3 Facts to Ponder on a Friday Morning
1. IRS announces new withholding rules. The IRS came out with guidance yesterday reminding employers that they should begin withholding the Social Security Tax at the rate of 6.2 % of wages paid now that the temporary 2 % payroll tax cut in effect for the last two years has expired. They should start doing so as soon as possible, but no later than February 15, 2013. This is one of the most bizarre aspects of the whole fiscal cliff debate. On the one hand, Congress and the President decided to keep income tax rates lower for the vast majority of tax payers, but neither party did anything to save a tax cut that almost all Americans have to pay.
2. Next week is shaping up as a big week for regulations. Both NAFCU and CUNA anticipate that the CFPB may start rolling out the mortgage regulations mandated by Dodd-Frank and NCUA has a board meeting scheduled for next Thursday. The agenda includes finalizing a regulation giving NCUA the authority to independently determine that a state chartered credit union is “troubled.” Another proposal under consideration would change the definition of a “small” credit union from one with $10 million or less in assets to one with $30 million or less. The change is significant because these credit unions are eligible for exemption from certain regulatory requirements.
3. Much ado about nothing? Wall Street reacted negatively to the release of the December minutes of the Federal Reserve Board’s Open Market Committee. The minutes indicated that some members are willing to pull the plug on the FED’s aggressive bond buying program as early as the end of 2013. But Wall Street’s reaction to this news reminds me of what the great Boston Celtic center Bill Russell said about fans: they don’t think, they react. It shouldn’t surprise anyone that some members of the FED think that the bond buying program should be ended sooner than later. However, a review of the minutes demonstrates a consensus that the economy is weak but growing. In its December statement, the FED explicitly linked the continuation of the bond buying program to an inflation rate of 2.5% and an unemployment rate falling to at least 6.5%. If either or both of those triggers are reached, then the FED will take action irrespective of when these thresholds are actually met.