Geithner's Secret Tax-Rate Freezing Powers

Despite all the overtures from lawmakers who say they’re ready to compromise over the fiscal cliff, the Obama administration is exploring one way it could blunt a recession if Congress doesn’t sew up a deal by yearend. Failure would result in a jump in income tax rates at all levels, meaning more money taken out of people’s paychecks. Enter U.S. Treasury Secretary Timothy Geithner. The tax code gives him broad latitude to set withholding rates, and he could freeze the current levels to stave off effective pay cuts. Geithner said in an interview on Nov. 16 that Congress shouldn’t use his power as an excuse not to work out a deal, though. “It does not give me the authority,” Geithner said, “to let them avoid making some decisions on rates and policy.”

A freeze would cut by half the projected economic fallout in 2013 if the U.S. goes over the cliff. Mark Zandi, chief economist at Moody’s Analytics, says the move would keep $10 billion in taxpayers’ pockets about every two weeks and prevent a monthly hit of 1.5 percent to gross domestic product. It could help maintain current levels of consumer spending, though it wouldn’t prevent stock market declines, he adds. “We’re not going to get away scot-free if we freeze the withholding schedule,” he says. “It will help.”