Tax Lawyer's Blog

“Necessity is the mother of invention.”

- Plato -

Experience tells us that spendthrifts are often forced by necessity and desperation to find creative ways to fund their profligate spending. Some turn to gambling, others to confidence games and still others to outright theft.

This phenomenon can be observed in governments as well as individuals.

Here is the latest in a long line (see Related Posts at the end of this post for other instances) of Congress’ creative and cowardly ways of taxing the middle-class.

SusanAnne Hiller writing for Andrew Breitbart’s Big Government blog alerts us to some sneaky tax increases hidden in the 2010 withholding tables in Congress Tinkers with Tax Withholding Tables for 2010:

Here are some of the “highlights” of the new 2010 withholding tables: 

1.) Congress has lowered the threshold to capture more wages that qualify to owe taxes–across the board. For example, in 2009 the withholding tax threshold began at weekly single wage levels of $138. In 2010, that same wage is lowered to $116. In short, instead of the taxable wage starting at $138, it is now down to $116–which changes the income threshold and taxes even poorer Americans.

For married couples, the change in the weekly base taxable wage changes from $303 in 2009 down to $264 in 2010. These lower wage thresholds can be seen throughout the new withholding charts for weekly, biweekly, semi-monthly, monthly, quarterly, semiannual, and annual, as well as daily and miscellaneous pay periods.

This across-the-board reduction in the initial wage threshold increases the number of wage earners who would have to pay taxes.

2.) Instead of seven (7) wage categories, there are now nine (9) wage categories. The new structure allows for direct taxation on the middle class with these wages broken out into smaller categories. The direct hit on the middle class withholding taxes can be seen on all of the new tables. Additionally, the IRS could not explain these changes.

Here are the 2009 Tax Withholding Tables:

2009 Biweekly, Single, Payroll Period, after subtracting withholding allowances

Not over $276: $0 in taxes
Over $276 – $400: 10% payroll tax
Over $400 – $1,392: $12.40 plus 15% of excess over $400
Over $1,392 – $2,559: $161.20 plus 25% of excess over $1,392
Over $2,559 – $6,677: $452.95 plus 28% of excess over $2,559 (Notice the large salary range)
Over $6,677 – $14,423: $1,605.99 plus 33% of excess over $6,677
$14,423: pays $4,162.17 plus 35% of excess over $14,423

Compare those to the 2010 Tables: 

2010 Biweekly, Single, Payroll Period, after subtracting withholding allowances

Not over $233: $0 in taxes
Over $233 – $401: 10% payroll tax
Over $401 – $1,387: $16.80 plus 15% of excess over $401
Over $1,387 – $2,604: $164.70 plus 25% of excess over $1,387
Over $2,604 – $3,248: $468.95 plus 27% of excess over $2,604 (Notice the large salary range is gone)
Over $3,248 – $3,373: $642.83 plus 30% of excess over $3,248 (Notice the substantial increase and 30% tax rate on these wages)
Over $3,373 – $6,688: $680.33 plus 28% of excess over $3,373
$14,450: pays $4,169.99 plus 35% of excess over $14,450

Hiller has five questions about the Withholding Table changes:

1. Why would the Democrats tinker with the withholding taxes and, ultimately, cause more stress on Americans and businesses?
2. Why would the Democrats create more wage categories and deliberately target the middle class with a huge withholding increase and 30% tax rate?
3. Are the Democrats trying to backfill the deficits they created in 2009?
4. Because taxpayers will have overpaid the federal government payroll taxes, will they be eligible to get back this additional withholding money in a tax refund when filing in 2011?
5. Do taxpayers in the hardest-hit wage categories even realize that their paychecks are going to be significantly lower, unless they make the necessary changes?

She doesn’t expect them to be satisfactorily answered anytime soon:

Maybe there is a good explanation for the increase in the withholding taxes from 2009 through 2010, but I remain skeptical, because inherently Democrats do not have the capacity to reduce taxes and typically make up the revenue somehow.

Word on the street: The new Withholding Tables will not apply to Senator Ben Nelson’s (D-NE) constituents.

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