Income Tax Withholding - flattening the pain, damage, and awareness curves

Posted On: Saturday - April 18th 2020 10:38AM MST
In Topics: 
  Liberty/Libertarianism  US Feral Government

It's been a while since our last Morning Constitutional, which explains why posting has been somewhat irregular lately. In the last, summary post about the abomination known as Amendment XVI, in point #5 of the 5 Evils, Peak Stupidity mentioned and wrote a short footnote about income tax withholding. Nope, the idea is not specifically written about even the 1913-amended US Constitution, well, see, it was left open-ended, exactly how this new source of funds was to be collected. That's why you don't! let! them! ... ahhh.

Please read the great comments under that 3rd Amendment-16 post, which, with 21 comments, less than 50% having been written by your Moderator here, makes a new Peak Stupidity record! Commenter Ganderson* wrote in that he had just finished a lecture on the home front of WWII with discussion of this very subject, mandatory income tax withholding. Please, Mr. Ganderson, if you have anything in written form that will fit, I can attach it to this post or make it a subsequent post.

After a quick search, eschewing wiki, as I'd rather do more, I came across a site called the
Foundation for Economic Education. They go by FEE, and I'm sure, being economic experts, they realized I'd not been reading if they'd had one. They have a nice, pretty unbiased, quick read about the War Time Origins of Modern Income Tax Withholding. Yep, mandatory withholding goes back 77 years! People know no other way. (You'd have to have been an paid-on-the-books working man - not nearly as prevalent then - in 1942, meaning 95 years old.. with a good memory!)

What was surprising to me out of this FEE article is that even 26 years after the Amendment XVI abomination was ratified, the common man normally paid very little income tax, if even filing forms at all. It really was on the richies at first. WWII changed all that. From the article:
Before World War II individuals who owed federal tax on their income earned in a particular year paid the tax during the following year in quarterly installments. In those days relatively few people paid income taxes. As late as 1939 fewer than four million individual returns were filed, and the filers’ total tax bill came to less than $1 billion, or less than 4 percent of their net taxable income. When so few people paid income tax and the amounts due in most cases were so small, the system of deferred payment imposed no great burden and gave rise to few taxpayer complaints.
Yeah, well, to the great chagrin of government officials, "customer" complaints have skyrocketed.

Back to WWII, the big one, holy moley, Federal tax spending rocketed from $9 Billion in 1940 to $98 Billion, 10X as much, by 1945! Yes, it was the war, and governments involved needed as much money as they could round up. However, as one can see from the last graph in Peak Constitutional Amendment - XVI, Part 2, afterwards the tax collected went down maybe 25-30% from the 1945 peak, as a ratio to GDP, but basically stayed way up there from then on. (Yes, the MIC AND the Great Society (that we enjoy today - it's grrrrreaaat!)).

Even before 1943, since 1935 there were "payroll taxes", which is this point term that means the Social Security and (I think also Medicare) money taken off of each check. Actually, though it's very confusing at this point, as there are many different types of withdrawals of portions of our paychecks by governments now, I like the word "tax" being in that term. It ought to clue people in that this 6.5% of their gross income being collected forever is neither going into a literal nor virtual lock-box of any sort, or even a separate account**. Do the words "aaaand, it's gone." mean anything to people anymore?

The system that was set up to collect this SS money was a great tool to enable the tools (Milton Freedman being one discussed in the article***) to implement taxation directly off of the working man's paycheck The foot had been in the door since '35 and accountants didn't have to change much - nice work, F'ing Delano.

Another thing that I just learned from the article is that the big impetus to do withholding was the more-innocent purpose of just wanting to get tax money ahead of time for immediate war financing, rather than more nefarious reasons. (Or am I being naive about it, like Americans at the time, likely?) The big arguments over this new way of collecting income tax were not about the idea itself, but just about how to avoid double-taxing people during this changeover. Was that a big distraction from the big idea? Yeah, there are usually smart bastards behind the scenes, just as during the original creation of Amendment XVI.
The transition problem sparked a great deal of debate in the government and among the public. Perhaps the leading proposal in 1942 came from Beardsley Ruml, the treasurer of R. H. Macy & Co., who was also the chairman of the Federal Reserve Bank of New York. Ruml proposed to “forgive” the previous year’s tax liability completely when the switch to the pay-as-you-go system was made. The Treasury objected to allowing such a great amount of “forgiveness” and proposed an alternative, less-forgiving design.

After more than a year of wrangling in the bureaucracy and in Congress, the Current Tax Payment Act was signed into law on June 9, 1943. It provided for a complicated partial-forgiveness transition. As Friedman described it, the law basically “canceled . . . one year’s tax obligations of $50 or less and 75 percent of the required tax on the lower of 1942 or 1943 income, requiring the remaining 25 percent to be paid in two equal annual installments.” After the system became fully operational, employers withheld almost $8 billion for income taxes in 1944 and more than $10 billion in 1945.
It sure sounds like it was all a big distraction from the real damage being wrought. With much more significant tax bills due, the working man was going to get truly pissed each April 15th. Since Americans weren't so cowed back then, and more were still against Big-Gov, there'd have been tax revolts here and there, and maybe everywhere.

That was the real purpose of income tax withholding, to hide the damage, or at least ease the pain. Peak Stupidity published a nice long article on Americans' attitudes about, and ways of dealing with the income tax, broken into 4 income classes, called Americans' attitudes on the income tax, that I recommend the reader take a look at it. (I spent a good bit of time on that one, so, you know ...)

Perhaps a better phrase to describe what the real point of tax withholding is "reducing awareness". The FEE again:
The Treasury itself publicly acknowledges, in a fact sheet on the history of the U.S. tax system posted at its website, that wartime withholding not only “greatly eased the collection of the tax,” but “also greatly reduced the taxpayer’s awareness of the amount of tax being collected, i.e.[,] it reduced the transparency of the tax, which made it easier to raise taxes in the future.” Some evidence: in 2005 more than 130 million individual income-tax forms were filed, yielding the federal government $1,108 billion in revenue, and of that amount, $787 billion, or 71 percent, came from withholding.
Flatten the awareness curve!

I'm skipping back up some in that great summary article, but this will summarize our post here well:
The withholding system has remained in effect continuously ever since 1943, even though the war that prompted its creation ended 62 years ago, and the system’s perpetuation has contributed greatly to nourishing the postwar Leviathan state. As Twight says, “Withholding is the paramount administrative mechanism that since 1943 has enabled the federal government to collect, without significant protest, sufficient private resources to fund a vastly expanded welfare state.”
Yes, the Foundation for Economic Education seem like some good folks. Bravo!

Let me tell you, were withholding not in place to this day, the anger and financial worry out of this Kung Flu Infotainment Panic-Fest would be enough to cause a major cessation of the flow of funds. I would be part of that. Income tax withholding has taken away all our leverage. Come to think of it, that's the most egregious thing and likely part of the whole idea.

* Hey, it's the Chinese way, better get used to it. As with Chairman Mao, "Chairman" not being his actual first name, I am Blogger #REDACTED, and you all are Commenter Ganderson, Detractor Lolberg, State Hospital Patient Customer Unz, you know, like that....

** See The Social Security Scam, errr, Scheme(?) - Part 1 and Part 2

*** though he subsequently rehabilitated himself as an economist. He was just young and foolish back in 1943... hard to imagine. The subtitle of the FEE article is "Milton Friedman Did Not Foresee the Long-Term Implications of the 1943 Tax-Withholding Law". Yeaaahhh!

Sunday - April 19th 2020 11:34AM MST
PS: Thanks, Mr. Ganderson. I saw your "Easy Rider" comment, BTW. Missed it by THAT MUCH! ;-}
Sunday - April 19th 2020 11:33AM MST
PS: Thanks for the info. back, Mike@Mike. I assume you used a different email address (fake is just fine), or do the Anon comments not need one? I'm not sure how the software knows what's what. Is it the browser/software combo on your machine? I've heard from a computer security guy that there's an almost-always unique signature based on versions of the browser, the plug-ins, etc.

Have you tried from scratch with a different device? Is is possible Mr. Unz is taking this really personally and looking at these details himself for the handful(?) of you bad-hoaxer-people?

I am very interested in this, so please keep me posted (you could just comment under recent posts - I don't care. I am keeping up with HailToYou also.
Saturday - April 18th 2020 9:19PM MST
PS Mr Moderator you have covered the subject quite adequately.
Saturday - April 18th 2020 5:41PM MST
PS: Albert, that's what the smiley face was about. I had no disagreement with your previous comment, nor do I with your recent one.

I'll tell you this, though. If there were to be any agency that acts like a bunch of goons, I'd rather it be the customs and immigration people - but NOT if you have the American passport. With all the Police State BS we have, the one thing the US Feral Gov't SHOULD BE tough about is what the hell comes into the country and who the hell comes into the country.

They can't do that right, yet they do fine with DUI traffic stops, etc.
Saturday - April 18th 2020 4:17PM MST
PS My point was that you Americans are always proclaiming about your "liberty" when you are not really free at all. I gave you the example of Switzerland.
Here is another example: Holland. I was working in Holland and went camping with some work friends. On our return we crossed the border around 3 am (when there atill a border). The customs officer wanted to inspect our gear. We helped him take the tent off the roof of our car and he went through our things and then, with some help, he put our tent up on the roof and tied it down. My Dutch colleague said that we didn't have to help him and at the end, the officer had to put everything back exactly the way it was before he had inspected it. Do you really think your land-of-liberty US Customs Officer would do that? Not on your life!
Saturday - April 18th 2020 3:28PM MST
PS - I'm copying this my explanation from Hail's website plus I'll add one other detail:

For about the last 25-30 hours, if I attempt to comment I get the screen that says “You are commenting too much. Take a break.” I think I submitted 3 comments yesterday before the reply to Ron Unz. I was able to submit two posts as Anon 151 this morning but it appears both were deleted. I also received the message that I was out of comment “actions,” even though I had only used one yesterday and none today.

Another action i took was to delete cookies and attempt to post with a different handle, but TUR recognized my location, even though I use a VPN, and wouldn't let me comment unless I went as Anon. After submitting the two posts as Anon, I again received the screen that says "You're posting too much. Take a break."

Thanks for the support guys - I'll be checking back there to see if it's a temporary thing or what but if so I'll start popping in around here more often.
Saturday - April 18th 2020 3:28PM MST
PS: A little bit more on topic (though, believe me, I don't mind the rest at all!) to Mr. Blanc. You guys are getting hosed by the Chicago crowd, huh? I would tell you to get out of that state, but you may be living in the 90% of it that's very sane and like where you live otherwise.

Who would have to vote on that Constitutional Amendment?
Saturday - April 18th 2020 3:23PM MST
PS: Federalist, one thing that happened to work out well is that iSteve was, and is still to some degree, on the same side of the Kung Flu Gap. However, in answer to some commenter, Mr. Unz basically wrote that he doesn't see the importance of, or like, Sailer's stuff, and the commenter too.

You know, it's great he has people on there writing articles he doesn't agree with. I guess they all get enough hits, or, per his masthead, are unconventional and wouldn't be published elsewhere. The commenting system is 2nd to none. That's why I'm conflicted. The guy is doing a great service but is mentally unhinged. Whaddya gonna do?

Steve Sailer with his commenters is still my favorite place on by far. People disagree, but it's not filled with animosity.
Saturday - April 18th 2020 3:17PM MST
PS: Albert, that sounds good. Why are you not AlbertCH, though?

Hey, granted Fahrenheit is a little odd with the 32 and 212 being the calibration points. However, each degree has more precision, and ... well ... OK, Celsius is for pussies, dammit.

All just in fun, I hope you understand. ;-}

Saturday - April 18th 2020 3:12PM MST
PS: One more thing, Mike. Keep in mind that when Ron Unz picks on someone, it's from just a few minutes of his time skimming* random comments or posts. I know that from his reply to me, calling me a "random rightwing ranter". I mean, he may have the last part correct, but "random". His bullshit with you is random, Mike.

* Now I understand when he write in his "American Pravda" long posts that "I read 10 books on this yesterday", it means he's skimming them. I wonder how he got through that IQ test like that.
Saturday - April 18th 2020 3:09PM MST
PS: About Ron Unz's temper tantrum, or more like, episode, recently, I am sorry, Mike. I am thinking of work-arounds for you. I see all your old comments on the MikeatMikedotMike page. Tell me how you are locked out, as in what exactly doesn't happen. No, I'm no computer whiz at all, as you can tell from this site. I'm no computer whiz, I have thought about this sort of thing. Please chime in back on this part.

Now, as to the whole thing, perhaps it IS time for a post on this. I read through the James Thompson thread completely, and also noted, with no time to read through 1,200 comments on that California lady post, I did note that Mr. Unz threatened the commenters on that CA one too. On anything I've looked at on that whole site other than the Commie threads, especially with the mental case commenter FB, I have seen absolutely NOTHING that you would want off your blog.

I mean, nobody but one guy with short comments on or some crap is spamming, and even Corvinus is nice and polite, albeit always arguing in circles. (Even though I am fond of the Duck, I could see Ron blocking him, if anybody.)

Nope, Ron Unz is just so damn stupid on this Kung Flu thing. I mean, I don't care that he believe the hype, as I guess a majority of Americans still do. Fine, that's not the normal political divide anyway. I don't hold any animosity toward iSteve, and didn't even when he was posting 95% on this business and seemingly scared shitless. Steve is a more-reasonable-than-normal guy (more than your blogger here), and of course, he has engaged politely with commenters on both sides of this deal.

How can Mr. Unz have come so unhinged on this. If it were about Israel, his all-things-America-sucks-even-though-I-still-live-there-ism, and such, well that's more political. This one really isn't - it's about freaking epidemiology for cryin' out loud!

OK, I'll write back to Federalist regarding iSteve.
Saturday - April 18th 2020 2:10PM MST
PS You know to this day there is no withholding of income tax in Switzerland for Swiss citizens - the true land of the free, not some blatant Fahrenheit Land!
Saturday - April 18th 2020 11:43AM MST

Mike, how did they tell you that you can't comment?

That's terrible. I was worried that something like this would happen with Steve Sailer blogging under Ron Unz.
Saturday - April 18th 2020 11:30AM MST
PS We have an income tax situation here in Illinois, although it doesn’t involve withholding. Our state constitution of 1970 mandates a flat income tax (which was imposed only in the mid-1960s under a Repub* governor). That, naturally constrains the amount of money that our elected bandits can extort from us. So our billionaire Dem governor is proposing an amendment to the state constitution that will allow a graduated income tax. The cover story is that only the rich will pay more, and that ordinary working folks will actually less. Anyone with a even a shred mental horsepower knows that we’re all going to pay. And pay. And pay. And yet, I would be surprised if the amendment doesn’t pass this November.

* Which is one of the reasons that I say over and over again, the Repubs are not our friends.

PS PS Mike: Sorry to hear that Unz has defenestrated you. I’ve always enjoyed your comments at iSteve. Perhaps you’ll join us here.
Saturday - April 18th 2020 11:05AM MST
PS - Just letting you know Unz removed my commenting privileges from UR after my reply to him in the James Thompson article.
WHAT SAY YOU? : (PLEASE NOTE: You must type capital PS as the 1st TWO characters in your comment body - for spam avoidance - or the comment will be lost!)