< Back To Article List

No Increased Tax Withholdings – What a Bad Idea


A piece in the LA Times reports that taking the country over the “fiscal cliff” would cost American households $3,500, on average in higher taxes next year. It goes on to say that almost 90% of Americans would see a rise in their tax liability. First, a quick review.

“Fiscal cliff” is a term being used by many to describe the unique combination of tax increases and spending cuts scheduled to go into effect on January 1, 2013. Taken together, many economists predict the impact will derail our fragile economy. Here are the contributors.

  • With the expiration of the “Bush Tax Cuts”, federal tax rates will increase, long-term capital gain rates will increase, the estate and gift tax provisions will become significantly less friendly, itemized deductions and personal exemptions will be phased out for high incomers, student loan interest will no longer be deductible after 5 years of repayment, college credits will become less generous, etc.
  • The 2-year “Payroll Tax Holiday” will expire requiring an additional 2% Medicare withholding from W-2 earners
  • Health-Care reform legislation requires an additional .9% Medicare withholding and a new 3.8% tax on unearned income for many individuals with incomes over $200,000.
  • The failure of the deficit reduction supercommittee to reach an agreement automatically triggered $1.2 trillion in spending cuts.


The Wall Street Journal reports that some politicians and economists are not that troubled by all of this. Their reasoning is unbelievable and borders on the absurd.

The US Treasury Department and the Internal Revenue Service have broad latitude to adjust withholding rates for Americans – or not adjust them. If the current tax breaks expire on December 31, but the administrators decided to leave withholding at current levels, some tax experts say that could cushion the economic blow considerably at the beginning of next year, and give Congress more time to reach a compromise.

So, with Americans facing a tax increase of $3,500 for 2013, the solution is to continue withholding taxes as if there is really no tax increase. And someone thinks that is a good idea? Not to worry – Eric Toder, an expert with the nonpartisan Tax Policy Center says, “If they anticipate that Congress is going to pass something in early January they may delay increased withholding…”

The bottom line… If withholding tables are not changed to take into account the estimated average tax increase of $3,500, then we are betting that Congress will reach a compromise that will negate any tax increase. Otherwise, Taxpayers will come up short when filing their 2013 tax returns. Allow me to point out the obvious. Lately, Congress is not where we turn for a lesson on compromise.

DISCLAIMER: Information provided by Hoyle, CPA, PLLC on social media, on its website, and related free information distributed via email is intended for reference only. The information is designed solely to provide guidance and is not intended to be a substitute for someone seeking personalized professional advice based on specific factual situations. Responding to such inquiries does NOT create a professional relationship between Hoyle, CPA, PLLC and participant and should not be interpreted as such. Although Hoyle, CPA, PLLC has made every reasonable effort to ensure that the information provided is accurate, Hoyle, CPA, PLLC, and its shareholders, managers, and staff, make no warranties, expressed or implied, on the information provided. The participant accepts the information as is and assumes all responsibility for the use of such information.