The Tax Hike Nobody's Talking About

The media has placed a lot of attention on a few minor tax changes, such as the new tanning tax. However, little focus has been put on a major tax hike that is about to occur. Unless Congress takes immediate action, the Marking Work Pay credit is due to expire; if it does expire, working taxpayers across the country will have more money withheld from their paychecks.

The credit, introduced last year as part of the government's stimulus package, boosts paychecks by up to $400 for single filers and up to $800 for joint filers, by reducing the amount of tax withheld from each paycheck.

But unlike those cuts, which were largely viewed as a benefit for wealthier Americans, the Making Work Pay credit is designed exclusively as a middle-class benefit, and will affect a wider base of taxpayers.

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Without Tax Credit, US Home Demand Keeps Slumping

For the fifth week in a row home loan applications have declined in the US, showing signs of the effect the federal tax credit had on the housing market. According to this story from Reuters.com loan applications dropped to the lowest levels since 1997.

Demand for loans to purchase houses fell 5.7 percent in the week ended June 4 to the lowest level since February 1997, even after adjusting to account for the Memorial Day holiday.

Home buyers have been on hiatus since many rushed to sign purchase contracts ahead of the April 30 deadline for up to $8,000 in federal tax credits.

"It's very worrying," said Paul Dales, U.S. economist at Capital Economics in Toronto, said of the degree of payback from more than a year of federal buyer tax incentives.

"We have to face the unfortunate fact that the housing market really isn't out of the woods yet," he added. "At a time when the economic recovery is still looking fairly fragile it won't be a good thing if people are moving less and spending less on buying new durable goods like fridges and sofas."