10 Things I Hate About Taxes #6: Withholding Taxes

This is the sixth article in a series on taxation leading up to Tax Day, April 15.

If we were required to pay all our taxes for the year on April 15th, and on no other day did we ever have pay any taxes (sales, property taxes, whatever), then most Americans would be absolutely astounded with the amount of money the government demands from them. In all likelihood, most people do not consistently carry a balance that high in their bank account.

The withholding tax allows the government to make their insane demands more palatable to us. A penny here, a penny there – these won’t add up to much in the end, right? Withholdings from every paycheck is like silent theft, gone unnoticed. If you came home one day to find your piano had suddenly disappeared, you wouldn’t be pleased. Instead, your fridge is being raided – but we’re not paying enough attention to recognize that something’s missing.

My younger sister got her first job a few years back in a clothing retail store. Since the work was part-time, her first paycheck wasn’t very remarkable, only a hundred bucks or so. She saw that the government had taken about $12 from her and she just about flipped out. “How dare they just take this money from me, they didn’t work two hours for that money!” Bless her heart, she got it. I wish I had been that smart at her age.

Here’s something even more bizarre: one of the primary culprits responsible for instituting the withholding tax is none other than the “free market economist” Milton Friedman. Murray Rothbard recounts the story in his 1971 article Milton Friedman Unraveled.

One of Friedman’s most disastrous deeds was the important role he proudly played, during World War II in the Treasury Department, in foisting upon the suffering American public the system of the withholding tax. Before World War II, when income tax rates were far lower than now, there was no withholding system; everyone paid his annual bill in one lump sum, on March 15. It is obvious that under this system, the Internal Revenue Service could never hope to extract the entire annual sum, at current confiscatory rates, from the mass of the working population. The whole ghastly system would have happily broken down long before this. Only the Friedmanite withholding tax has permitted the government to use every employer as an unpaid tax collector, extracting the tax quietly and silently from each paycheck. In many ways, we have Milton Friedman to thank for the present monster Leviathan State in America.

What’s worse, if you try to avoid paying withholdings you’ll get fined. So much for avoidance from the outset.

For further reading: The Curse of the Withholding Tax – Laurence Vance. Read the first few lines:

Did you have to write out a check to the IRS for $5,581 this past April 15? If you had to do such a thing next year, would you think of it as your civic duty or would you consider it a crime that only the government could get away with?

That’s the truth behind the withholding tax. Confiscation in silence…

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