I am trying out a new segment. Every Friday (if I could ever get consistent with this thing) I will post on small steps that I think we should take in order to fix several of the problems we currently have. For my first “Fix-It Friday,” I have decided to tackle taxes. You know, just something small. 🙂
This will not cover all future tax reforms that I hope to eventually get to, but it is the very first step in changing our tax system. It is actually a very simple fix – stop withholding. That’s it. Just outlaw withholding. The government can no longer take your money before you even get to see your pay stub. Your employer files fewer, and less complicated, forms. And, the best part of all, everyone’s tax bill comes due once a year. This will drastically change the way people see taxes.
Quick history lesson on withholding: Instances of withholding (and its almost immediate defeat) have occurred in 1862, 1894, and 1913 before Social Security was established in 1935, which brought withholding of the Social Security contribution. When the nation’s tax bill jumped from less than $1 billion in 1940 to more than $19 billion in 1945 due to our participation in World War II, Milton Friedman and his Treasury department cohorts decided to install a pay-as-you-go system in order to keep up with the war machine’s demands. Thus, in 1943, federal income tax went to a withholding system. (Credit for this information and to find more information about withholding, go to “Modern Origins of Modern Income Tax Withholding” by Robert Higgs).
The Treasury Department openly admitted in this fact sheet on the history of taxes in America that withholding, while it may make tax collection easier, it “also greatly reduced the taxpayer’s awareness of the amount of tax being collected, i.e. it reduced the transparency of the tax, which made it easier to raise taxes in the future.” Of course, in December of 2010, the Treasury Department “updated” this information, excluding the admission above.
If we were to stop withholding, each and every citizen would get to see exactly how much their “fair share” of the tax burden is. They might actually take an interest in the annual budgetary process in DC and be more concerned about how their hard-earned money is being spent. As an added benefit, more people would get interested in the possibility of a limited government, and who doesn’t love that?
I would love to hear your thoughts on this very preliminary, very first step in changing both the way people see taxes and the way they see government spending.