After the tax package that was passed on New Year's night, you might want to put away the party hat and rose colored glasses for 2013.

That's because the tax holiday ended on extending the Social Security payroll tax, so even though 99 percent of us won't be seeing an income tax increase, the majority of us will still end up paying more in federal taxes. Under the agreement negotiated between President Obama and Senate Republicans, a person earning the median income of $50,054 will pay a payroll tax of $1,000. Broken down into pay periods, that comes to about $40 less in your biweekly check.

In his statement Tuesday night, the president said the bill prevented a middle-class tax hike that could have hurt families and sent the country back into a recession. That's true but the payroll tax hike will have the same effect on American wage earners.

Although Wall Street rallied on the news that the government avoided going over the dreaded fiscal cliff, it will be a matter of time before investors sober up to the fact that another Washington steel cage match is looming in just two months on the deficit. This country has the biggest gap between revenue and spending of any nation and the deficit is the elephant in the room for the economy. If this president is concerned about a legacy in his second term, his place in history will likely be judged on the kind of economic future his administration left for our children and grandchildren.

While the president took his victory lap for the government avoiding the January 1 cliff, economists were voicing their disappointment that Congress and the White House couldn't reach agreement on a broader deal that addresses the deficit over the next 10 years. Any movement on the two elephantine entitlement programs, Medicare and Social Security, could have boosted business and consumer confidence.

Economists believe the New Year's night deal will simply drain more strength from an already-weak economy. Joel Naroff of Naroff Economic Advisors says all wage earners took a hit with the payroll tax, whether you make $10,000 or $2 million. When taxes go up, it's going to come out of spending and that doesn't bode well for an economy that is 70 percent consumer spending.

Mark Zandi, chief economist at Moody's Analytics, also believes that the higher payroll tax will curtail spending and reduce economic growth by 0.6 percentage points this year. Other effects of deficit spending are unemployment and program cuts. When America borrows money to control deficit spending, it becomes in debt with other nations which puts the U.S. at a disadvantage.

Another global fallout is a possible drop in our credit rating. Last year, the U.S. government's blue-chip AAA bond rating was dropped by the credit rating agency Standard & Poor's because it feared that our struggling leaders in Washington couldn't deliver a credible plan to reduce the government's huge debt. S&P cited an overabundance of "political brinksmanship" and warned that "the differences between political parties have proven to be extraordinarily difficult to bridge."

Canadian-born author and commentator Mark Steyn is one who believes that if our current reckless spending continues, "you're basically signaling to the world that the American era is over. Steyn said that in a sense, America voted for big government in November with the re-election of Obama but that it didn't vote for a willingness to pay for it.

Regarding the skyrocketing deficit spending, he said "if you want Swedish-style government, you have to pay Swedish-style taxes. And if you don't, you have to grow up and learn to live within your means."

In his book "After America, Steyn foresees a post-American world where China is the new superpower, the Middle East is dominated by Iran, and our domestic scene has descended into chaos.

Happy New Year.

By Jim Zbick

jzbick@tnonline.com