Obama Administration Could Freeze Tax Withholding at 2012 Levels to Blunt Fiscal Slope Impact in Early 2013

The lame duck session will, at best, provide a temporary fix for the fiscal slope, according to House Speaker John Boehner. He expressed a philosophical opposition to a lame duck session passing major legislation – “lame duck Congresses aren’t known for doing big things and probably shouldn’t do big things” – that probably looms larger than anything. So the best-case scenario is some kind of stopgap that kicks things into next year, from the perspective of avoiding the slope.

But Democrats have a strategic interest in going over the slope and starting negotiations from a different point of leverage. Notably, when pressed, Boehner only waved at “some kind [of] temporary push back of the sequester,” saying nothing about the Bush-era tax cuts. Democrats could allow them to expire and then come back with a tax-cut package that changes the dynamic for Republicans, who would not vote for a tax increase.

What of the impact to the larger economy if all the tax rates expire? That includes a patch to the alternative minimum tax so it doesn’t hit families at the upper edge of the middle class.

The thing is, Congress doesn’t get much say in how taxes get administered after they set the rates. So the executive branch could maneuver quite a bit to minimize the fiscal impact of the tax rates, just as they could on the sequester.

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