Local experts: Tax impact not drastic
Wealthy will feel biggest pinch from fiscal cliff deal.
BY SCOTT AUST
The recent deal in Congress to avoid the "fiscal cliff" of across-the-board spending cuts and tax hikes didn't address continuing a payroll tax reduction implemented two years ago, which will mean smaller paychecks for everyone.
But local finance and tax experts and business leaders don't think the impact will be drastic here.
Passage of the bill increased tax rates for individuals who make more than $400,000 and couples who make $450,000, but left tax rates unchanged for average workers who make less than those amounts, and avoided billions in across-the-board spending cuts.
According to The Associated Press, the bill also prevented unemployment benefits for an estimated 2 million people from expiring, blocked a cut in fees for doctors who treat Medicare patients and stopped a possible drastic spike in milk prices.
However, Congress did let expire a 2 percent temporary cut in the Social Security payroll tax that was implemented two years ago to stimulate the economy. As a result, everyone who has a job will see more money taken out of their paychecks in payroll taxes as the payroll tax climbs to 6.2 percent this year. The 2-percent increase would mean someone earning $30,000 a year would take home about $50 less each month, while someone earning $100,000 per year would see $166.66 less per month.
David Hetrick, one of the owners of Garden City accounting, tax and financial consulting firm Lewis, Hooper & Dick, LLC, said Congress' actions probably will have minimal impact on average Kansans. Tax rates for everyone briefly went up when Congress failed to meet the Dec. 31 deadline, but then went right back down for most people once the deal was struck.
"Compared to your tax situation in 2012, unless you're wealthy, the impact is going to be minimal," Hetrick said.
Also, Hetrick said, the payroll tax increase may be mostly offset due to a reduction in the Kansas state income tax rate implemented Jan. 1 that drops from 6.45 percent last year to 4.9 percent this year, a 1.46 percent decrease.
"Everybody's state income tax should be less in 2013 than it was in 2012," Hetrick said. "In Kansas, your paycheck's probably not going to move an awful lot. With the state income tax going down and the Social Security tax going back to where it used to be, I can't imagine it will have a significant impact."
Jeffrey Weeast, financial adviser with Edward Jones, agreed that local impact of the fiscal cliff deal should be slight. He thinks congressional decisions in February concerning spending cuts and the debt ceiling could have more of an effect on Kansas than this week's fiscal cliff deal.
"This is all self-inflicted. This is no different than shooting yourself in the leg and saying, 'Ow, why does it hurt?'" he said. "The big concern for everyone is how is this going to affect my money. The way my firm looks at it is we invest for the long term. We really don't let short-term events change our philosophy."
For the average person in Garden City, not much will change other than the payroll tax, Weeast said. Those who will be affected will be families making $450,000 or more, which could include some farmers and large business owners who will move from a 35 percent tax bracket to a bracket over 40 percent.
"Some are going to be subject to higher brackets. We've changed some accounts around a little bit, changed some investments that were no longer beneficial to them considering the new taxes that are being placed against them," he said.
Myca Bunch, interim president of the Garden City Area Chamber of Commerce, said the recent actions by Congress won't have an impact on local businesses and agreed the payroll tax increase has some impact on everyone's paycheck.
"It's hurtful to every family, but from a business standpoint, there's really not an impact," she said.
From an economic development standpoint, the fiscal cliff debate and deal has more of a psychological and emotional effect on businesses due to the uncertainty surrounding what might happen, according to Lona DuVall, president of Finney County Economic Development Corp.
DuVall said actions at the national level are at least across the board, leaving a level playing field from state to state. What should be more important to local businesses and citizens, she said, are decisions made at the state and local level.
"That's really who we're competing against. We need to make sure we've got the best situation for the state of Kansas as a whole, and the communities within them," she said. "As long as we're doing what we're good at doing, we're going to be fine. We have to keep doing what we know how to do, and do it well."