Paul L. Caron

Wednesday, October 23, 2013

Bartlett: Tax Withholding After 70 Years

W-2New York Times:  Tax Withholding Still Controversial After 70 Years, by Bruce Bartlett:

In a previous post, I noted that this year was the 100th anniversary of the federal income tax, which came into permanent existence in 1913. This year is also the 70th anniversary of the institution of tax withholding. ... The Treasury Department said it believed that tax withholding was essential to make the wartime income tax work.

In a 2006 academic paper, the economist Libor Dusek examined whether tax withholding increased the size of government by looking at the staggered introduction of withholding at the state level. He concluded that 9 percent of the growth of state income taxes from the 1940s to the 1970s was because of withholding.

Nevertheless, it is highly unlikely that withholding will ever be abolished. It is far more likely that it will be extended to other forms of income, especially if the idea of a return-free tax system becomes viable as Congress debates tax reform.

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FDR said that the income tax withholding would be temporary, just like he said that the funding of social security would be changed to cover future rather than current liabilities. Tax law administration that favors government rarely gets reversed. Once a cash cow, always a cash cow.

Posted by: Woody | Oct 23, 2013 11:32:48 AM