Posted by: theoptimisticconservative | January 7, 2010

Silly Congressional Games

The following is a public service announcement based on information I was alerted to by my brother, the CPA.  You will note that there is no tax advice or other recommendation for financial action in this communication. 

A client asked my brother why the tables for payroll withholding – not the tax rates, but the withholding rates – look different for 2010.  Here is his question:

I’ve never seen this before – In the tax withholding tables recently issued by the IRS for 2010, the rates that employers must withhold for a married person go from 10%, 15%, 25%, 27%, then back to 25%, 28%, 33%, and finish at 35%.  Rates for a single person go from 10%, 15%, 25%, 27%, 30%, down to 28%, 33%, and finish at 35%.  As long as I can remember, the rate withholding tables have always been progressive, but not this year.  Have any idea why the withholding percentage would drop midway through the tax bracket?  Thanks.

My brother’s response:

The simple (accurate, and relatively unpalatable) answer is that it’s a cash-flow gimmick.  Looking at the tax brackets, they’ve created additional brackets to refine the withholding and basically target a majority of middle income earners (i.e. where the rate in the table increases just before it decreases) with greater withholding (they expect this to cover a significant number of taxpayers, and thus produce significant withholding revenue).  No change in actual income tax rates, no change on your tax liability when you file your return – it just means the US Treasury gets your money sooner (you’ll owe less or, more likely, have a bigger refund) when you file your return.  It’s just that the government gets it now – a tax-free loan as it were.

This is, of course, relevant to disguising the actual size of the current fiscal deficit, since they count all the projected money coming in (including withholding) as revenue in projecting the current fiscal year’s deficit or surplus status.  Just another trick they use to try to get the numbers to come out the way they want.

At Breitbart’s Big Government site, SusanAnne Hiller has picked up on the same gimmick.  She takes readers through the highlights of the 2010 withholding changes, along with some sample calculations.  As she and others point out, one option for taxpayers is to change their withholding basis (file a new W-4) to counteract the new withholding tables.  But Congressional Democrats seem to be betting that most taxpayers won’t figure that out.  The increased withholding on the middle-income taxpayers amounts to both an interest-free loan and a fiscal-year accounting trick.

Readers will remember that Californians are being hit with a double-whammy in this regard, as the state increased paycheck withholding by 10% in November.  The purpose in Sacramento was precisely the same as the feds’:  to game fiscal year accounting so that government income would be artificially bolstered.

This measure is, of course, wholly artificial in terms of its relation to the fiscal year budget and long-term government debt.  Tax rates have not been raised (although, at the federal level, the Bush tax cuts expire at the end of this calendar year – so they will be).  Taxpayers don’t owe any more tax, there’s just more being withheld from us in each pay period.

The experience of Californians this spring ought to be cautionary for all Americans, however:  the state government suspended payment of tax refunds for a period of time, and although payment was resumed, California is far from fiscally sound in January 2010.  Betting on the payment of tax refunds, at any level of government, looks riskier now than at any time since the inception of the republic.

Meanwhile, as Ms. Hiller speculates at Big Government, the Congressional thinking here was probably that millions of middle-income taxpayers wouldn’t miss the difference of $100 or less per pay period, at least not in terms of spending power.  I’m not so sure that’s an accurate guess.  For an awful lot of Americans in 2010, that amount does matter.  Many of us are seeing higher-than-usual heating bills this winter, for example.  Many Americans are seeing their utility rates increase on a regular basis; Californians throughout the state will be seeing their water rates increase significantly in the next few months.  Combinations of weather and government policy are gradually making produce prices rise in much of the nation.  A lot of workers are seeing no salary increase this year to begin with; quite a few have taken pay cuts in order to keep their jobs.

Even with gasoline at moderate prices for the moment, a variety of factors have taxpayers living on narrower margins than in years past.  Now is a particularly bad time for federal withholding rates to increase.  This move can’t help looking like a tacky little maneuver, particularly when undertaken in silence.  One thing that will be interesting to see is if alerted taxpayers file new W-4s in unusual numbers – and if a filibuster-proof Congress tries to get around them again by, without fanfare or public discussion, changing the rules about that.

That’s all ahead of us, of course, if it happens at all.  For now, we have the spectacle of our federal government playing a shabby accounting trick – on us.  If Enron were doing this, we’d be hollering for blood.  Congress doing it, and proclaiming to us how much it has our interests at heart, doesn’t make it a sound or ethical practice.  Taxation without representation, anyone?


  1. Not “Taxation without representation.” Rather outright confiscation by subterfuge of the time value of that extra withholding.

    Theft without due process, responsibility or consequences is what it is.

  2. With apologies to you J.E., I’m kind of hoping that CA collapses economically. The hope being that such an event will jolt America into seeing the devastating results of tax and spend liberalism and be jolted into action on a national scale. At the rate we’re going, it’s just a matter of time before the US economy collapses under its own weight. The health bill that’s about to be passed will only make things worse.

    Regarding that health bill, there’s a chance that the special election in MA can stop its passage. If Scott Brown (R) wins in an upset (and there are rumblings here in MA that he could pull it off) over Martha Coakley, that would shift the Senate to a filibuster possible 59-41. Winning the election is only the 1st (very large) hurdle. The Democratic Secretary of the Commonwealth William Galvin will have to certify the election before the US Senate will swear Brown in. Galvin would probably stall until after the health care vote. This despite him in 2007 certifying a D congresswoman in 2 days so she could be in Congress for a big vote. It’s so very hard living in this state I tell you. However, even the D’s around here are starting to get disgusted with the D politicians.

    As for Congress pulling tricks with the withholding, at the very least, that interest-free loan to the Treasury most likely won’t hurt in the sense that the interest rates are so laughably low that Joe Average won’t be missing out on earning interest on that money. That’s about the only “positive” that I can see in all this.

  3. Places like Calif. work when they’re libertarian and entrepreneurial capitalistic. We’re facing Asia and during my lifetime lots of Asia moved here. So now Asia is going capitalist and the US is going no where! Who cares if the Democratic party elites are afraid of white people and afraid of housewives(from Anchorage south). That white house wife from Alaska {also on the West Coast ) knows that energy from all sources including mini-micro nuclear power plants give the stuff to get an entrepreneurial society moving again. If Calif. was one big free enterprise zone a lot of small start ups could hire kids from Hispanic and especially Afro-American backgrounds who will never make it in the WHITE
    LAWYER DOMINATED secondary schools and colleges. Talking here about apprenticeships to get these kids up to speed. Plenty could be done but not in a John Edwards – Obama Democratic party. The land mass of Calif isn’t going away no matter what the New Age nutters say about the big earthquake. The question for the future: is Calif. going to be Libertarian-Constitutionalist or Mandarin-War Lord slave state. To be Palinesque, “I can see Shanghia from my front door”.

  4. A rapacious government. What the American colonies hated about George III.

  5. That would be to be Fey-esque, Orcas. (“I can see Shanghai from my front door.”) 🙂

    But your point is well taken, although the perspective (Mandarin-War lord slave state) is interestingly different. I think most critics think of the opposite of Libertarian-Constitutionalist as “European Nanny State,” with the implication being a comparative abandonment of the “War lord” element.

    This reminds me of the commercials Kia is running, in which big rats (mice? they look like rats to me) drive Kias and look thrilled. I wonder what this is meant to appeal to, exactly. The American demographic that envisions itself as being like field vermin? Harmless little creatures, in harmony with nature? Eating garbage, leaving trails of poop everywhere, carrying disease? What’s the implication here? Is this how Asian car-makers see us? Is this how they think we see ourselves?

    It’s an interesting exercise in self-deception, I guess, for people to think any powerful government can be a kindly Nanny State — when in fact, having the power of a Nanny State makes it a Mandarin-War lord state. So thanks, Orcas, for that clarifying interlude.

    Sully, what can I say. “Confiscation without representation” works for me. Maybe that will have to be the battle cry this time around.

    RE — it seems to me that California is already collapsing economically. And it’s all self-imposed. It will certainly be interesting to see what happens in MA with Brown and Coakley. I saw Brown on Fox this week, and he did come off as quite impressive.

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