From: jfr@RedBrick.COM ()
Subject: Re: VOTE, BABY, VOTE!
Organization: Red Brick Systems, Los Gatos, CA
Distribution: usa
Date: Sat, 7 Nov 1992 20:59:05 GMT

In article <_5==jk-@engin.umich.edu> jwh@citi.umich.edu writes:
>It amazes me too.  Personally I think one of the best things that
>could be done for this country would be to eliminate withholding
>completely.  When people are faced with the prospect of paying
>several thousand dollars at tax time, they may think twice about
>asking government to spend more money.  Right now taxes are much
>less painful, simply because most people never see the money to
>begin with.

  Well, I agree with you intellectually about eliminating withholding.
  Unfortunately, the practical matter is that it simply ain't ever
  gonna happen.  Why?  Because the government has always, since as
  far back as I can remember, used withholding as a means of funding
  this year's spending out of what was (prior to withholding) next
  year's revenue.  It has now gotten so ingrained that withholding
  is deemed this year's revenue.   Here is a classic example of what
  I mean brought into recent context (the Federal example is so old
  and cluttered with intervening issues that it is more obscure, but
  the California example is stark and clear):

  I moved to California in 1971 just as Ronald Reagan (yep, he's 
  the one who did it :-) signed the California withholding tax 
  act into law.  It went into effect in January 1972.  That year, 
  on April 15, everyone had to pay their taxes from 1971 (as they
  always had to do in the past) but they were already withholding
  for 1972 as well.  So in effect, in 1972, every citizen who paid
  taxes was "double-dipped".  Now it was well-understood in California
  that the withholding was in effect "advance savings for the next
  year" and for the first four years, withholdings were deposited
  for use the next year and California continued to fund present
  year expenditures from previous year taxes, as they always had.
  Occasionally, they borrowed from the accrued withholdings deposits
  but always it was paid back and adjusted the next year.  

  Then came the ominous Prop 13 (which for the California-politically
  impaired, rolled back property taxes and froze prop tax rates to
  1%).  The local counties were stunned by a reduction in funding 
  the likes of which had never been seen.  So they went to Sacramento
  and pleaded for a bailout, and Sacramento realized that, "hey, we
  have a $6 billion dollar surplus sitting here in the bank".  Which
  was true, because the withholding taxes had always been accounted
  for as part of the current year's budget (a skeptical accounting
  practice to be sure, but what the hay, this is government, right?)
  So Sacramento distributed this surplus in the form of county and
  district subsidies but with the warning that it would not happen
  again.  This one-time distribution was subject of much debate 
  but it went forward.   

  And voila, all of a sudden, California has no surplus and is forced
  to operate on a current cash basis.  Withholding is now used to pay
  current year bills and must continue unabated or California would
  be without any funds for a whole year.  

  Now, 15 years later, the idea of eliminating withholding is simply
  not possible.  In fact, when current withholdings drop because of
  unemployment or misforecast, California shivers, because there is
  no room for slack.  Which is exactly what is happening now.

  If withholding were eliminated, for one whole year, government simply
  couldn't function.  In principle, I agree that its a great idea (to 
  get rid of withholding, NOT stop government :-).  In practice,
  it simply ain't gonna happen.

  Jon Rosen