The deadline is midnight for Congress to pass a budget deal that would prevent taxes from increasing to levels in existence during the Clinton administration. Along with the 2 percent increase in payroll tax, Congress’ failure to beat the Jan. 1 deadline for avoiding the so-called “fiscal cliff” will end extended unemployment benefits for about 2 million people, increase capital gains tax, and implement $109 billion in government spending cuts between January and September. The increases in taxes and cuts in spending are expected to total about $500 billion.
Local business owners are especially interested in the impact a failure to reach a deal would have on payroll withholding.
“In discussions with chamber members and business owners, there is a lot of frustration with Washington D.C.,” said Lyle Butler, president of the Manhattan Chamber of Commerce. “They are frustrated with the federal government, Congress specifically, that they can’t get anything done.”
Butler said at the beginning of December, most business owners were optimistic about Congress passing something before the deadline, but that has turned into pessimism.
The Senate passed a tax reform bill in July, and included a similar measure in the Sandy Hook Disaster Relief bill passed on Friday. But neither bill has gained traction in the House of Representatives.
Local business owners are waiting to see what happens before making any changes to payroll.
Randy O’Boyle, president of ICE Corp., thinks everyone is a little unsettled because there is no “good pool of wisdom to draw on.” He said if Congress does not pass any tax relief before Jan. 1, he will withhold the higher taxes from paychecks as a precaution. He said it is better to take out the higher taxes and give that money back to employees than not take it out, and hit employees with larger tax withholdings later. If Congress does pass a tax plan that reduces taxes after Jan. 1, it could make those tax cuts retro-active.
“Employees will always be taken care of,” O’Boyle said. “Business owners want to do what’s best for them.”
But O’Boyle’s is a relatively small business. Butler said medium to large businesses may not have that same flexibility in how they handle their withholding.
“Right now, they don’t know what to change [tax rates] to,” Butler said. “Medium and large businesses might not be able to implement that until after the first pay checks.”
The city’s biggest employer, Kansas State University, is on vacation until Jan. 11, ensuring that any changes in withholding rates there will not be implemented immediately.
Larry Heyka, market president at Landmark National Bank, said some local businesses are reacting to the lack of clarity by putting plans on hold until after Jan. 1.
“The biggest problem is it creates a lot of uncertainty,” he said. “People who are planning expansion are … not wanting to invest capital until they see what happens.”
He said if people don’t have the confidence, they won’t buy, which is not a good outlook considering the economy is “real close to recovery.” He said Landmark’s payroll isn’t due until the middle of January, so they have some time to adjust to any changes to payroll tax.
Not everyone is spending a lot of time worrying about what Congress does. Fred Willich, president of Hi-Tech Interiors, said he isn’t doing anything until after Jan. 1, and isn’t going to worry about it either.
“There’s no point in worrying about something that may or may not happen,” he said. “Everybody is going to be in the same boat as I am, and I don’t know what that will be.”