Summary
This policy proposes the end of mandatory tax withholding by employers, advocating for individuals to have full control over their earned income and tax payments. Under this policy, employees would be responsible for their own tax payments, removing the need for preemptive withholding and allowing taxpayers to manage their own funds.
Context & Problem
The current mandatory withholding law requires employers to automatically deduct income taxes from employee paychecks, often leading to over-withholding and large refunds at year-end. This arrangement essentially provides the government with an interest-free loan on taxpayer funds while depriving individuals of full control over their earnings. With interest rates being high and the time value of money in account, we should have the option of getting our hard earned money, right away.
Proposed Solution
We propose a shift from mandatory withholding to a system where individuals pay their taxes directly, either quarterly or annually. The government would provide educational resources and tools to assist individuals with calculating and paying their taxes. This shift would empower taxpayers, reduce over-withholding, and potentially improve public awareness of total tax obligations.
Key Arguments
- Restores Financial Autonomy
Eliminating mandatory withholding would allow individuals to retain full control over their earnings, avoiding the financial strain caused by over-withholding. This enables taxpayers to allocate funds as needed throughout the year. - Eliminates Interest-Free Loan to Government
Mandatory withholding results in interest-free loans to the government via taxpayer overpayments. Without mandatory withholding, individuals could invest or save this money, generating personal returns. - Enhances Government Accountability
Direct tax payments increase transparency, making taxpayers more aware of their total contribution to government funding. This could foster greater public demand for fiscal responsibility and accountability. - Encourages Financial Literacy
By taking responsibility for tax payments, individuals are likely to become more informed about their tax obligations, fostering financial literacy and proactive money management.
Implementation & Considerations
- Gradual Transition: Shift from mandatory to optional withholding over a three-year period to allow individuals and businesses time to adapt.
- Educational Support: Provide accessible resources through the IRS or third-party providers to help taxpayers understand quarterly and annual tax payments.
- Financial Planning: Encourage taxpayers to budget for their annual tax obligations and adjust income calculations accordingly.
Ending mandatory withholding would return financial control to taxpayers, enabling them to manage their income according to personal needs. This change would foster financial autonomy, increase awareness of tax contributions, and encourage accountability from the government. At the very least, this should be an option for W2 workers.