Friday, August 14, 2009

Anesthetizing Effect of Tax Withholding:Let's End It

What's your monthly mortgage or rent payment? What's your monthly car payment? What's your monthly payment for your student loan, cell phone or cable TV? Most of us have a pretty good idea of these monthly payments, because we typically write checks every month, or pay online. Now, what's your monthly or quarterly tax liability for federal income taxes?

Most of us have no idea, because most us never write a monthly or quarterly check for income taxes. If you have an adjustable mortgage and your monthly payment adjusts upward, you would be fully aware of the increase in your monthly housing expense. But if your monthly or quarterly tax liability increases, you'd probably have no idea that your tax burden has changed. That insulation from feeling the full impact of our increases in our personal tax burden is probably one of the reasons that government has grown so dramatically over the last 50 years.

Solution? End the practice of employers' withholding taxes from our paychecks, as
Charles Murray suggests in today's Wall Street Journal:

The finishing touch is to make sure that people understand how much they are paying, which is presently obscured by withholding at the workplace. End withholding, and require everybody to do what millions of Americans already do: write checks for estimated taxes four times a year.

Tax withholding has a wonderfully anesthetizing effect on people whose only income is a paycheck, leaving many of them actually feeling grateful for their tax refund check every year, not noticing how much the government has taken from them.

MP: Another advantage of ending withholding is that it would remove the significant financial burden on employers who are currently forced to act as tax collectors for the government.

Originally posted at Carpe Diem.


At 8/14/2009 9:33 AM, Blogger Ron T said...

As both a taxpayer and tax practitioner, this is a wonderful idea and well overdue. It never ceases to amaze me how many taxpayers ONLY pay attention to the balance due or refund when filing and disregard the total tax burden over the year. It is clearly the "stealth nature" of withholding that numbs them to the harsh reality.

At 8/14/2009 9:54 AM, Blogger Mr Brimm said...

If employers didn't take it how would the govt get paid? I think employers shouldn't have to take it, but the govt puts the burden on business with the threat that they would lose their business.

This is all because a lot of people wouldn't send in their payments. So much for individual responsibility.

At 8/14/2009 10:55 AM, Anonymous Ian Random said...

I agree, but the uproar would be substantial. An easier thing might be to move April 15 to November 15 so we can express our appreciation.

At 8/14/2009 12:48 PM, Anonymous Anonymous said...

Why would those collecting taxes, and wanting to collect more taxes, ever want to do such a thing?

At 8/14/2009 12:50 PM, Blogger ExtremeHobo said...

From the Article:
"Tax withholding has a wonderfully Tax withholding has a wonderfully anesthetizing effect on people.."

- Is this some sort of brain teaser?

Too bad that people have become so irresponsible (due to the large hand of government) to remember to save enough money to pay their taxes. Our gigantic and all encompassing government has been neutering our citizens powers of self reliance for too long for this work sadly. Which is all the more reason I say to implement it. People would die if they knew how much of their money the government was taking.

At 8/14/2009 4:52 PM, Blogger KO said...

I've thought this for years.

Many people would have a hard time saving the money to pay the taxes, so it would really bite to write the checks.

Plus people would really know what share the government is taking. Giving people their full paycheck, then making them send in the taxes would shock people.

And it should be send each check in for each tax and not one lump amount. SS, Medicare, state and federal income tax withholding, etc. SS and Medicare, they should give you the employer's share in your check and require you send in the full taxes.

At 8/14/2009 4:57 PM, Blogger Hot Sam said...

This comment has been removed by the author.

At 8/14/2009 6:03 PM, Anonymous Ἐγκώμιον Shill said...

lot of people wouldn't send in their payments. So much for individual responsibility.

8/14/2009 9:54 AM

My broker's web page states that my account is *unrestricted*. This un-restriction does not necessarily indicate that I wrestle in the heavy-weight class. It means instead that I have not been put into restriction for failure to pay tax in a timely and citizen-like fashion. Government knows how to keep record of your traffic violations, your tax violations, etc. They could let a large swath of law-abider's pay once per year. Easy to stagger the fiscal-year's end alphabetically according to name of your fastest bird-dog. What to do with extra money until end of fiscal year?

For a good time think of 30-year T-bonds then call


With negative ß, beta our heroic T-bonds will rise as junk bonds and common stock disintegrate into oblivion. Think what you would be now worth had you bought T-bonds in May 008 then sold them when you saw oil spot price bottom out in December 008. Have you seen M2 money supply shrinking past 6 months?

You got it.

You are a better value-investor than I am Ghungha Dhihnn.

At 8/15/2009 5:13 AM, Blogger Plamen said...

From yesterday's WSJ: "The IRS only has resources to prosecute about 1,000 criminal tax cases each year."

Mike has got it exactly right. The IRS has big leverage over any single taxpayer, individual or corporate, but little in the broad scheme of things. Withholding - outsourcing collection to employers - is their only way to rob us, since, a company has more at stake than the average individual, and the companies, while numerous, are not nearly as numerous as individuals, so 1000 cases constitute a small, but not Powerball-odds small chance of getting hit.

We have Milton Friedman to thank for withholding, although he did regret it, decried it as a bad peace-time policy, and was for abolishing it later.

At 8/15/2009 1:02 PM, Blogger Bill said...

Since most of the people who voted for Obama and the Democrats pay so little in taxes these days (and will pay even less when he socks it to those of us who are "rich"), I doubt it would make much of a difference.


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