The “Current Tax Payment Act”, passed on 9 July 1943 by Congress, provides for income taxes on wages and salaries to be withheld by employers from paychecks. The purpose stated was that it was an emergency provision for the War. Sure — but it is still with us today. This act accounts for the uncontrolled growth of government more than any other event!!!
“Far more important, without a system of current collection, it would have been impossible to collect the amount of income taxes that we collected during the war. At the time, we concentrated single-mindedly on promoting the war effort. We gave next to no consideration to any longer-run consequences. It never occurred to me at the time that I was helping to develop machinery that would make possible a government that I would come to criticize severely as too large, too intrusive, too destructive of freedom. Yet, that is precisely what I was doing.”
Milton Friedman, who was a key player in implementing the “tax withholding” system
This is the same Milton Friedman who advised Nixon to abandon the gold standard in 1971.
I agree it would have been impossible to collect the amount of taxes collected during the war without a revolution. WWI was financed with four Liberty Bond issue which were paid off. Virtually all wars have been financed by fiat “money” debt provided by bankers. Prices doubled during the war or the legal tender dollar lost half its value.
By withholding income tax rather than billing directly as Counties and School Districts do. Government is able to raise taxes slowly with little noticed. I believe at least 95% of what Government does is unnecessary but it creates jobs to provide employment for people displaced by increased efficiency and labor arbitrage. These government wage recipients seek to increase their position in the hierarchy by increasing more nonproductive activity.
Government can now raise taxes to meet the wage demands whereas productive workers in the private sector have to increase productivity through efficiency or poorer quality. This is one reason why nonproductive work pays better than productive work. Counterproductive work pays better, Lawyers, regulators etc.
JFK issued an Executive Order allowing Government workers to unionize. PA was first. Firing a union worker is a 7 step process damn nearly impossible to fire a union worker.
I learned about this despicable practice when I was a nonvolunteer union steward (long story already told here). It is called the “pass through.”
When the government contracts with a company that has union workers, any wage increases that are negotiated during “arms’ length” contract negotiations with company management are automatically paid for by the government (thus a hidden increase on the contract’s cost) due to a clause in the labor law referred to as “pass through.” This is why companies do not fight their unions at CBA negotiations, IF they are government contractors.
Is a dirty little union secret that we all laughed about during negotiations.
Excellent column, Roy!
Tax withholding is an essential ingredient of allowing a political parasite to grow to the size of those afflicting the Western World. People simply WON’T be robbed by tax collectors in arrears the way withholding, (robbery in advance) works.
You may recall that a business owner who decided to itemize all the taxes his employees paid on the paychecks his firm issued was jailed for doing so.
Milton Friedman (may he toast in hell) was the political system’s Pet Libertarian, a classic example of “With friends like these, who needs enemies?”
This is why all public efforts to “reform” the system are lies. LIES! Anyone claiming to seek reform is either a puppet of the Status Quo from the outset or will be co-opted and turned into a double-agent long before anyone rocks the Power Elite’s boat.
This is a vast cycle, a system governed by positive feedback. It is the ultimate boom-bust system, where rabbits multiply across the land due to plentiful forage, until so many rabbits (PARASITES) are around that they suddenly eat all the food.
Starvation is the ONLY way to cut back parasites. The current Apogee of Politics will only wane when all that can be redistributed HAS BEEN redistributed.
Paradoxically, the explosion of debt has an interesting effect: It disguises vast redistribution of wealth via issuance of IOU’s and other promises, and what we face is a Hard Stop, a sudden realization that all the wealth actually WAS already redistributed until it has been dissipated.
Part of Friedman’s reason for pushing withholding of “income” taxes from wage-earners’ paychecks was because – as a monetarist, *not* a free-market or libertarian economist – Friedman recognized that with millions of civilians earning high rates of compensation in war industries, the flood of fiat currency generated by the Federal Reserve System to pay for government spending would be immediately reflected in rising market prices for available goods and services.
Beyond wage and price controls – which Friedman knew could not cope with all the increased spending power entering the economy – how else to take that spending power _out_ of the economy?
Apply “income” taxes to wages and salaries (which was prima facie unconstitutional; income was defined in law as monetary return on investment) and prevent workers from taking a big chunk of their increased pay home with them.
War bonds had much the same purpose. Not to fund the war effort, but to defer the impact of gadarene wartime currency debauchment until after those war bonds had matured.