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Timothy Geithner Could Single-Handedly Help U.S. Avoid 'Fiscal Cliff' Recession

Tim Geithner's Secret Weapon
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Economics writer

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Treasury Secretary Timothy Geithner testifies on Capitol Hill in Washington, Thursday, July 26, 2012, before the Senate Banking Committee hearing: "The Financial Stability Oversight Council Annual Report to Congress." (AP Photo/Haraz N. Ghanbari)

Tim Geithner has a secret weapon, one that could help the country avoid a recession caused by the fiscal cliff.

The Treasury Secretary could freeze paycheck-withholding levels -- the government's cut out of each paycheck -- even if tax rates rise at the end of the year, Bloomberg reports. By letting taxpayers keep about $10 billion per pay period, that would single-handedly curb about half of the economic effect of the fiscal cliff and help the country avoid a recession.

The Obama administration and Congress are negotiating a deficit reduction deal in hopes of avoiding the fiscal cliff, a set of tax hikes and spending cuts scheduled to take place on January 1. Economists warn that the combination could push the country into a recession.

Obstacles remain on the path to compromise, especially with President Barack Obama remaining at odds with Congressional Republicans over the Bush-era tax cuts. Congressional Republicans oppose raising marginal tax rates, or the rate at which the top share of income is taxed.

Democrats also are reluctant to go down the Republican-proposed path of slashing spending on Medicare, Medicaid and Social Security.

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Before You Go

10 Ways You've Already Fallen Off The Fiscal Cliff
Residential Energy-Efficiency Credits(01 of10)
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No tax breaks for being green in 2012. Homeowner investments in energy-efficient double-pane windows or high-efficiency refrigerators, don't get any tax benefit. More than 43.5 million Americans have filed and received this benefit, with an average reduction in tax liability of $765.84, according to H&R Block. (credit:Shutterstock)
Mortgage Insurance Premiums(02 of10)
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Bad news for homeowners: They cannot write off mortgage insurance premiums on 2012 tax returns. Congress can act to reauthorize these deductions retroactively to Jan. 1, 2012, and extend them through the end of 2013, but that would cost the government $1.3 billion over the next decade, the Los Angeles Times reports. (credit:AP)
Adoption Credit(03 of10)
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Taxpayers who have out-of-pocket adoption expenses or who adopted a child with special needs can only claim the adoption credit to the extent of their tax liability. While the portion of the credit not taken into account in 2012, up to $12,650 per child, is carried forward to future years, the benefit is no longer fully refundable, according to tax experts. (credit:Shutterstock)
Alternative Minimum Tax(04 of10)
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If the alternative minimum tax legislation is not retroactively patched for 2012, current law could result in an increased tax liability for up to 34 million Americans. According to a study by the Tax Institute at H&R Block, an average family making $85,000 with children in college could see their tax liability soar from a $1,056 refund to owing $1,400. (credit:Shutterstock)
American Opportunity Tax Credit(05 of10)
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Tuition bills will be higher starting on Jan. 1 because families will lose the $2,500 American Opportunity Tax Credit, which ends in 2012 unless Congress takes action. More than 2.4 million Americans claimed this deduction in 2009, resulting in a combined decrease in taxable income of $5.4 billion, according to tax experts. (credit:Shutterstock)
Payroll Tax Credit(06 of10)
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Paychecks will be smaller starting Jan. 1, 2013. An American making $50,000, for example, will lose $80 in monthly pay after the credit ends. The temporary credit also has lowered the amount workers contributed to Social Security by 2 percent. (credit:Shutterstock)
Educator Expense Deduction(07 of10)
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Teachers lose their $250 maximum deduction on expenses related to buying school supplies. This credit expired at the end of 2011, and teachers won't be able to claim this benefit on their 2012 taxes unless Congress takes action. In 2009, more than 3.8 million teachers claimed this benefit for a combined deduction of $9.7 billion, according to H&R Block. (credit:AP)
Sales Tax As An Itemized Deduction(08 of10)
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Taxpayers will no longer have the option of claiming an itemized deduction for state sales tax in lieu of state income tax. This expiration will have a greater impact on taxpayers who reside in a state with sales tax, but no income tax, including Alaska, Florida, Texas, Nevada, Washington, South Dakota, and Wyoming. (credit:AP)
IRA Retirement Funds(09 of10)
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Taxpayers over age 70½ no longer have the option of directing their income from an IRA distribution to a charitable organization. Starting this year, older taxpayers must include the distribution in income and claim a charitable deduction, resulting in a potentially higher tax bracket and a need to itemize instead of claiming the standard deduction, according to H&R Block. (credit:Shutterstock)
Later refunds(10 of10)
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As if losing all those tax credits was not bad enough, the earliest date to file a 2012 tax return electronically has moved back to Jan. 22, 2013. As the IRS has indicated that refunds could take as long as 21 days to process this year, a refund in January to cover Christmas credit card payments, winter heating bills, or rent is unlikely. (credit:AP)
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