04/20/2017

The Argument For Abolishing Withholding Taxes

Terrence P. Jeffrey, CNSnews.com

My father, who was born in 1922 and lived his teens and early twenties during the unfortunate reign of Franklin Delano Roosevelt, whimsically embraced a tax reform plan that he sardonically explained to me once or twice during his hard-working life.

The first step in this plan was to abolish the federal system of withholding taxes from a worker's paycheck — a system enacted in 1943 by Roosevelt and a Democratic Congress.

FDR wanted not only to limit the size of an individual's income, but also to seize a large share of it before the individual could lay his own hands on it.

About five months after Pearl Harbor, he sent a message to Congress calling for confiscation of what he called "excess income."

"Discrepancies between low personal incomes and very high personal incomes should be lessened," Roosevelt said, "and I therefore believe that in time of this grave national danger, when all excess income should go to win the war, no American citizen ought to have a net income, after he has paid his taxes, of more than $25,000 a year."

In his budget message to Congress the following January, FDR called for what he described as a "pay-as-you-go" tax system. This did not mean the government would only spend as much as it brought in through taxes each year. It meant that employers would be required to pay a worker's federal taxes directly to the government rather than paying a worker the entirety of his earnings and letting him or her deal with the government about how much the government was entitled to take.

FDR pitched his "pay-as-you-go" plan as a way to "simplify" the tax system.

"It is more important than ever before to simplify taxation both for taxpayers and for those collecting the tax, and to put our taxes as far as feasible on a pay-as-you-go basis," he said in his January 1943 budget message.

The Democrat Congress gave FDR this power over private-sector paychecks in the Current Tax Payment Act.

Two years later, World War II ended. But ever since then, through war and peace, employers have paid part of their workers' earnings directly to the federal government rather than to the workers themselves.

The second part of the whimsical plan my father embraced — after ending withholding — was to require workers go to two windows every payday.

The first, as I recall, would be at their employer. Here, they would receive their pay in cash. The second would be at a government office. Here, they would wait in line — just as they would at the DMV — to pay, in cash, the taxes the government claimed they owed.

All deception would be removed from this system: Taxpayers would know exactly what they were getting paid and exactly what they were paying the government.

I believe the rationale for the plan was this: When workers saw how much the government was seizing from their earnings, they would become conservatives and never again elect a president like Roosevelt or a Congress like the one that gave Roosevelt the withholding tax.

The size of the government would shrink. America would remain a nation of free and self-sufficient people.

There may never have been any real chance of enacting the pay-in-cash-on-payday plan, but, as time goes forward, the odds that such a plan would have the desired effect have grown progressively smaller.

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Thanks to "bracket creep," the inflation of the 1970s pushed millions of taxpayers into higher tax brackets even though their inflation-adjusted incomes were not rising. To help offset this tax increase and also to improve incentives to work, save, and invest, President Reagan proposed sweeping tax rate reductions during the 1980s. What happened? Total tax revenues climbed by 99.4 percent during the 1980s, and the results are even more impressive when looking at what happened to personal income tax revenues. Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

 

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