Experts: Hey, Maybe Geithner Will Only Enforce Tax Hikes on the Rich

Guy Benson

12/10/2012 10:37:00 AM - Guy Benson

Who needs Congress or legislation these days?  The democratic process is such an anachronism:
 

The White House has the power to temporarily protect taxpayers from middle-class tax hikes even as upper income rates rise if Congress does nothing and all of the Bush-era tax rates expire in January. 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. The tactic could buy Washington precious time to strike a tax agreement without pinching the economy, but it carries substantial risk. If the administration miscalculates where rates end up, tinkering with withholding could morph tax refunds into hefty bills.


This maneuver would essentially amount to the executive branch selectively enforcing tax law in order to reflect the president's political preferences, albeit temporarily.  Under the scenario, Geithner would only adjust the federal withholding tables for "the rich," even though the law would mandate marginal tax rate increases across all income groups.  Democrats are fixated on the political outcome of rate hikes for the top two brackets, while Republicans argue taxation levels should remain the same for everyone.  Aside from the separation of powers issues, there's a practical risk to this idea, as well:
 

“If you want to go down this route, you had better be pretty sure that, at the end of the day, you know what the outcome is going to be,” said Joseph Minarek, senior vice president and director of research at the Committee for Economic Development. “If you guess wrong and taxpayers have to write checks next April…they’re not going to be happy.” Under the law, it is Geithner’s responsibility to set withholding tables that employers use as a guide for how much to keep from paychecks, and to do so in a way that is “most appropriate” to carry out current tax law. But with the White House and Congress knee-deep in haggling over tax rates, many are wondering what “most appropriate” might mean if rates jump at the beginning of 2013, especially if Washington seems to be on the cusp of some sort of tax deal. Geithner could opt to not adjust withholding to reflect the new rates, either in anticipation or hope of a new deal reinstating lower rates.  


Geithner's ability to usurp Congress' authority (derived by stretching that "most appropriate" clause) is limited to the withholding element; if the White House executes this strategy under the assumption that a deal is forthcoming, but one never materializes, taxpayers would face some major sticker shock next April.  And just for the edification of Lefties who shrieked about the "imperial presidency" under Bush, the Obama Administration has routinely sought to achieve policy ends through executive power plays when Congress has stymied the president's will.  Prominent examples include executive end-runs on the DREAM Act, No Child Left Behind, welfare reform, the Defense of Marriage Act, and Cap and Trade.  As House Republicans continue gaming out their options as the fiscal cliff approaches, various iterations of a "two bill" solution are being discussed.  The broad strokes:
 

House Republican leadership staffers have privately discussed — but mostly dismissed — the idea of passing two tax bills: one to extend all rates, even for families making above $250,000 annually; and a second to extend just middle-class income rates, along with a patch to the Medicare reimbursement rate and alternative minimum tax. Both would pass the House, the thinking goes, but only the Democrat-favored one helping the bottom 98 percent of earners would make it through the Senate… Republican aides see the dual-tax bill proposal as a loser for GOP lawmakers committed to extending all the Bush tax rates, which are set to expire at year’s end. Pursuing the plan — absent major concessions from Obama on entitlement reform — would be akin to waving a white flag on the central issue of the lame-duck session, they argue.  


Yeah, this would be a capitulation, despite the fig leaf of allowing Republican lawmakers to vote in favor of maintaining current policy.  Nevertheless, it might be useful as an eleventh-hour tactic that allows GOP lawmakers to save some additional face while implementing Rand Paul's version of "let it burn."  (In short, Republicans would oppose, but not block, Democrats' tax increases, which would he wholly owned by Team Blue).  Another creative move might be for Republicans to insist that the bill reflect a permanent extension of middle class tax rates.  A go-to Democrat talking point over the last few weeks has been underscoring the urgent need to provide certainty for the middle class.  Here's DWS on CNN:
 

SCHULTZ: The president has repeatedly said there's plenty of room for compromise. But really what this boils down to is a matter of fairness and a matter of math. Giving certainty for the middle class, that is absolutely essential. I mean there is no way mathematically, if you look at the Republican's proposal, that you can get to the kind of deficit reduction that we need to with preserving the middle class tax cuts by not increasing as the Republicans refuse to do the upper tier rates. And there's room for discussion, but that has to be part of the package.

BLITZER: So the 39.6 percent, that's not a red line?

SCHULTZ: As far as I know and the conversations I've had, the president has said there's room for compromise...The math does not work when it comes to making sure we preserve the certainty -- that we get certainties for the middle class, that we make sure that we get the kind of deficit reduction that you need, and you can't do it without increasing the tax rates on people who make more than $250,000.  


Okay, Democrats, how better to provide ultimate "certainty" than to make Bush's middle class tax cuts permanent?  Tellingly, at various stages throughout this debate, the president has only called for a one-year extension of those tax cuts.  Many liberals are already plotting major middle class tax increases to finance a burst of new spending, a reality of which many Americans aren't yet aware.  Sure, a majority is okay with some hikes right now...because the "balanced approach" is being presented as only affecting the wealthiest Americans and has been (misleadingly) proposed within the context of deficit reduction.  If Republicans press to make the current rates permanent for the middle class, Democrats may balk, exposing their true intentions in the process.  They realize that current spending levels cannot be sustained by simply soaking the rich, and they're quietly banking on broader tax increases in the not-too-distant future.  The American people deserve to know about this, and Republicans can help educate them on this point by offering the permanency bill.  If cornered Democrats go along with the idea, they'll partially handcuff themselves for future tax debates.  If they resist, Republicans can pounce, taking up the mantle of defending the middle class from looming tax increases that Democrats are hiding up their sleeves.


UPDATE - The Wall Street Journal this morning urges Congressional Republicans to hold steady, even as some members are openly discussing caving on taxes.