Monday, February 09, 2004
Taxman
You remember, of course, that Congress passed, and President Bush signed, major tax-cut legislation last year. But you may not recall that the Bush administration opted not to fully adjust withholding tables -- used by employers to determine how much income to set aside for taxes -- following those midyear reductions, leaving millions of taxpayers over-withheld for the year. . . .
. . . The over-withholding occurred because the tax cuts, though enacted in May, were retroactive to the beginning of the year. The withholding tables used by employers until that point, of course, were based on the higher tax rates. When it issued new tables, the Treasury Department could have adjusted them to take the earlier, higher withholding into account so that taxpayers could get more money sooner, and would come out about where they usually do in terms of a refund.
But that would have made the withholding too low to be used for a full 12 months, thus requiring yet another adjustment at the beginning of this year, one that might have looked to a lot of people like a tax increase. So when the new tables lowered withholding, beginning last July, they matched the new, lower tax rates at that point but ignored the previous higher withholding. When workers file their 2003 returns they'll get back last spring's over-withholding as a lump, which they may choose to spend and perhaps boost the economy in an election year.
Interesting how this fancy arithmetic was done during an election year.
posted by chris at 4:22 PM
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