‘Fiscal cliff’ deals tax hike for many Nevadans

CARSON CITY - Some Nevadans went to bed Tuesday night thinking they would not be paying more in federal taxes in 2013 under the "fiscal cliff" legislation approved at the last minute by Congress.

Since they aren't individuals making more than $400,000 a year or married couples making more than $450,000 annually and they don't have an estate worth at least $5 million - the wealthy took the big hit - why should they worry?

Well, they should think again.

The 1.2 million Nevadans who work in private industry will pay a 2 percentage point increase in Social Security payroll withholding taxes on wages up to $113,700.

Through a temporary Obama administration tax cut in effect for two years, workers making $50,000 a year paid $2,100 in Social Security taxes in 2012. But in 2013, they will pay $3,100 or $1,000 more. That means $50,000-a-year employees who are paid every two weeks will see $38 less on each paycheck. Social Security is financed from a 12.4 percent withholding tax, half paid by the employee, half by the employer.

The Social Security tax increase was condemned by Stacey Shinn, the legislative lobbyist for the Progressive Leadership Alliance of Nevada, an umbrella advocacy organization that represents more than 40 liberal-leaning groups in Nevada.

Shinn called the increase regressive, and said the fiscal cliff agreement was a "fiscal cliff patch" that hurt the poor and middle class with higher taxes, but did not tax the rich enough.

"I would hope members of Congress realize they have to ask the rich to pay more," Shinn said.

Carole Vilardo, president of the Nevada Taxpayers Association, said, "Everyone is definitely paying more."

The tax increase is happening quickly.

The IRS advised employers Thursday to begin withholding the higher tax as soon as possible, but no later than Feb. 15.

All due payroll taxes must be collected by March 15, which means in some checks more will be collected than in others.

Social Security taxes are collected on all Nevada workers except those who have pension funds such as the Public Employees Retirement System fund that covers 150,000 current and former employees.

The fiscal cliff agreement also means higher taxes for the rich, but was greeted as good news for Nevadans who will continue receiving federal unemployment checks, Nevadans who claim sales taxes as a deduction on their federal tax returns, and Nevadans who drink milk.

8,000 WEALTHY NEVADANS TAKE A HIT

The tax increase for the wealthy will affect about 8,000 Nevadans: individuals who earn more than $400,000 a year or married couples who earn more than $450,000 annually. They are now subject to a new federal income tax rate of 39.6 percent, up from 35 percent under the Bush-era tax cuts.

The very rich also will be hit with a boost in the estate tax, which is assessed on their estates after they die.

Because of the agreement, the first $5.12 million value of an estate ($10.24 million for a couple) is not subject to estate taxes. The amount above that limit will be subject to a 40 percent tax, up from 35 percent.

Without the agreement, any estates valued at $1 million or more would have been subject to a 55 percent tax.

Sig Rogich, president of the Rogich Communications Group, said he will be hit with a "small" tax increase by the higher tax rate, but his concern is the increase will be a "disincentive" for many wealthy people to invest and create jobs.

Rather than tax increases, Rogich said Congress should have eliminated "ridiculous tax write-offs."

He noted that NASCAR received an equipment depreciation benefit to reduce its taxes under the agreement and other loopholes were written into the law that received little media attention.

Vilardo isn't as concerned as much with the tax increases, but what Congress now must do by March: Approve a series of spending cuts and increase the federal debt ceiling.

What prevents businesses from expanding or individuals from making major purchases is the uncertainty in how Congress will meet those challenges, she said.

"These monetary cuts will affect us," Vilardo said. "We still have the highest unemployment rate (in the nation). The cuts may have a chilling impact on our economy."

In particular, she wonders what will happen with Nellis Air Force Base and the Fallon Naval Air Station if military spending is dramatically cut.

Besides the loss of service members and their incomes, she noted that a lot of nearby off-base businesses depend on military spending.

Rogich has similar concerns about what happens as far as spending cuts in the weeks before March and fears that with the impending reductions, businesses might not be inclined to invest and the stock market will fall.

"The heavy lifting is yet to come," he said.

Nevada Farm Bureau Vice President Doug Busselman said the agreement might help some Nevadans keep family farms and ranches.

Farms and ranches traditionally are passed from generation to generation, and Nevada has many fourth-generation farm families. Because land is expensive, some ranches are valued at $5 million to $10 million.

While the estate tax on the most valuable ranches and farms was increased, Busselman said almost all farmers and ranchers would have been hurt if the estate tax had been set at 55 percent for those valued at $1 million or more.

"I don't know if we are happy overall, but if the exemption had been dropped to $1 million, a significant number of farmers and ranchers would suddenly have to deal with it.," Busselman said.

Nevada has about 700 agricultural operations with revenue of more than $100,000 a year.

JOBLESS BENEFITS

Unemployment benefits were not cut for the 25,000 residents who have exhausted all 26 weeks of their state benefits and now are receiving extended federal benefits. These extra benefits last as long as 47 weeks.

Congress agreed to keep paying the extra benefits throughout 2013.

The average check is about $300 a week, which is as much as $14,100 for an unemployed family that otherwise would have received nothing.

Besides these 25,000 people, another 1,000 Nevadans each week through the year will exhaust their state benefits and, because of the agreement, remain eligible for the extended benefits.

The state Employment Security Division had anticipated Congress would reach an agreement to continue the extended benefits. For several weeks it has been advising the people who potentially could have lost their benefits to keep applying.

TAX DEDUCTION

More than 300,000 Nevadans and residents of seven other states with no or limited state income taxes also can continue to receive the state sales tax deduction when they file their income taxes with the Internal Revenue Service.

The deduction is meant to equalize taxes in the states.

People in states with income taxes can deduct those taxes on their federal returns, while the non-income tax states have no such deduction.

Most Nevadans prefer to take the standard deduction. People who make big purchases - such as buying a car - can quality for a larger sales tax deduction.

In 2010, 314,345 Nevadans took the deduction and got a $449.4 million benefit, or $1,430 per return.

MILK PRICES

Another little discussed benefit of the fiscal cliff agreement will help families with growing children.

Milk prices will remain in the $3.50 to $4 per gallon range, not the $6 to $8 a gallon charge if Congress had done nothing.

Lynn Hettrick, the state Dairy Commission executive director, said if Congress had not acted, then a 1949 federal law would have kicked into effect. That law requires the federal government to buy all milk that has not been sold elsewhere and put it in storage.

"What would have happened if the law was in effect is farmers would call the federal government and say, 'Buy my milk,' " said Hettrick, a former state assemblyman who was associated with the dairy business for 20 years.

"Our biggest concern is the higher prices would scare the market away. People would look for alternatives to milk."

Milk has been getting a bad rap because of its fat and cholesterol content, but Hettrick said research shows youngsters raised on milk have fewer health problems and less heart disease than users of soy or almond liquid products.

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901.