Geithner Signals No Action to Delay Payroll Tax Hikes

Geithner Signals No Action to Delay Payroll Tax Hikes

The clock is ticking down towards the deadline of the fiscal cliff, and analysts are wondering why Treasury Secretary Timothy Geithner has not taken action on the tax withholding levels in American workers’ paychecks.

The Obama Administration has framed its stance in the fiscal cliff debate as sticking up for the middle class, but if the President and Senate Democrats fail to approve any deal passed by House Republicans, middle-class workers will see an automatic increase in payroll taxes. In that case, the White House does have options to prevent that result, but Secretary Geithner has not taken any action to pursue them.

Almost one month ago, Bloomberg News explored the idea that the Obama administration could “blunt about half of the fiscal cliff’s economic fallout for 2013, even if Congress stays deadlocked,” by freezing paycheck withholdings at their current levels.

A freeze could keep $10 billion per pay period in taxpayers’ pockets and prevent a loss of 1.5 percent of monthly gross domestic product, said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania…

The decision would rest with Geithner as he and the administration of President Barack Obama weigh the effect of withholding changes on the economy and on negotiations with Congress. Freezing withholding in advance of a congressional agreement on tax rates may support consumer spending while removing some pressure on lawmakers to act quickly.

The move would make sense, especially if by late December a congressional deal to avert the tax-rate increases set for January looks probable though isn’t completed, Zandi said. Such a decision wouldn’t prevent stock market declines and other negative effects of failing to avert the automatic spending cuts and tax increases, he said.

Secretary Geithner, however, told Bloomberg’s Al Hunt not to “over-interpret what that authority gives me.” He added, “It does not give me the authority to give them, to let them avoid making some decisions on rates and policy.”

Although Geithner told Hunt in the late November interview that he did not think that “general deferring” works, he did think that a lot could be accomplished with the fiscal cliff during the lame duck session.

“We’ve had several periods now, where there was a choice made to defer and if this political system, again, with all that is at stake for America, decides to defer again in the hopes that Americans will give us more time to come together,” said Geithner. “I think it will be a mistake.”

“I think you leave this huge cloud of uncertainty over the economy, and more importantly, perhaps, you reduce the incentives both sides have to come together,” he said.

Geithner later said, “I think you can do a lot in the lame duck. You don’t need to solve everything in that context, but what I think we’re trying to do is come up with a framework agreement that sets up a process for locking in long term savings.”

The Hill reported earlier on this issue in early December: 

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.

Breitbart News sent an inquiry to the Treasury Department and did not receive a comment at the time of this publishing.