Paycheck Withholding: A Con on Taxpayers

Fox News ^ | August 29, 2002 | Radley Balko

[WaterDragon]

About a month ago, I wrote a column criticizing politicians for giving the government more power over the accounting practices of private industry.

That's because when it comes to "cooking the books," as they say, our elected leaders are regular Bobby Flays.

[newgeezer]

Is FoxNews on the do-not-post-entirely list?

Paycheck Withholding: A Con on Taxpayers

Thursday, August 29, 2002

By Radley Balko

About a month ago, I wrote a column criticizing politicians for giving the government more power over the accounting practices of private industry.

That's because when it comes to "cooking the books," as they say, our elected leaders are regular Bobby Flays.

That column triggered a pretty overwhelming response. Yes, respondents wrote, we agree. The U.S. government -- and Congress in particular -- have been manipulating the federal budget and growing the size of government for years. But what can we do about it?

That's a tough question. "Write your congressman" rings hollow. Lots of offices on Capitol Hill still aren't receiving mail. And besides, what power might one letter have against 40 years of expanding federal hegemony?

But over the last month, I've been reading an unsettling, but important book, Dependent on D.C.: The Rise of Federal Control Over the Lives of Ordinary Americans, by Charlotte Twight, an economics professor at Boise State University. Twight documents in grand detail how over the past several decades, politicians have used gradualism, special interests and outright deception to create a state of dependency between American citizens and their government. The book will at once fascinate and infuriate you.

It was while reading Twight's book that I stumbled onto an answer to the "what can we do?" question. It seems to me that the most productive and immediate step we can take toward holding government accountable is to end the federal government’s ability to withhold income taxes from our paychecks.

Think about what withholding does for a moment.

Instead of writing a fat check to the federal government every spring -- a check that would naturally cause you to pause and think about whether you were getting a proper return on your investment -- you're given a "refund" on money the government's already taken from you. For a sizeable lot of Americans, late April and early May bring not headaches and paperwork, but fanciful thoughts of vacations, a new TV or, at least, a night out for dinner.

That's a pretty nifty trick the government's pulled. Because that "refund" you get really isn't a refund at all. It was your money all along. The government took more money from you then was needed, used the excess to collect interest, and then returned it to you, almost certainly at a value less than when you earned it. And yet you're elated when you get it!

Withholding tips the scales against the taxpayers, and in favor of government.

It takes government out of the nasty business of collecting income taxes and imposes that burden on private employers. Why should American businesses be forced to do the accounting and paperwork necessary to keep the U.S. government operating?

Withholding not only makes it easier for the government to collect taxes, it makes it easier for politicians to raise them. That's because you never see the money that's withheld from your paycheck. You never need to notice that gaping wound in your bank account once your tax check has cleared. What's more, tax increases are spread out over 24 paychecks, which softens the blow to taxpayers, making tax hikes more politically palatable.

In her book, Twight delves deep into congressional testimony, newspaper articles and federal records to document how our current withholding system was passed into law, known as the 1943 Current Tax Payment Act.

Proponents of the act showed no bounds in soliciting public support for withholding.

Politicians and U.S. Treasury officials tapped into American patriotism, imploring taxpayers that a bit of sacrifice at home paled in comparison to the sacrifice "our boys" were showing on the battlefields of Europe and the Pacific.

Americans were further assuaged with an alleged one-year "tax forgiveness plan" as the new system was phased in to replace the old one. That plan proved to be statistically dubious. Twight even documents federal Treasury officials referring to it as "a paper forgiveness." The columnist Amity Shlaes, writing for The Wall Street Journal, called it "the most ambitious bait-and-switch plan in America's history."

Withholding proponents also neglected to tell Americans that they would actually be losing money through the withholding plan. That's because the same amount of money taken from a paycheck in January is worth far less than it will be when tax season rolls around 15 months later. The value of money increases over time. In effect, the withholding act was a tax increase, sold to the American public as a tool of convenience.

The federal withholding power was passed with much public manipulation and chicanery, and at a time when America was at war -- and consequently most beholden to and trustful of its elected officials and its government.

Today, the federal government grows wildly out of control. Congress spends well beyond its means, then merely "readjusts" figures -- i.e. borrows from Social Security or shifts figures from one fiscal year to the next -- to compensate. But because Americans are taxed before they ever see the full amount of what they've earned, we remain largely ambivalent about -- or even amused by -- the antics of our elected leaders.

What better way to bring government back into account then to require each taxpaying American to sit down on April 15 and write one massive check to cover his tax burden? Each of us then would have no choice but to evaluate our government's performance, to gauge whether what we're getting is worth what we're paying.

It wouldn't be all that difficult politically. A repeal of the 1943 law would take only a majority of both houses of Congress, and a signature from President Bush. Granted, there would be a bureaucratic logjam as the U.S. Treasury and the IRS struggle to convert from a withholding system to a pay-once-a-year system. Collection would be much more difficult. You'd probably get more tax evaders. More bounced checks. Lots of people would fail to properly save for tax season.

But collecting taxes should be difficult. And it should be done by the government that spends them, not by private employers. When tax collection is easy, spending tax dollars becomes easier, too. And government grows.

A few prominent politicians have already showed some interest in the injustice of withholding. Others could be persuaded. If we're serious about holding our federal government accountable, about limiting its growth, about streamlining its excesses, I can't think of a more significant or productive first step than to end federal income tax withholding.

Radley Balko is a writer living in Arlington, Va. He also maintains a weblog at www.theagitator.com.

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[1Old Pro]

Twight documents in grand detailhow over the past several decades, politicians have use gradualism, special interests, and outright deception to create a state of dependency between American citizens and their government. The book will at once fascinate and infuriate you.

This is obvious. Also, I'd bet most sheeple actually like withholding because it's forced savings to pay their taxes. They probably feel they would spend the money, a fear shared by the government I'm sure.

I do feel that if people actually wrote a check in April (what's with this quaterly payment stuff anyway) they would demand lower taxes.

[Democratic_Machiavelli]

Excellent article!

Reduce-government-waste-bump

[WaterDragon]

For another look at that book "Dependent On D.C.: The Rise of Federal Control Over the Lives of Ordinary Americans", click here.

[maeng]

Great article. Bravo to Fox News author. I hope he keeps on this route and lets the average American taxpayer know how we can combat this draining of our hard earned income.

[Ben Ficklin]

Since 50% of fedgovs is from the personal income tax I have often wondered about a phenomenom that I have noticed about John Q. Taxpayer. Perhaps others have noticed this/can explain this to me.

At the local level such as city, county, school district, hospital district, the taxpayer tends to be tight-fisted. At the state level the tavpayer relaxes some but will threaten to tar and feather the politition. At the federal level the taxpayer is least discerning.

Do people think that actually get more than they give.

[newgeezer]

People such as Alan Keyes have been on top of this issue for many years. Government would be infinitely more accountable to us taxpayers if withholding was abolished and more of us actually had to PAY the taxes, instead of feeling like we're getting a gift from Washington in the form of a refund. (At least those who must pay on April 15 are feeling a little bit of what it should be.)

Withholding is Washington's greatest gimmick of the 20th century. Aside from the 16-year-old getting his first dose of reality, who even stops to look at the gross pay and deductions on the pay stub? Even when they do raise taxes, most of us barely notice. Remember those paper checks they sent as a result of the tax cut? Don't think for a moment that wasn't done without consideration of how that check would feel in YOUR hand. Wasn't that better and more memorable than a trickling into your take-home pay over the course of some weeks or months (or even a direct-deposited lump sum)?

How did it feel to pay for insurance (auto, homeowners, even some life policies) this time around, after 9/11? Did you pause to think about whether you're getting your money's worth? Think about what it would be like to write a check to the Treasury every week or month. Do you think people would maybe care more about where it's going, and how it's being spent, if they felt it was THEIR money going bye-bye?

[WaterDragon]

B_F...I've noticed that, too. And you'll often hear people talking about federal money coming into a state or city as though it's manna from heaven -- not something coming out of the taxpayers pocket!

Thanks, D_M!

[TheBattman]

I do feel that if people actually wrote a check in April (what's with this quaterly payment stuff anyway) they would demand lower taxes.

This is the reason for the relative ease of getting people riled up about property taxes around here (Arkansas) - they have to write that check every year. Unfortunatley, I probably would spend the money.....ashamed, though, that I am.

[Democratic_Machiavelli]

I know for a fact that many people (including myself until a few weeks ago) use their refund exactly as you state. Commercials encourage such stupidity by showing the happy person who files his/her refund with certain companies, which shall not be named, spending money on entertainment equipment, furniture, and just...well...anything that distracts a person from what's around them.

They never tell you that it's a short-term loan from said company in anticipation of the actual refund check (which they keep, as well as the fees for giving you the loan). So, your money gets used by the government as a free loan, and business makes a profit off of people trying to reclaim the money they should have kept in the first place.

As the guy in the comic book store on The Simpson's would say, "Oh, please take my money. I don't want it."

[WaterDragon]

I agree! Hopefully, other conservative writers will pick up on this theme. Put some fire to the feet of the politicians!

[Ben Ficklin]

You will hear the senator/rep talking loudest about how he/she "brought home the bacon".

[WaterDragon]

Isn't that amazing? What a bunch of slick manipulators those guys are! "Dependent on D.C." really goes into all this stuff in detail. Twight describes how the politicians make it extra difficult for citizens to get factual information or to hold them accountable.

[Democratic_Machiavelli]

Unfortunately, yes.

I think it started in 1932 with all the federal programs that were intended to pull America out of the Great Depression it had built for itself. It solidified in the War on Poverty LBJ declared in the 60's. After a couple of generations, we're seeing the results.

[mdittmar]

Every year I hear the same comment from fellow employees,"Wow,I got back $800.00 on my taxes.", "Well I just can't save any other way."

Scary,very scary.

Be wary of strong drink. It can make you shoot at tax collectors... and miss.

[Democratic_Machiavelli]

Bump to Sen. Richard Luger (follow the "prominent politicians" link in the article). Never thought I'd hear a politician say he wanted to dismantle the IRS.

[goo goo g'joob]

this is "a" very large "pro" for a NST - average Joe Taxpayer will soon demand accountabilty of the Fed if he has to pay 17%-25% above and beyond the cost of {small appliance, CD, video rental, tires, hockey tickets, newspaper subscription, etc.}

[maryz]

At the local level such as city, county, school district, hospital district, the taxpayer tends to be tight-fisted. At the state level the tavpayer relaxes some but will threaten to tar and feather the politition. At the federal level the taxpayer is least discerning

I'm pretty sure most people feel -- rightly -- that they have more control over state and local issues. This is why liberals want everything done on the federal level.

[George W. Bush]

It seems to me that the most productive and immediate step we can take toward holding government accountable is to end the federal government’s ability to withhold income taxes from our paychecks.

I've said it for years as have many others. Great article.

Heck, I'd be amazed if we could even force them to pay accrued interest on the tax refunds.