Tax Withholding Plan May Backfire : Economy: The idea was to give taxpayers part of their refund back early. But companies say many employees want the old system back.
President Bush’s effort to help jump-start the economy by cutting the amount of federal taxes withheld from paychecks seems to be backfiring.
In the three weeks since the plan has been in effect, companies across the nation say they have been flooded with requests to change withholding back to what it was before the President decided to slightly boost take-home pay for most Americans by taking out a little less in taxes.
“We are getting 200 to 300 requests per day for changes in withholding,” said Ken Preston, a spokesman for First Interstate Bancorp in Los Angeles. “Employees are asking the company to withhold more.”
This is clearly not what Bush envisioned when he announced in his State of the Union address in January that the government would help low- and middle-income taxpayers by taking out a few dollars less in taxes from their paychecks each week.
The change was not a tax cut. It simply was meant to give taxpayers a portion of their tax refunds during the year. Single taxpayers were expected to see a boost averaging about $172 per year, while those who are married filing jointly were expected to see a $345 increase on average. The bulk of the nation’s taxpayers would still get tax refunds, but the amount of the refund would be a touch less.
But many economists believe that the idea was ill-fated to start with--destined for poor acceptance and unlikely to spur any sort of significant economic recovery.
“Intuitively you can sense that getting a big lump sum later on is more attractive (to consumers) than getting a dribble during the year,” said Gary Schlossberg, senior economist with Wells Fargo Bank in San Francisco.
Indeed, Schlossberg believes that the economy will be better off if consumers reject the withholding revisions en masse. Big tax refunds are more likely to spur consumer spending than little boosts to weekly pay, he noted.
Even Administration sources acknowledge that the government is learning firsthand how much Americans like their refunds.
“Obviously we hear some comments about people electing out,” said Fred Goldberg, a Treasury assistant secretary in charge of tax policy. “But that’s the point. That’s their decision, not ours.”
Washington insiders seem surprised that some taxpayers seem annoyed with the changes.
“I would have liked somebody to ask me,” said Yolanda Martin, a South Gate-based analyst who works for an environmental concern. “I could be in trouble at the end of the year when all of a sudden the government starts taking less.”
Like First Interstate, companies in a wide array of industries said their payroll departments have been deluged with similar requests:
* At Southern California Edison, about 2,000 workers, or roughly 11% of the work force, have boosted their withholding in just the past three weeks, said Kathy F. Fong, unit manager of corporate payroll.
* New York-based AT&T; said it has been getting at least 100 calls a week solely because of the withholding changes. However, the company has not yet determined how many of these workers actually changed their withholding.
* Great Western Financial Corp. of Beverly Hills has also not yet compiled statistics on the withholding changes, but the volume of requests has been “very significant,” according to spokeswoman Linda Mueller.
