Ready For Pay Cut?

D-Day: It's one thing when the wonks tell you to get ready for a tax hike that may or may not come. It's another when your employer tells you he's getting ready to cut your take-home pay and give it to the tax man.

That's what's happening right now, and those who still have jobs should take notice. If Congress fails to extend the Bush-era tax cuts due to expire Dec. 31, Americans at just about every income level will see their taxes rise — in some cases dramatically.

A story by Bloomberg News notes that it takes weeks for the IRS to prepare new withholding schedules. Normally, the tables are issued in mid-November to give employers time to prepare. But this year Congress left open the possibility it would do something about the expiring cuts, and employers have been left wondering what to do.

"I've been doing payroll for probably close to 30 years now, and never have we seen something like this where it gets that down to the wire," Dennis Danilewicz, the payroll manager at New York University's Langone Medical Center, told Bloomberg.

The Democrat-controlled Congress didn't address the issue before recessing for the midterm elections. So companies are preparing for the worst. A Bloomberg headline Wednesday said it all: "Employers in U.S. Start Bracing for Higher Tax Withholding."

The impact could be significant. Professor Michael Graetz of Columbia University recently estimated in the Wall Street Journal that letting the tax cuts expire will cost the U.S. economy $10 billion a month in added withholding from paychecks.

Goldman Sachs economist Alec Phillips estimates letting the Bush cuts expire could slash "nearly 10 percentage points" from disposable income growth in the first quarter of next year, and nearly two percentage points from GDP in the first half.

With GDP now at a tad above $14 trillion, the impact could be $280 billion or more in the first six months alone.

In short, the higher taxes could very well push us back into recession — at a time when the economy is struggling under 9.6% unemployment with little if any private-sector job growth.

What's most worrisome is what it will do to the working taxpayer. His or her take-home pay is about to fall, leaving noticeably less to spend and save.

A married couple without children and an annual income of $80,000 would have an added $221 taken from their paycheck every two weeks, the Bloomberg report says, quoting the H&R Block Tax Institute. That jumps to $558 for couples bringing in $240,000.

Data from the Tax Policy Center show even those with modest family incomes would take a hit. For example, a couple with income of $60,000 and four children can expect to pay $130 more every two weeks to Uncle Sam. It doesn't get much better for those who make just $40,000. They'll find about $108 more withheld every other week.

This will have a serious impact on our struggling economy at a time when we can least afford it. It may be a big reason why, in poll after poll, Americans have expressed increased disgust with the Democrat-led Congress. Our own polling shows that 80% of Americans want the tax cuts made permanent or extended at least until the economy recovers. And this includes 74% of Democrats.

Congressional Democrats, however, seem incapable of grasping the damage they've done with their trillions in new spending and debt in the name of "stimulus," while refusing to halt what amounts to the largest tax hike in history.

Fortuitously, the names of most of them will appear on Tuesday's ballots.