Debt Free

Your federal income taxes; chances are that unless you have to write a check to the IRS on April 15^th at 11:59pm, you don’t give them too much thought. That’s by design. Imagine if you actually had to write a check for them every month, quarter or year. Think about that for just a second, if you will. “Mr. Johnston, your federal income taxes for this quarter are $4,500. Please make your check payable to the Internal Revenue Service.” 

If you’re like most Americans, that would be a pretty unpleasant check to write every 3 months. If you made around $60,000 a year, that’s what you’d be looking forward to. Sure, you could do it monthly and make the check out for $1,500. If you waited until the end of the year, you’d cut the IRS a check for $18,000. Ouch! Not only would it be hard to write those checks, many Americans wouldn’t have the financial discipline to actually have that much money in their checking accounts. Boing, Boing. Boing. You’d have checks flying around the country like so many super balls.

That’s just what Americans did until 1943 when congress approved the federal withholding system for income taxes. Until that year, you actually had to write the IRS a check for your income tax. There was no such thing as the withholding system for your taxes. The withholding system was a nefarious system designed to enable the federal government to extract a greater sum of tax revenue from the people with a minimum amount of fuss.

Even then, before the advent of the 3,000 credit card economy we know today, Americans thrived on convenience. If it was sold as a convenience, it was an easy sell. For many the same is true today. The brilliance of the plan on the part of the federal government is that not only is the system convenient, it’s much more painless for the taxpayers to never even see the money, yet alone actually write the check. That enables them to extract a larger amount of money before the tax paying public will miss it. It’s much the same if you invest a portion of your paycheck every month (like you should). If the cash is diverted straight to your retirement account, whatever that may be, you never even miss it.

The man responsible for this little bit of fiscal psychology was a gentleman named Beardsley Ruml. He was many things, among them chairman of Macy’s department store and chairman of  the New York Federal Reserve Bank from 1937 to 1947. He had a PhD in psychology from the University of Chicago, which he put to good use throughout his career, with his most lasting achievement being the tax withholding system we so love today. You know the feds love it. Imagine how difficult it would be to tax the public if they actually felt the money come out of their pockets. The taxpayer might actually demand some accounting of how their money was being used. Wouldn’t that be a fiasco?

To find out how tax friendly your member of congress is, you can go to the National Txpayers Union, an organization of 350,000 members looking out for your tax health. Here are their tax ratings on congressional members.