Elections 2012: Yes, Indian Country, Your Taxes are About to Go Up

How many times has both presidential candidates promised tax relief? Dozens, hundreds, even thousands of references? That’s especially true if you add the words “middle-class” to any question about taxes.

But the thing is, the thing is, we who work are about to pay more.

This is complicated but it’s wrapped up in big debate over the “fiscal cliff.” On January 1st lots of things happen: the Bush tax cuts expire, budget “sequestration” begins (basically a plan for drastic spending cuts for both defense and domestic programs), Medicare reimbursement payment drop; and, if economists are right, all hell breaks loose.

We’re in this mess because Congress and President Obama couldn’t reach a deal on long-term spending at the very moment the United States was about to default on its loan obligations. So a deal was made on July 31, 2011, that created the Joint Select Committee on Deficit Reduction – or the Super Committee – that would find a way to move the budget toward balance. But if the Super Committee failed, then an automatic round of budget cuts called “sequestration” would begin January 1, 2013. The idea was to make sequestration a terrible fate, sharp spending cuts for domestic programs that Democrats would hate and a similar round of reductions at the Pentagon that Republican would oppose.

This story has an interesting twist. Republican Vice Presidential Nominee Paul Ryan, the House Budget Committee Chairman, at the time praised the deal. But just a few months later he talked about its impact creating “abrupt indiscriminate cuts in government spending.” Presidential candidate Mitt Romney calls the deal – and the Republican member’s involvement – a mistake.

The Center on Budget and Policy Priorities estimates that “sequestration” for the Bureau of Indian Affairs and other domestic programs exceeding 9 percent. The Indian Health Service is limited by law to a 2 percent cut. But the actual numbers will be published soon.

So how does this policy, the fiscal cliff, lead to new taxes?

The headline is that the Bush-Obama income tax cuts will expire. That’s what politicians are rushing to fix.

But at the same time, a payroll tax cut expires.

This is the one tax that every American worker pays. It comes right off your paycheck and it’s actually weighted against wage earners (because those with high incomes are capped on what they pay and those who live off investment income pay nothing). Back in 2011 Congress “temporarily” reduced the payroll tax from 6.2 percent to 4.2 percent. That tax cut was later extended to 2012.

But there’s no support from either party to extend it another year. So it goes away January 1st. Republicans never liked this tax cut anyway, favoring those who pay income tax. But the payroll tax is more significant to people who are low or moderate income because it’s the costliest one they pay.

The Congressional Budget Office said the extra take-home pay because of the payroll tax cut led to “additional spending by the households receiving the higher income, and that higher spending … in turn increased production and employment.”

And during the debate last year, The Center on Budget and Policy Priorities said: “Failure to extend the payroll tax cut would harm workers in nearly every job and income category. For example, the nation’s 1.4 million truck drivers, whose salaries average $39,450, would pay $789 more in payroll taxes, on average. The nation’s 2.7 million nurses, whose salaries average $67,720, would lose $1,354, on average.”

And tribal government employees? An economic study from just one state, Washington, said in 1997 that tribal governments paid an estimated $51.3 million in federal payroll taxes. That number would be much larger today especially if you add all of the states where tribes are located. The way a payroll tax works, tribes, as employers, pay one share and employees pay another share. It’s that employee contribution that’s about to get hit with a tax increase.

Mark Trahant is a writer, speaker and Twitter poet. He is a member of the Shoshone-Bannock Tribes and lives in Fort Hall, Idaho. He has been writing about Indian Country for more than three decades. His e-mail is: marktrahant@thecedarsgroup.org.