One of the more egregious results of the Democrat-controlled Congress skipping town without passing a budget, thus failing to address the issue of whether scheduled income tax increases will really go into effect for everyone, the highest income-earners, or no one at all, is that the Internal Revenue Service and employers have been left in the lurch with no idea of how to prepare for next year. As I understand it, at a minimum this is the first time in a very long time that something like this has occurred, and it may be unprecedented.
The issue is getting a half-decent amount of play in the business press, but as a general news item, it's going almost nowhere, even though some employers are already telling employees they will have to withhold more starting on January 1, 2011 if no action is taken in Washington.
At the Associated Press's main web site, the one story about the withholding issue written by Andrew Taylor that went up early this morning plays a shady game of "Y'know, it really won't be all that bad if the increases are only in effect during the early part of next year." See if you can detect what I'm referring to in the following excerpt:
Regardless of how the battle turns out this fall, the Bush tax cuts will be in effect for purposes of next year's filing season. If the tax cuts expire as scheduled on Dec. 31 but are renewed early next year, workers might see smaller paychecks for only a while, assuming the Internal Revenue Service issues withholding tables that reflect a return to pre-Bush tax rates.
That could mean about $50 less spending money each week for the household earning $50,000 and almost $90 less per week for the family making $100,000.
The game Taylor is playing is to compare weekly tax increases (most people aren't even paid once a week any more) to annual earnings. Unfortunately in our often numerically-challenged culture, that makes the tax increases not seem so bad to some who can't or won't do the math.
Taylor does make up for it to an extent in a later paragraph ("If the tax cuts were allowed to expire indefinitely, a typical family of four with a household income of $50,000 a year would face $2,900 more in taxes in 2011, according to Deloitte Tax LLP, a tax consulting firm. The same family making $100,000 a year would see its taxes rise by $4,500"), but he could have (and should have) combined it all into one paragraph. Instead, his report comes off as telling readers, "Hey it won't hurt that much if it only lasts a little while."
Nice try, guy. Tell that to your example families.
What's really relevant to the typical family is the hit on net pay (i.e., what people are used to living on), and not gross pay. The two families involved will be out roughly $200 and $360 a month, respectively ($50 x 4 and $90 x 4), until the president and Congress get their act together. In both cases the hits will be in the neighborhood of 7% or so of typical net pay. The percentage of the tax increase itself (i.e., taxes withheld with the increase vs. before the increase) will be well into double digits. It's hard to see why Taylor seems so cavalier about this eventuality, which will grow greater with each passing day after November 2 and will be painful, even if (big if) the IRS makes up for it by changing the withholding tables to recoup the excess funds withheld during the remainder of the year once (or if) Congress acts and the President signs the related legislation.
But I suppose if you're the ever further to the left "Essential Global News Network," it wouldn't be a good idea to tell a large plurality if not the majority of readers/voters that they're going to get a double-digit increase in the taxes they pay starting on January 1 -- at least not until Wednesday.
Cross-posted at BizzyBlog.com.