...(both of you) rooting around I found what to me must be be the first and last words (with a bonus 13,169 in between) on the depressing subject of the US federal withholding tax:
EVOLUTION OF FEDERAL INCOME TAX WITHHOLDING: THE
MACHINERY OF INSTITUTIONAL CHANGE
by Charlotte Twight Cato Journal Vol. 14 No. 3
"Taxes are the backbone of any politico-economic regime. Constraints on a government's power to tax are constraints on its power to act. Focusing on the legalization of mandatory federal income tax withholding through the Current Tax Payment Act of 1943, this article examines forces that have eroded constraints on the U.S. government's power to tax."
But plowing thru to the end I was "rewarded" w/ these discouraging, but no less delicious, quotes:
"Though in 1943 the withholding mechanism was sold politically as a benefit to taxpayers, government officeholders even then widely regarded it as a means of extracting greater tax revenue...."
"...across a broad span of income tax history changes in tax law have tended to proceed incrementally and therefore to generate complexity...." [No!?!]
"Congress and the president learned, to their pleasure, ... that installment buyers could be induced to pay more because they looked not at the total debt but only at the monthly payments. And in this case [income tax collection] there was, for government, the added psychological advantage that people were paying their taxes with not much resistance because they were paying with money they had never even seen...."
"...widespread and systematic use of propaganda by U.S. government officials during World War II to quell resistance to the transformation of the income tax from a `class tax' to a `mass tax'...."
"Wherever an income tax has been in practice for any time the small incomes as well as the large are taxed; and it is the small incomes which yield the largest revenue to the state."
"[in 1872 the commissioner of Internal Revenue wrote] ... that he regarded the income tax as 'the one of all others most obnoxious to the genius of our people, being inquisitorial in its nature, and dragging into public view an exposition of the most private pecuniary affairs of the citizen'."
"Congress labeled the 1894 [income tax] law 'An act to reduce taxation, to provide revenue for the government, and for other purposes.'"
"Detailed studies of the history and politics of the period [of passage of the 16th amendment] indicate intense desire on the part of various regional and economic groups to rearrange taxes to make others pay a disproportionately high share of governmental costs...." [Amazing!]
"The 1913 statute authorized withholding of income taxes 'at the source'--that is, extraction of income taxes from taxpayers' pay envelopes before salaries were paid. Precedent existed in the income tax withholding for government employees during the Civil War...."
"We know that World War II prompted transformation of a tax long endorsed by the public as a tax on the rich into a tax on the masses...."
"[In 1942] Treasury Secretary Morgenthau ...recommended income tax withholding, presenting it as a "more convenient method for the payment of income taxes." Government concern for the well-being of the taxpayer was the dominant theme... the Treasury Department consistently portrayed the withholding proposal as providing taxpayers 'a way of meeting their tax obligations with a maximum of convenience and a minimum of hardship'"
"Although taxpayer convenience and patriotic sacrifice were the avowed purposes of income tax withholding, the actual objectives--though not trumpeted to the public--were candidly acknowledged [to be] increasing
government revenue, enforcing payment of taxes, and muting taxpayer resistance."
"First, the Social Security Act was adopted in 1935. ... most important here is that the social security law was funded by means of a payroll tax withheld at the source. This funding mechanism emerged in the context of a law widely but falsely promoted as giving each 'contributor' an 'account' in Washington, D.C., that would provide income security in his old age."
"Contrary to the reality of ... extraction of income from wage earners, officials continued to portray the U.S. tax system as grounded in 'voluntary' compliance.... 'Our system is said to be one of voluntary compliance, but for some time we have known that compliance is the highest where voluntarism is the least relied upon.'"
"Indeed, the common practice of overwithholding associates the payment of taxes with an apparent financial benefit rather than cost, distorting
taxpayers' assessments of the actual costs and benefits of government activity... the expected return of such overpayments makes people feel 'happier' about [paying taxes]."
For all of this interesting stuff, this was heavy reading for me. Get used to the word 'transaction' (used 89 times), including transaction costs (political and otherwise), transaction-cost (framework, burden, increasing and otherwise), Transaction-cost-manipulation (theory and model),Transaction-cost-augmentation, (AKA augmentation of political transaction costs) etc. (this was fun at first, but quickly tiring, long before exhausting the game.)
Arn Nelson in Chicago