STUMP » Articles » Taxing Tuesday: Let's Get Rid of Tax Withholding » 26 February 2019, 04:24

Where Stu & MP spout off about everything.

Taxing Tuesday: Let's Get Rid of Tax Withholding  

by

26 February 2019, 04:24

I agree with this one.

If even our senators are confused, then it’s time to end tax withholding

The federal tax refunds issued so far in 2019 are somewhat lower than last year — and it’s creating some confusion.

Liberal lawmakers have even cited the smaller refunds as evidence that the 2017 tax cuts were actually a “middle-class tax hike.” That’s nonsense.

A refund is what you get back if you have overpaid taxes throughout the year. Your tax cut is how much less money you have to give Uncle Sam this year. The two are not connected.

The confusion stems from tax withholding — the process whereby Washington requires your employer to collect and send in your taxes before you get your paycheck.

When the tax cuts took effect a year ago, your employer adjusted by sending a little less to the feds on each paycheck. It happened automatically, and a lot of people didn’t even notice.

Withholding is rarely perfect, so your end-of-year refund or tax payment is simply a last-minute adjustment. Your adjustment this year might be less or more than last year’s, but chances are you are one of the 90 percent of folks who benefited from the tax cuts.

A few of the liberal politicians making these noises are so stupid that they don’t know the difference between taxes paid throughout the year and a tax refund.

Most are just taking advantage of ignorant taxpayers and voters.

And Americans pay quite a lot. For someone earning $50,000, an end-of-year check for federal, state and local taxes would be about $12,000.

The IRS should stop conscripting employers as tax collectors and let Americans pay their own taxes.

Sounds good to me.

And it wouldn’t be unusual. First of all, that’s what used to happen…but taxes were so much lower then, and few people paid the income tax.

But there are countries that do it that way, even now:

That’s how they do it in Switzerland. Once a year, Swiss workers write a single check to the government for their full tax bill. They know exactly how much their government costs them.

A tax system that eschews withholding has helped the Swiss usher in one of the most admirable budgeting systems in the world. They rely on fiscal rules that are enforced by spending and tax limits. By pegging federal spending and debt to GDP, the Swiss government rides the tide of prevailing economic cycles — spending more when the economy is down and less when growth is strong.

Well, well, well. Is this one of the European countries we should emulate? I forget.

The American system has the opposite effect. Most Americans don’t realize how much they pay in taxes. Proponents of this system argue that withholding is the only way for the government to raise enough tax revenue without people crying foul.

They are exactly right. And it’s a shame.

Yup, my proposal is: no withholding, SALT cap at 0. And other deductions reduced as well.

But to be revenue neutral, we can then lower rates on everybody.

Sounds like a win-win to me.

Something from 2005 from the Mises Institute: The Curse of the Withholding Tax

Did you have to write out a check to the IRS for $5,581 this past April 15? If you had to do such a thing next year, would you think of it as your civic duty or would you consider it a crime that only the government could get away with?

A Typical Taxpayer

This figure of $5,581 is not an arbitrary one. According to the U.S. Census Bureau, real median household income was $43,318 for 2002 and 2003. A taxpayer with an income of that amount who was single with no children would, after his standard deduction of $4,850 and his personal exemption of $3,100, owe $5,581 in federal income tax for tax year 2004. If this same taxpayer was married and his spouse did not work, he would be entitled to an extra personal exemption, thus lowering his tax liability to $3,399—still a huge sum for most Americans to come up with.

If the $5,581 were gradually taken out of one’s paycheck over the course of the year and no money was owed on April 15, the pain of the theft would be greatly diminished, but for two entirely different reasons. Obviously, it is less painful to have $107.33 taken out of one’s check every week for fifty-two weeks than writing a check to the government for that amount every week or a check for the whole amount once a year. The second reason the pain of the $5,581 loss would not readily be felt is that very few people pay any attention to the amount of taxes that are withheld from their pay. They are concerned only with their take-home pay. This is unfortunate because if the people who pay taxes actually realized how much the government was taking from them they would be outraged.

Oh, I know very well, because Turbo Tax very nicely summarized the total amount for me.

The Origin of Tax Withholding

So where did the withholding tax come from? It was not part of the original income tax that resulted from the sixteenth amendment in 1913. Very few people paid any taxes back then anyway. The income tax did not directly affect the average American until World War II.

On the eve of the war, few Americans paid income taxes. Those that owed taxes paid them in one lump sum on March 15 (later changed to April 15). To pay for the war, the Revenue Act of 1942 lowered exemptions and raised income tax rates. But it also did something even more insidious—it instituted a 5 percent “Victory Tax” on all wages above an exemption of $624. The tax was to be collected by the employer and deducted from the employee’s paycheck—just like the Social Security tax that began in 1935.

The Current Tax Payment Act of 1943 then revolutionized the income tax by making withholding taxes universal. The withholding tax was part of the new tax plan offered by Beardsley Ruml (1894–1960), the chairman of the New York Federal Reserve Bank and treasurer of R.H. Macy and Co. By 1945, about three-fourths of Americans were paying federal income taxes. And although the withholding tax was sold as a wartime emergency, like most expansions of government instituted during wartime, it has been a way of life for most Americans ever since.

Yeah, never give into a “temporary” revenue enhancer (aka tax increase). It will not be temporary.

Ideally, the elimination of the withholding tax would force the American people to see exactly how much of their income is being confiscated by the government to fund its trillion-dollar budgets. This would, of course, have to be followed by sufficient outrage on behalf of the American people to reduce those budgets. The elimination of the withholding tax is also sometimes seen as freeing businesses from being tax collectors. But this would only be true if businesses also ceased to collect Social Security tax for the government.

That sounds good to me, too.

As a compromise, I am willing for people to have to pay taxes quarterly instead of annually.

MEEP DOES HER TAXES: UPDATE

By the way, I mentioned that I filed my taxes (federal and two states) back on Feb 16. I received my CT refund on Feb 22 and my federal refund today. Come on New York…my rate was supposed to be 0. Give me my money back.

MORE SALT CAP CRAP

In addition to getting rid of withholding, I think the State and Local Tax deduction in federal income taxes should be 0.

It’s currently $10K.

I think that’s too high.

But hey, listen to my governor bitch about it:

Here’s Why Rich Are Fleeing New York, According To Cuomo

Cuomo met with President Donald Trump last week in an effort to discuss – among other things – the federal tax code, which he has also attributed to the state’s $2.3 billion reported revenue drop . The governor has said the $10,000 cap on the federal deduction for state and local taxes ( SALT ) is the biggest cause of the wealthy, often elderly leaving New York.

“The federal administration’s SALT policy is an economic civil war that helps red states at the expense of blue states, and we are now seeing the potentially devastating effect of it in the form of significantly lower tax receipts,” Cuomo previously said. “These changes hurt our economy and make New York less competitive, and we will not stop ringing the alarm bell about this punitive policy until Congress reverses it.”

In 2017, Trump made remarks that elderly residents should consider moving out of upstate New York if they don’t like paying the state’s high taxes.

Guess what, gov — You can fix this problem right now by lowering the state and local tax burden in New York!

I don’t see why you’re bitching at the rest of the country that New York taxes are so high. It’s not the rest of the country’s fault.

I don’t see why New Yorkers should pay less in federal taxes just because state and local government are profligate.

SALT CAP ZERO! SALT CAP ZERO!

(No, this is not a popular opinion in New York or Connecticut. I’m not about popular opinions anywhere, but especially not in New York.)

TAX STORIES

Oh, I was wrong:

During his first presidential bid, Sanders endured questioning by Hillary Clinton over why he had not released several years of his tax returns and had instead opted to release just his 2014 tax returns.

Let me guess: he’s got a lot of money.

TAX TWEETS









Related Posts
Taxing Tuesday: Election Results
Taxing Tuesday: California to Tax Texts?
Taxing Tuesday: New York is Still Number One! Also: MORE TAXES FOR EVERYBODY!
| Main |