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Author: brucedoe Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121095  
Subject: Withholding Increase Date: 1/31/2011 9:33 AM
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My withholding increased 6.3% for 2011 even though my income has remained the same (minus the increase in Medicare B payments). I have some memory that the withholding last year was decreased and checking back, indeed it was. This was called a tax reduction at the time, which I have never understood.

If this reduction in withholding caused you to under withhold your income taxes then you would just have to come up with more money in 2011 to pay your taxes, but you probably spent that money in 2010 perhaps putting you in a bind when you pay your income taxes in 2011.

But if you ordinarily over withhold (essentially forced savings), you get less money back in 2011 to spend but more money in 2010. It seems like this is robbing the future to benefit the present.

Either way, people are going to have somewhat less to spend this year than last so to boost the economy a little last year will take away from the economy this year. This is only beneficial to the economy if the economy is in enough better shape this year than last (which it may be) to overcome the loss in income in 2011.

It used to be said that it was bad to overwithhold your income taxes because you were giving the government an interest free loan; however, in this age, savings pay essentially nothing so it really doesn't matter that much. If your decrease in withholding was big enough to let you buy a Treasury bill, the interest on the last quarter would be something like 0.16%, the third quarter would be 0.17%, and the first quarter would be 0.185% (Is there a 9 mo. bill?). On a thousand dollar Treasury bill paying 0.185%, your annualized income would be only $1.85 which might get you a cup of coffee. You will not do much better in a CD.

The government did the same with Medicare when it made no increase in payments for 2009. When the large increase came in 2010, people screamed bloody murder. and this to a program that was already in trouble.

This same thing is being repeated yet again with the 2% lowering of the individual Social Security payments for 13 months. Again, a day of reckoning is coming on SS. Of course the whole extension of the temporary income tax reductions hurts the economy even more, but then I have yet to see any specific budget decreases by anyone except the president, and his are baby steps. I don't expect anything much to happen. Whatever happened to jobs, jobs, jobs? http://stopcontinentaldrift.blogspot.com/2011/01/whatever-ha...

brucedoe
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