April 12, 2000 | Commentary on Taxes
As tax day approaches, many Americans are filling out their returns in the joyous expectation of getting a check back from Uncle Sam. But rather than be happy that their own money is being returned to them, taxpayers should feel chagrined for having given the government an interest-free loan in the first place. After all, a refund -- average size last year: $1,500 -- is simply evidence that taxpayers have had too much money withheld from their paychecks.
Tax withholding should be abolished. By taking money out of workers' paychecks before they ever see the money, government has created the illusion that government doesn't cost very much. Imagine, by contrast, if taxpayers had to sit down every month and write a check to the government, much as they do for housing, electricity and phone service. The results would be profound. All of a sudden, people would wonder whether they were getting their money's worth. They know the mortgage or rent check pays for their housing. They know the power check keeps the lights on. And they know the check to the phone company allows them to "reach out and touch someone."
But what do they get from government? For most taxpayers the answer is almost nothing, which is why politicians hate to see the question even asked. Who benefits from corporate welfare programs run by the Commerce Department or from handouts dispensed by the Department of Housing and Urban Development? Not ordinary workers.
Even those taxpayers who do feed at the public trough would at least be able to compare costs and benefits if withholding were abolished. Yes, junior may be getting a subsidy for college, but that "free" money doesn't look like such a bargain when you're writing equally large checks to the government every couple of months. And, yes, grandma is getting a check from Social Security, but an increasing number of workers realize there won't be enough taxpayers around when they retire to collect their benefits. No wonder so many young people are willing to "risk" their Social Security taxes in the stock market rather than lose them for sure under the current system.
Withholding has enabled politicians to pull a con job on American workers. We all have taxes taken out of our checks in a way that's hard to notice. Then the government turns around and gives us handouts, and we're grateful even though the handouts are usually worth far less than the money that was taken from us to begin with.
Putting a stop to this deceptive practice would help restore honesty to government. Taxpayers would see how much government costs and could more accurately assess whether different programs were a justifiable use of funds. Which explains why politicians would fight to the last lobbyist to stop this reform from happening. They like the fact that workers are deceived about the burden of government.
The politicians who would most resist the repeal of withholding are the same ones who oppose tax cuts. They say the American people no longer care about the tax burden. In part, this is just wishful thinking. A major tax cut last year was stopped only by the president's veto. This year, Congress and the president repealed the Social Security "earnings test" -- which is nothing more than a tax on productive seniors -- and a substantial bipartisan majority of the House of Representatives has voted for marriage-penalty relief.
Still, it's surprising that tax cuts aren't more popular, especially with the tax burden at an all-time high. Surely withholding bears much of the blame, and if nothing else, scrapping this sneaky method of tax collection would make it harder for politicians to raise taxes even higher.
An old fable tells of a man who wanted to cook a frog. He had a problem because the every time he dropped the frog in boiling water, it jumped out. But the man was clever and decided to put the frog in cool water and slowly raise the temperature. Before the frog could figure out it was being cooked, it was dinnertime.
Withholding has allowed politicians to slowly raise the temperature on taxpayers. The danger is that we're becoming a nation of frogs.
Daniel Mitchellis the McKenna senior fellow in political economy at The Heritage Foundation, a Washington-based public policy research institute.
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