Two Teensy-Weensy Legal Reforms

by Gary North

Every American visitor to this Web site probably has a cabinet-level agency that he thinks should be abolished first. I dream such dreams, too. But as I grow older, I become less utopian. So, Iím going to recommend two minor technical revisions of the tax code.

  1. Repeal withholding on all federal income taxes.
  2. Move the date that federal taxes are due to the first Monday of November.

Federal elections are held on the first Tuesday after the first Monday of November.

These are just a couple of minor technical revisions, right? Nothing too revolutionary here! I find it difficult to believe that a critic could go on national television and say, "This strikes at the very heart of the American experiment in liberty!" Would anyone believe him? Would voters rise up in wrath against a President who proposed these reforms?

When, in 1942, Beardsley Ruml came up with a plan to sell Congress on the idea of federal income tax withholding, he understood exactly what it would to for revenues actually collected: multiply them.

Here was the governmentís problem in 1942: only about five million out of the 34 million Americans subject to the income tax were saving to pay it on March 15, 1943. This presented a big problem for tax collectors, now that wartime taxes had been hiked dramatically.

Ruml, formerly the director of the Laura Spelman Rockefeller Foundation, in 1942 was chairman of the New York Federal Reserve Bank. He was also the treasurer of R. H. Macy & Co., the department store. As Macyís treasurer, he well understood that most people resist saving for known expenditures. He asked: Why not get employers to deduct their employeesí income tax liabilities? He recommended this to Congress in 1942, and Congress in 1943 passed a tax collection bill that included Rumlís withholding provision: the Current Tax Payment Act.

Did it work? Beyond their wildest expectations. In 1942, the U.S. government collected $3.2 billion from income taxes. It 1943, before the law was fully operational, it collected $6.5 billion. In 1944, it collected $20 billion. (Historical Statistics of the United States, Pt. 2 (Government Printing Office, [1975], p. 1105.)

The tax was passed as a wartime measure. Naturally, it was not repealed in 1945. This is why the courageous Vivian Kellums quit sending in withholding taxes for her 100 employees in 1948. The IRS never beat her in court. (Someone should put her 1952 book on the Web: Toil, Taxes, and Trouble. Some enterprising grad student should write his Ph.D. dissertation on her. Her papers are in the University of Connecticut library.)

The withholding tax system is popular with the federal government for four reasons. First, the government deliberately over-withholds. This forces taxpayers to file their forms to get their refunds. Second, it creates a "free money from the government" emotional response when the refund check arrives. Third, the government gets to use this money, interest-free, during the taxable year. Fourth, it makes income taxes and Social Security taxes less painful and therefore more acceptable.

If all federal income taxes were due on the same day, this day would become the most feared and hated day of the year, assuming that it isnít already. I ask: Why not have this day fall on the day before federal elections?

Personal income tax forms must be mailed by April 15. Think about this date. Before they vote in November, taxpayers have almost seven months to forget about tax misery day the previous April, and their next form-filing day will not come for almost six months. Out of sight, out of mind.

I say, let every citizen recall his previous dayís tax filing and check-writing experience when he steps into the polling booth to cast his vote. Let democracy speak!

George W. Bush could include these minor legal revisions in his personal platform without calling much attention to them. Mr. Gore would find it difficult to campaign against them. Conservatives would like them. But hardly anyone would pay much attention. He could promote the first with this slogan: "Itís your money to use until itís due." He could promote the second with this slogan: "Vengeance is yours." Are these proposals too radical for Mr. Bush? Probably.

May 26, 2000

Gary North runs

Copyright 2000

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