Tax hike in fiscal cliff deal means $1K less in average Bakersfield pay

Tax hike in fiscal cliff deal means $1K less in average Bakersfield pay »Play Video
BAKERSFIELD, Calif. (KBAK/KBFX) — The phrase "fiscal cliff" has dominated the news in the past month, and all the phrase refers to are tax hikes and government spending, designed to bring down the federal deficit.

The government has worked out an agreement, and part of that includes payroll taxes going back up to what they originally were two years ago.

The bottom line is, if you are not getting a raise this year, your paycheck is going to have less money in it.

If you look at a paycheck issued after the new year, you'll see a 2 percent jump in your Social Security tax. That means now you are paying 6.2 percent instead of 4.2 percent, which is the rate we have been paying for the past two years. That tax rate was lowered to 4.2 percent in 2011 as a part of President Barack Obama's stimulus plan. It helped people keep more money for themselves, but that meant the government lost $120 billion each year.

So how will this hurt your wallet?

If your paycheck is $50,000, you'll be paying $1,000 more per year in taxes. The median household income for Bakersfield is about $53,000, which means an extra $1,060 per year will be snipped from your pay.

The money collected in taxes will fund Social Security. Up until now, the government had been siphoning money from the general fund to make Social Security payments.

Economic experts say the shrinking paycheck, combined with the uncertainty about other portions of the fiscal cliff deal, could have a harmful effect on the national economy. However, Bakersfield might be the exception because of oil.

"The increase in oil production due to the great advances in technology will more than offset the economic effect of take-home pay," said James Morse, an economics professor at Bakersfield College.

For most workers, this is the only tax increase that will hit their paycheck.

The expiration of this payroll tax cut, among the other provisions of the fiscal cliff deal, is designed to help reduce the nation's deficit, which currently stands at more than $16 trillion.