Against Automatic Withholding

Sneak a few bucks out of a hardworking American’s paycheck, call it “withholding” instead of “embezzlement,” and threaten him with the specter of unemployment and prison. Congratulations: You’re an excellent tax collector.

Imagine I’ve got a gun to your head. Your money is in my hands. I count out $50, pocket it, and return the rest. You’re grateful to keep part of your paycheck, and you can’t make sense of my thievish generosity, so you don’t complain. I stalk away, holstering my pistol. Withholding has once again worked its magic, obfuscating your taxes until only God and your accountant can unravel them, leaving you with a reimbursement check and a faint thrill of gratitude.

Replay the scenario. Your money is in your hands. You count out $50 and reluctantly hand it to me. What right do I have to your hard-earned wages, you’d like to know? My refrain, “It’s for your own good!” makes your eyes narrow. If I waste even one nickel, you’ll call the cops. You’ll pull your own gun and vote me out of office.

“Taxation is theft!” cry the libertarians, but that doesn’t have to be true. Honest taxation is simply the price of citizenship. Like all prices, it should offend the customer when it gets outrageous. But normal prices are paid rather than automatically debited, so the customers know exactly what they’re getting and what it’s worth. Withholding is the deduction of certain taxes from your paycheck before you ever see the money. Like the generous thief, it softens the blow of a too-high tax, emboldens government expansion, and wastes money.

Let’s end this practice and get back to hating the tax collector.

Quick quiz: What percentage of your income goes to federal income tax? State income tax? The tottering Pisa of Social Security? What is FICA? SS? FITW? If you know the answers, it’s only because you’ve sought them out. Don’t look too closely, the legislator whispers as he debits your paycheck, waving a shocking headline like a doctor hiding a syringe with a lollipop. We’ll take care of your money.

But it’s not really the government withholding your taxes. It’s your employer. And he doesn’t have a gun; he has your employment contract. Your livelihood. The work you do to feed your family. Try arguing about withholding, and he’ll just point to the laws and shrug. He doesn’t like it either—it’s harder for him to pay you and he has his side of the tax, too—but what can he do? You’re the voter. He’s just the proxy forced to do the government’s dirty work.

It’s a neat trick. But does it work? Are voters less sensitive to tax hikes under withholding?

Yes—probably. Withholding was dubiously legalized during World War II as a “tax cut” because it allowed incremental payment with each paycheck, rather than offloading a single uncomfortable sum at the end of the year. Back then, income tax on the books for the highest earners was nearly 90 percent. Under withholding, the types and methods of taxation have proliferated dramatically. Now, the top income tax bracket is only about 40 percent, but according to the Tax Foundation, high earners pay the same real percentage as they did in World War II. Forty percent looks sexier than 90, and withholding is the curtain that hides the magic.

If its shadiness isn’t bad enough, withholding may also be illegal. It violates the principle of separation of church and state enshrined in the Supreme Court’s interpretation of the Establishment Clause, as other tax policies—notably exemptions—are often said to do. See Proverbs 3:9-10: “Honor the Lord with your wealth and with the firstfruits of all your produce.” “Firstfruits” is exactly what it sounds like: first. Under Jewish law, no crops could be harvested until the first 10 percent had been sacrificed to God. A similar tradition is upheld by many Christians today, except it now has nothing to do with “firstfruits.” It can’t. The tax man gets those.

Of course, the government doesn’t mean to take God’s place. Otherwise, like God, it would have asked for 10 percent instead of 24.

Some argue that withholding means less paperwork. That might be true if the government could decide on its slice of the pie. But it doesn’t know how much it wants, so it can’t tell you, and it doesn’t bother finding out until withholdings have already been remitted. Two-thirds of Americans who file tax returns receive a reimbursement, according to the Cato Institute, almost doubling the paperwork. (Notice, too, how the error almost always favors overpayment.) That’s a calculation accuracy of 33 percent.

That’s an F.

Back-of-the-napkin math: 66 percent of 150 million taxpayers, each receiving a check, envelope, and invoice costing 10 cents = $9,900,000 paid by taxpayers just for the privilege of being overcharged. That’s not counting IRS employee and postal worker salaries. That’s ignoring the perverse incentives created by turning “Tax Day” into “reimbursement check day,” the unearned trust granted to the government, and the resulting overgrowth of government activities.

Fortunately, there’s a discount available. It’s called ending withholding. The IRS must stop playing tricks on the American public, and voters must stop blinding themselves.

Bureaucrats, put your faces to the ground before the taxpayer and cry, “Be merciful to me, a sinner!”