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Here is another piece of my platform for when I run for office:

I hereby declare that all taxes must be paid explicitly either by check or electronic funds transfer. I hereby declare it illegal to automatically have taxes deducted from paychecks, business activities, profits, or any other income stream that is used to collect taxes.

Note that this again satisfies my requirements for me to sanction a proposal: that it improves incentives, moves in the direction of the Rule of Law and cannot be on its face accused of being partisan. Notice that this policy does all three. I am NOT proposing a reduction in taxes or in any change in who pays taxes or any deductions or exemptions. All I am changing is the means of payment.

This proposal should seem to curry favor with the behavioral economists (who talk about framing effects as causing irrational decisions) since consumers quickly adjust to having taxes automatically withdrawn from their paychecks, they may not even be aware of how large their tax burdens are – and are also unlikely to be aware of changes to taxes as well as if they were writing checks each month to pay their taxes. If the goal of the “Nudgers” was truly to improve consumer well-being, I’d like to see serious thought given to this proposal. I am sure they can figure out ways to deal with the added costs of collection and the incentive problem here.

Do I believe this policy would have an impact? You bet. When people consciously write checks for things, they are much more attuned to the magnitudes of their commitments. This program would have to put pressure on the political process to be more transparent and more efficient, especially when combined with our next policy proposal idea. Will this one have a snowball’s chance in Hades of passing? Nope. But it ought to be a standard to which we have policy move toward. I’d like to see reasonable defenses against it that do NOT at their core argue, “but revenues might fall.”

10 Responses to “Policy Proposal, A Continuing Series”

  1. Speedmaster says:

    Agreed! And I would make tax day the day before election day.

  2. Paul says:

    Likewise agree! I once heard a podcast, most likely one from the EconTalk series hosted by Russ Roberts at GMU (EconTalk) that the idea of payroll deduction was by none other than Milton Friedman and that he listed it as his single greatest regret. I unfortunately can’t recall the specific podcast. My son’s first call after receiving his first paycheck was to me, complaining and asking about, the deductions on his stub and how little he was actually taking home.

  3. Steve Burrows says:

    Or cold hard cash, only one time per year, and on the day 1 Speedmaster suggests. I believe sneaking money out of the average citizen’s income flow is pure evil. As an entrepreneur, I get taxes exacted on me both from my paycheck and via large checks, friends of mine are taken aback at how vehemently I deride government and taxation. They enjoy pushing around other people’s peas around the plate in quest for improving society and have little feeling for how they are being sucked dry by the succubus of government parasites living in our back pockets.

  4. Harry says:

    Great amendment, Speedmaster.

    Proponents of a VAT, or even the so-called Fair Tax should beware.

    If the government is worried that people would not have the means to pay their tax bill, have everybody file a personal 940 quarterly, and make tax deposits at the bank when their tax liability exceeds $1000. Then they might appreciate all the expense their employers incur collecting and remitting taxes.

    Another idea: put on every gas pump a sticker showing the federal and state tax per gallon. This would make more sense than requiring municipalities to change all their street signs to the new lettering.

    The stickers could be the same kind as the stickers you put on car plates, and would not require a pair of municipal employees to unbolt and replace each street sign.

  5. Salem says:

    Who would be writing these cheques?

    For example, corporation tax is paid by corporations. The mechanism by which it is paid doesn’t make much difference to the visibility of the tax. Or are you suggesting that all taxes should be paid by individuals?

  6. Harry says:

    Saleem, these checks would be paid electronically by some, the same way I pay my AT&T bill, via an app on one’s IPhone. Instead of My Wireless, the app could be called My Government, and from Home you could pay not only the Feds but also the states and locals.

    Maybe you could do it with your Marriott Visa card and earn points for an overnight stay in Washington.

  7. Harry says:

    Going back to your piece on seventh graders, at least part of the curriculum should be able to calculate one’s gross and net pay, along with employer “contributions” to FICA, Medicare, federal and state unemployment taxes, workmen’s comp, health insurance, etc.

    One’s pay stub should start with nontaxable gross cost, then taxable gross, then net pay, minus a processing fee for the cost of all the effort required of the employer to do all the withholding. If the banks can hit you with service charges, why not your employer?

  8. Harry says:

    Paul’s reference to Milton Frieman’s reservations carries much weight.

    An apt comment, Paul. And a lively topic, Wintercow. The very idea has no chances in the Hell of those who have big appetites. Milton Fiedman taught us much.

  9. Harry says:

    For a mere 10 billion a year, I would be willing, with Speedmaster’s assistance to develop the app, collect all the money, and deliver it to the Treasury nine hours later. As Sherman McCoy or Tim Geithner would put it, we would only be picking up the crumbs after the cake was cut. OK, the ten billion is negotiable, plus or minus twenty percent, depending on how many treasurys Ben buys or sells.

  10. […] our last proposal, we floated the idea that we ought to end withholding in paychecks and all forms of taxation and […]

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