The middle-class tax hikes in Obama's "fiscal cliff" plan

Unless Congress and the president reach a budget deal by December 31, tax experts say 90 percent of American families will be faced with what they call "unprecedented tax increases." Wyatt Andrews reports on the penalties of going over the fiscal cliff.

President Obama has said it time and time again: The wealthy should contribute more in taxes while the middle class should be protected in budget and deficit negotiations. However, the president's most recent proposal for averting the so-called "fiscal cliff" includes some proposals that would hit the middle class -- more so than the wealthy -- with tax hikes.

On Monday night, CBS News chief White House correspondent Major Garrett reported the president gave House Speaker John Boehner his latest "fiscal cliff" offer, calling for $1.2 trillion in new tax revenues and $930 billion in spending cuts.

On the tax revenue side, Mr. Obama's latest offer allows the 2 percent payroll tax cut -- first enacted two years ago -- to expire. The deal also includes huge savings from adopting a "chained" consumer price index (chained CPI), changing the way the government measures inflation. Negotiations over the "fiscal cliff" -- the series of tax hikes and spending cuts set to kick in next year -- remain fluid, so both of these proposals could be scrapped or modified. Both of these policies, however, would, in effect, raise taxes on the middle class.

The payroll tax cut

The Obama administration enacted the payroll tax cut as a temporary means of boosting economic growth, so letting it expire arguably shouldn't be called a tax "hike." The fact is, however, that if it expires, taxes will be higher. CBS News' Jim Axelrod reported on the strain this will put on middle-class families at a time when the economy is still vulnerable: Households making $50,000 would pay $1,035 a year more in payroll taxes.

Ending the payroll tax holiday, bringing the payroll tax back up to 6.2 percent from 4.2 percent, would hit lower- and middle-income households more significantly -- that's because the payroll tax is only applied to income up to $110,100.

As CBS MoneyWatch editor-at-large Jill Schlesinger reported, the payroll tax holiday put more money in the pockets of 160 million Americans.

Sen. Bob Casey, D-Pa., introduced legislation this month to extend the payroll tax cut, saying, "Protecting the middle class and fueling the economy is something both Republicans and Democrats should support."

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