, and the country can’t afford it,” Secretary of Treasury Tim Geithner said.
But accountants say families in the tri-state area will be hit harder than any other region.
“Because we have both the higher cost of living and higher incomes in dollar terms,” said CPA David Lifson of Crowe Horwath.
On Manhattan’s East Side on Monday there was real concern.
“Investments are down, and those people who have money are not spending it because they’re afraid,” said Stuart Silfen of Long Island.
“People are saving, or trying to save a lot more. They’re holding onto their money a lot more,” added Jill Erickson of Manhattan.
But economists say the only way out of a recession is for consumers to start spending again.
“High-income households are particularly sensitive to their finances so if we raise their taxes now I think they will pull back on their spending,” said Mark Zandi of Moody’s Analytics.
Congress is expected to tackle the issue when they return from August recess.
One possibility being floated is to extend the tax cuts for another year, or until the economy sufficiently recovers.