Republican lawmakers seek to replace withholding tax with monthly payment

November 17, 1994|By Bloomberg News Service

WASHINGTON -- Some congressional Republicans may push to end one of the most despised items in the United States -- the withholding tax.

They propose to replace it with something Americans may hate even more: a monthly tax payment to the government.

The Republicans' rage to enrage has a purpose. If every American had to write a monthly check to pay taxes, he or she "would curse the government every month," said Andrew Laperriere, legislative assistant to Rep. Dick Armey of Texas, the likely House majority leader in the Congress that will convene in January.

That anger would create pressure for cuts in federal programs, Mr. Laperriere told the National Association of Business Economists yesterday.

At least, Americans would have a chance to "measure the costs vs. the benefits of government" and decide whether they were getting their money's worth, he said.

Under withholding, employers subtract tax money and send it to the Internal Revenue Service before workers ever see it. While the amount deducted is listed on each paycheck stub, it is less noticeable than if a person had to write a monthly check, Mr. Laperriere said.

"Virtually every nickel the government collects has been hidden from the people who pay it," and "that has been the biggest cause of the growth of government" and federal spending, he said.

Of course, an effort to kill withholding will face a fight. Ending withholding would create a massive revenue shortage and rising budget deficits, because the system is the main reason Americans have a good record for paying their taxes, said Eric Toder, deputy assistant Treasury secretary for tax analysis.

The Treasury has a problem whenever people can avoid paying taxes, and the Armey tax plan "would add to it," Mr. Toder said. Even today, the Treasury estimates that Americans fail to pay $80 billion to $100 billion of taxes every year, much of it on non-wage income.

Nevertheless, the issue may come up in the new Congress.

"There's a very different environment and different leadership in the House," Mr. Laperriere said, because Republicans won control of both houses of Congress in last week's elections. "We're looking forward to some progress next year" with "wholesale changes" in the tax system, he said.

The repeal of withholding is contained in a Republican plan to create a flat 17 percent income tax rate to replace the present graduated income tax.

That 17 percent tax rate wouldn't produce enough revenue to cover the costs of government, and federal budget deficits would continue, Mr. Laperriere said. The Armey tax plan should produce within $30 billion to $40 billion of the revenues generated by the current tax system each year, he said. The shortfall could be made up in many ways, Mr. Laperriere said.

Mr. Armey's plan also would abolish the federal tax deduction on home mortgage interest payments, on state and local income tax payments, and on charitable deductions. His plan also would tax purchases of newly-constructed homes, though not of older homes.

In addition, the Armey plan would eliminate taxes for investors on the dividend payments they receive from stocks and on the interest they receive from corporate bonds and U.S. Treasury securities. Mr. Armey's plan would also eliminate taxes on savings.

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