Sixty years ago this week, the federal government passed the Current Tax Payment Act (search), arguably the most nefarious, misleading and ultimately destructive piece of legislation passed in the United States within the last century.
If you care at all about limited government, that’s not an exaggeration. The CTPA is what you and I have come to know as federal income tax withholding (search), and it’s a big reason why so many of us today sit by idly and submit to an ever-expanding federal government leviathan.
Professor Charlotte Twight (search) has done exhaustive research on the history of federal tax withholding, and documented it in her book Dependent on D.C. and in a shorter article for the Cato Institute.
Like most massive expansions of federal power, the CTPA was passed in wartime, and under the banner of patriotism and sacrifice for our boys overseas (lessons from history we’d be well-advised to heed today). Twight details a massive public relations campaign directed by the Treasury Department (search) that employed clergy, celebrities, and even Donald Duck to pitch the benefits of this new “convenience.”
The CTPA was pushed on the public with at least the implication that it would be temporary. Taxpayers were promised a one-year “recess” from federal income taxes as a carrot for allowing withholding, though most economists at the time agreed that the alleged recess was dubious. In any event, taxpayers were told, withholding was in many ways a blessing. No more worries about saving enough money for Tax Day. Now, government would do your saving for you.
In truth, most every politician and Washington bureaucrat (search) knew at the time that the public face of the CTPA campaign was decidedly at odds with the real motivation behind its passing. Withholding would put the burden of tax collection on employers. It would make federal tax collection easier. It would make raising taxes easier. And, consequently, it would make it easier for Congress to spend.
Most deceitfully -- and brilliantly -- withholding prematurely takes money from taxpayers, allows the federal government to collect interest on it, then returns the principle to us in April, under the misnomer of a “refund.”
Surprise! No longer would Americans look forward to Tax Day with dread and gloom. No longer might we use April 15 as an opportunity to determine if services we’re getting from our government adequately reflect what it’s billing us. Once the CTPA passed in 1943, Tax Day turned into Christmas. A nationwide birthday. A card from Uncle Sam (search) with a check inside. Free money on tax day? What a country!
According to research from both the Cato Institute and the accounting firm Ernst & Young, between the time withholding was passed in 1943 and the time it was fully implemented in 1945, six million Americans were added to the tax rolls. The federal government collected $43 billion in additional revenue. Between 1940 and 1950, federal revenues as percentage of the Gross Domestic Product more than doubled, and federal revenue per capita jumped 400 percent, the biggest 10-year jump for both categories in the 20th century.
And that’s exactly what was supposed to happen. Tax collection got easier. Government got richer. And we’ve been spending ever since.
Today, with a Republican in the White House and with Republicans (search) controlling both houses of Congress, the federal government still grows unabated. Even discounting for defense and homeland security (search), federal spending as percentage of GDP is at its highest level in 25 years. And that’s not including the looming prescription drug benefit -- yet another entitlement program now priced at $400 billion, but that will inevitably swell skyward from there.
It’s a scary thought. Not only is our government getting bigger, it’s growing faster than the economy. Every year, the amount of money the federal government spends gets just a little closer to the total amount of total money spent everywhere else.
It really doesn’t matter who’s in office (contrary to what you might think, Republican presidents have generally been bigger spenders than Democrats (search)). We’ve allowed our government to install a system whereby taxes are collected on the sly, but the benefits they pay for are delivered with pomp and parade. It will always be more palatable, then, for politicians to soak oblivious taxpayers than to end benefits for constituencies who are anything but oblivious to their entitlements.
The only remedy is to change the system, to find a way of funding our government that offers more accountability, and makes it less politically poisonous for our elected officials to close the checkbook from time to time.
It’s a pipe dream, I know. Asking our elected officials to voluntarily give up power they filched from us years ago seems downright delusional. But every now and then, American politics undergoes a sea change. And every now and then, like a blind piglet, a politician gropes around and per chance latches on to the teat of principle. Despite spending at rates that exceed its Democratic predecessor, the Bush administration has at least toyed with the idea of meaningful reform of the tax code (search), though the White House has made clear that such reform would be a “second term” issue.
Perhaps if we’re so lucky, withholding, or even an end to the income tax, makes it onto the agenda.
Radley Balko is a writer living in Arlington, Va. He also maintains a Weblog at www.theagitator.com.