Dec. 9, 2012
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.
“If we were to, say, go over the cliff and the rates go up, he could modify those withholding tables such that the average employee out there would not effectively see any more or less taken out of his paycheck,” said Bill Hoagland, senior vice president at the Bipartisan Policy Center.
The tactic could buy Washington precious time to strike a tax agreement without pinching the economy, but it carries substantial risk. If the administration miscalculates where rates end up, tinkering with withholding could morph tax refunds into hefty bills.
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Economic Policy Project