There’s a new bit of creative thinking making the rounds in DC this weekend, proving yet again that not all ideas wind up being good ones. According to this line of thought, assuming no deal is reached to prevent tax rates from going up on the middle class, Timothy Geithner has certain, hidden superpowers which will save the day. If the tax rates go up, people won’t need to worry about it because we just won’t withhold the extra money from their paychecks.
The White House has the power to temporarily protect taxpayers from middle-class tax hikes even as upper income rates rise if Congress does nothing and all of the Bush-era tax rates expire in January.
Experts and lawmakers alike agree that Treasury Secretary Timothy Geithner has the power to adjust how much is withheld from paychecks for tax purposes — for all taxpayers or just for some.
By doing so, Geithner could ensure paychecks reflect the White House position that wealthier taxpayers with annual income higher than $250,000 see their taxes rise. Geithner at the same time could leave withholding tables where they are for the middle class, ensuring those workers don’t see a higher cut from their paychecks.
I’ve noticed a bit of confusion out there, particularly given some of the comments popping up on Twitter, so we should first identify what this doesn’t mean. The White House can not simply ignore the tax laws put in place by Congress and collect a different amount of tax than what is due, and this proposal isn’t suggesting that. If the tax rate goes up, you’re still going to owe more money.
But what they’re talking about is the fact that Treasury is responsible for publishing the withholding tables which employers use to determine how much to deduct from workers’ paychecks for their taxes. In theory, Geithner could leave the withholding tables the same for lower income workers, effectively making it seem as if their taxes haven’t gone up. But this is a pretty dangerous game to play unless you’re very sure you know what the eventual tax rate is going to be and when it will go into effect. If you guess wrong and fail to withhold the correct amount, tens of millions of people will find themselves owing a big ole’ check to the IRS when tax day rolls around and you’ll find yourself about as popular as a skunk at a garden party.
So what does this plan actually “solve” in terms of the ongoing tax debate? In reality… nothing.