Saturday, November 13, 2010

Not Your Money

The question is who should be saying this? It seems that Obama and the Democrats have been saying this over the last couple of years. It seems the harder the American people work the more the government takes. They act and sometimes even claim that they have a right to your pay check. They argue over how much is really theirs and how much they will allow you to have. How did we get ourselves into this?

The history of our federal income tax withholding system is instructive. The federal income tax was increased substantially during World War II as a temporary, emergency measure to fund the war effort. Between 1939 and 1944, the top rate was raised from 79 percent on income over $5 million to 94 percent on income over $200,000. The lowest rate was increased from 4 percent on incomes as low as $4,000 to 23 percent on incomes as low as $2,000. The latter measure served to accelerate the broadening of the income tax from one previously paid only by the rich to one paid by virtually everyone. The number of income tax returns filed grew from 7.6 million in 1939 to 47.1 million in 1944.

To make that income tax increase more palatable, Congress passed the Current Tax Payment Act of 1943. That act ended the practice of paying federal income tax liability in one annual lump sum and instituted the practice of withholding money from employees' paychecks throughout the year. The goal of reducing opposition to the tax increase, by reducing the visibility of the tax burden, was made clear in congressional debates. For example, the following exchange between Sen. Bennett Champ Clark (DMo.) and Randolph Paul of the Treasury Department took place in a 1942 congressional hearing on withholding.
Senator Clark: Psychology almost certainly ought to be considered in the tax year. Some British Chancellor of the Exchequer once said: "Taxation consists of getting the greatest amount of money with the least amount of squawks."
Mr. Paul: Do you think if we cut down the squawking under this method we could raise the individual tax rates?
Senator Clark: That is what I am trying to find out: How we can raise the greatest amount of money with the least amount of hardship on the taxpayer.

Our system of federal income tax withholding was instituted during a period of crisis, to help fund the war effort. Nevertheless, when the war ended, withholding did not. It is still with us today, and it has been adopted at the state level as well. By making the tax burden less visible, withholding has made it easier for our elected officials to expand the reaches of government well beyond what was once considered its proper role. After the adoption of income tax withholding, the federal income tax burden rose quickly from only 0.9 percent of gross domestic product in 1940 to 5.8 percent by 1950. Today(4/1998) it stands at 9.3 percent of GDP.(9.6% 4/2006) It seems unlikely that the tax burden would have expanded so dramatically if Americans had continued to pay their federal and state income tax bills in one lump sum every year.

Yet, with all this review of taxation, few people actually sit down and look at the complete tax burden after payroll based taxes. The government has further drawn down your income with hidden taxes and fees. These taxes include; property, fuel, tobacco, alcohol, utility, consumption of goods and services, hospitality, the list continues.... We see new regulations and rules that further reduce income through compliance. Having to report or process paperwork can use up time and energy that can translate to dollars lost.

What is the real cost of government? With all its power to tax and take in so many ways, how are we going to put the glutenous government on a diet? Ultimately, saving our nation will depend on getting our governments spending at or under its income. The Obama solution is to take more money from you to fill the gap. The new House members are vocalizing the key point "We The People" have been trying to make, "Spend Less!"


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Blogger Joe said...

I have long favored a flat tax and no payroll deduction.

That would put a lot of IRS agents out of a job, though.

8:02 PM, November 22, 2010  

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