A few days before the election the media is replete with pundits who cite the “anger” of the electorate as the reason why incumbents are in jeopardy, why the Tea Party is in ascendancy and why so many House and Senate seats are in play and are likely to go Republican. This anger derives from excess spending and higher taxes. While there is no question that anger is out there, it is only one of many factors that animate the electorate. Moreover, most people haven’t yet felt the actual impact of higher taxes and hence this factor is presently theoretical. That is about to change, and the politicos and the President haven’t a clue as to what is screaming down the tracks, for what has been theoretical is about to become very, very real. A number of factors are coalescing into a perfect storm.
The amount of withholding for Federal income taxes is controlled by tables provided by the IRS. We all know that the Bush tax cuts are scheduled to expire on December 31, 2010 and most commentators believe that no matter who wins the election, they won’t be reinstated in the near future. If the Democrats maintain their majorities, they will insist that any reinstated cuts apply only to lower incomes and the Republicans will not go along. If the Republicans take either the House or the Senate, it is likely that they will attempt to reinstate all the cuts only to face Obama’s veto. This stalemate means that taxes and the withheld amounts are going up.
Contrary to the “tax cuts for the rich” meme, the Bush tax cuts affected all tax brackets. The tax rate for the lowest bracket for singles ($0 to $8,500) will increase by 50%. Only the $8,500 to $34,550 will not change and that means that the great middle class is going to get slammed.
While the withholding tables for 2011 have not yet been published, but as is described in the Economic Policy Journal.com, with the current uncertainty as to 2011 tax rates, “. . . the IRS is likely to send out 2011 withholding schedules assuming no Bush tax extension.” These schedules are mandatory.
The next component of this perfect storm is the fact that the paychecks for a vast number of employees are directly deposited into their checking accounts. While it is difficult to determine the percentage of employees who are paid in this fashion, there are estimates that range from 50% to as high as 70%.
As a consequence, many people really don’t monitor the net amounts they receive on a real time basis.
Moebs Research Services, an economic research firm reports that 87% of bank account holders do not reconcile their bank statements.
Yet virtually all of these people write checks and use debit cards which draw on the same accounts, and a very substantial number of these people live on a “budget” that consumes most of their paychecks (the so called “paycheck-to-paycheck” life). Since such budgets are informal, the common scenario is that the account holder gets used to how much they can spend not because they reconcile their accounts, but rather by frequently checking their balances and stumbling against an occasional over -draft with the consequent fees. After a few monthly cycles, they have an intuitive sense of how much they can spend and they tailor their spending accordingly. The account holder hit by an overdraft charge will not be happy, but is consoled that at least the check didn’t bounce or the debit card wasn’t declined.
But overdraft fees were one of the perceived evils that were addressed in the Financial Reform legislation. No longer could a financial institution automatically provide overdraft protection to account holders and charge fees when the protection was utilized. Instead, there had to be a written request from the account holder together with a raft of disclosures by the institution. We are going to find out real soon how many folks affirmatively opted for overdraft protection. Millions did not and many who did, never anticipated that they would use the service.
And now the perfect storm arrives.
In January of 2011, millions of Americans who through 2010 relied upon there being a certain amount of money deposited into their accounts monthly by their employers and who have managed their spending accordingly, will discover part way through January that because of the substantial increase in withholding, their paycheck deposits will be much less. For those without overdraft protection, checks will bounce, debit cards will be declined, and household budgets will be busted. For those who did opt for overdraft protection, unexpected overdraft fees will be incurred. About 2/3rds of the way through the month, many people will discover that they are out of funds for the month. Household bills will not have decreased nor will the bills resulting from holiday expenditures. For the first time, the impact of Obama’s tax policies will hit millions of homes in a very real fashion.
Were we talking about angry Americans?
Well hopefully the great unwashed know how to adjust their W4’s. If they don’t, then they’re willing to be sheeple and they probably either don’t vote, or vote for pols that promise to give them something back, ie, Democrats.
The GOP needs to get on message ASAP that games will be afoot to cast blame on the GOP for ANY increase in taxes or changes that americans haven’t heard are coming. The media will be all too willing to cast everything they can to taint the GOP landslide and the neccessary adjustments that they’ll need to do.
Just watch as the media goes hog wild after this election. It is going to be a freanzied effort to paint the GOP and tea party patriots as zealots and uncaring psychos.
The Dems will get a free ride. The GOP in Congress must anticipate this and make sure everyone knows, that they know it’s coming and the negative press and made -up stories are not going to keep them from doing our business.
I hope this is what the GOP will do. We’ll see.
Perhaps you should add one more component to your perfect storm. That January pay stub is going to reflect a much higher contribution to health insurance for many workers. If the ruling class thinks people are angry in November just wait a couple more months when reality bites that segment of the population that aren’t normally politically involved.
All the GOP has to do is keep submitting tax a reduction bill and to have The Won veto them. After the third attempt every Kommiecrat will vote to override the veto as the remaining Ds will be on death watch for ’12.
God darn I just love a pat hand with Aces in the hole and the secound best hand keeps raising.
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I think I’ll get off the wagon Wednesday and get drunk…I’ll already be giddy.
Red states generally get more money back from the federal government than their taxpayers pay in. Blue states generally get back less.
Maybe there’s something to be said in favor of stopping this socialist redistribution of the wealth, after all.
red state, blue state, welfare state, subsidizing state
Who cares what the media writes about the incoming GOP.
They should just go about their business as the voters intended. The media didn’t help Big O in this election cycle. There is plenty of places on the web to get the real story.
To the college journalism professors, keep putting out those liberal zealots and you’ll soon be as relevant as the pony express and the Telegraph.
@ Greg, Really? Explain this…
Budget Nightmare: 10 Most Broke States
http://abcnews.go.com/print?id=8016634
(PS…Blame Bush or the Republicans is the wrong answer.)
@Greg,
The simple answer to your simple pseudo-hypothesis (or whatever you want to call it) is this:
It’s not that simple, and you know it. Or do you?
At the risk of overstating the obvious, the federal government is not just a gizmo that gives back “Y” dollars for every number of “X” dollars fed into it. If it really was that simple, you might have a point. However, even most 5th graders know that the government doesn’t function just as a “money-changer,” and people don’t vote based solely on their state’s “return on investment” in the federal government (now THERE’S an oxymoron for you!)
As OT2 has pointed out, it’s not about how much money a state gets back from the federal government for every dollar of tax revenues it sends in, but rather about fiscal (mis)management. Our state and federal governements have shown time and time again that it’s so easy to spend but so hard not to. Deficit spending has gotten out of hand, and bailouts of the politically connected is salt in the wound. Conservatives are more vocal about this political favoritism carried out under the guise of social progress or “spreading the wealth.” People are getting wise to the power game that BOTH major political parties play.
True conservatives want to see government officials acting in a fiscally responsible manner, but it doesn’t stop there. Political correctness, deviations from the rule of law by government officials, the never-ending expansion and intrusion of government, and unbelievable displays of arrogance are just a few of the other issues that have gotten people fed up. Both of the major political paries have shown their contempt for the average citizen and tax-payer, and it’s not surprizing. People hate to give up anything they see as a perk or advantage. Our politicians are no exceptions as a whole, though some do seem to treat public service as servicing the public instead of fat-catting it on the public dole.
I would LOVE to see government officials live under the same set of rules they impose on the general public. Until I see real progress in that direction, I can’t imagine NOT staying mad as hell.
Anyone else notice what the Gregster’s source, and Greg himself by extension, is attempting to perpetuate there?
His source took 2005 fed spending and applied red or blue labels to the state names according to how they voted for Obie in…2008.
Of course, if one were intellectually honest, one would have to take Obie’s spending and apply those numbers to the list of state names. But then you get into the conundrum about the states being basically forced to take federal dollars being pushed down the pipeline from DC.
There are 1001 reasons why various states get various levels of fed gov’t money. The presence, or lack of, federal facilities such as military bases to name just one.
We had a small state refund coming in April, but since the state “needed” the money, they decided to keep our money until July. That won’t happen again because we filed a new W-4 to insure that we won’t overpay.