Withholding

Running with AlexC's riff, I'd like to point out Andrew Coors's article on TCS: "Why We Need Personal Tax Savings Accounts."

He proposes a personal account to collect one's withholding. That way, you have the money to pay your taxes on April 15, but you have access to those funds and earn interest on them.

With the current focus on "ownership society," ownership of withheld income should be restored back to the rightful owners--the taxpayers. Money withheld from paychecks should be an asset of the taxpayer, rather than the government, until the time that the tax burden becomes due. Ownership means letting workers have their withheld income as an invested asset until they rightfully belong to the government. Abolition of withholding is out of the question from a political standpoint; the mention of it raises opposition from multiple fronts. Can you imagine the fallout if every American had to write a check for the full amount of their tax liability on April 15th?

A possible solution does exist. The government could create a vehicle like a health care savings account called a personal tax savings account where withheld income is held until tax time. Taxpayers would have the option of placing withheld income in either the government's hands (the current system) or a personal account, which yields a return, for use in paying future taxes. With a personal tax savings account, any overpayments would yield a tax deferred return for payment of future tax liabilities.

You write a check to the government for your tax bill (accountability and transparency!) and then write your own refund check to yourself of what remains. And the interest is yours.

Posted by jk at April 15, 2005 12:45 PM