Effective April 1 — we didn’t pick the date — employers have been instructed by the IRS to deduct a little less out of the coming year’s paychecks. For everybody. The average American worker will probably notice an extra $11 to $13 per week.
Many sources are ballyhooing this as though it’s a gift — a reduction in the tax rates.
It’s not. As the Review-Journal’s Jennifer Robison pointed out in her coverage of the move a couple of weeks ago, “Because the tax break is coming from your withholding, you’re essentially getting April 2010’s refund now, spread out week by week for the remainder of 2009. That means you probably won’t get a big lump sum a year from now. And depending on your situation, it also means you could end up owing Uncle Sam. Check with your accountant or your human-resources department if you’re concerned about your 2009 tax liability.”
Far from owing less to Uncle Sam 54 weeks from now, your tax liability will be unchanged, but (depending on how it usually works out for you) either your refund will be reduced, or you may actually have to send in more money.
Fail to do so in a timely manner, and you’ll owe interest … just as if you’d gone out and borrowed the $600 from one of those payday loan stores.
Could it work, causing Americans to immediately spend the extra $600 or so they’ll have in hand over the next year, “goosing” the retail economy? Maybe. But they should at least be told the straight dope about where it’s coming from, and how they’ll owe it back.
Having said that, if President Obama and his treasury secretary and the headless chickens currently running around over at the Federal Reserve really want Americans to “spend the country to prosperity,” why the half measures? Why not simply ask the Democratic Congress to repeal the withholding tax?
Not the personal income tax, mind you (though that would indeed be the Philosopher’s Stone of restored wealth creation and economic freedom) — just the withholding tax.
The average Americans’ paycheck would jump next week not by $10 or $12, but by 15 or 20 percent!
Then, next April 14, when they came to deduct the “amount withheld” line from the “amount owed” line, the “amount withheld” would be “zero.” The average American would owe Washington somewhere in the range of $2,000 to $6,000 cash — the next day.
Or is there some reason President Obama and the Democratic Congress don’t want to deal with what would happen if Americans were asked to pay all those taxes, all by themselves, all on the same day?