Having actually paid quarterly taxes as an individual I want to say your impression is wrong. No, you don’t have four tax returns a year. You do tax returns once, then, with the assumption your next year’s income will be the same, four equal payments are calculated and you pay them at quarterly intervals. No more difficult than paying the rent or a car payment.
Of course, the fact that a lot of people can’t manage to make regular car payments or pay the rent on time highlights one of the potential pitfalls of the system You’re going to have folks who spend every last dime and find themselves SOL on tax day. The current system, for all its flaws, prevents that.
We already do it that way, just like you do in Australia, the OP is proposing eliminating that system.
Yes you can.
In fact, if you want, you can request your employer without NOTHING… but then you will be on the hook for your own taxes and will have to pay quarterly. I actually did this once when working for someone incompetent to calculate taxes properly so at least my finances wouldn’t get effed up by their problems. It’s not encouraged, but it can be done.
They wouldn’t have to ship quarterly forms. When I’ve worked in a manner requiring me to be responsible for my own taxes/pay quarterly I only got tax forms from employers once a year. The quarterly payments would be estimates.
Again, I maintain the biggest problem is the number of people who would be unable to manage their finances properly so they would have the funds to pay taxes in a timely manner.
Actually, where I currently live this is the system all the time. We don’t have municipal trash pick up. We have to pay to get our garbage hauled not just one month of the year but 12, and I haul our recycling down to the scrapper in the back of my own pickup.
Those who are too poor to pay for trash hauling skulk around, dumping their bags in other peoples’ bins at night (really, they do this, which is why some in my neighborhood lock their dumpsters, so they have room for their own garbage in them) or just dump it illegally beside the road or in vacant lots. So much for libertarian paradise. You know, there’s a reason the concept of municipal trash pickup was invented.
^ This.
Back when I was paying quarterly I deposited the percentage that would need to go to taxes into a savings account so the money would be there when the tax bill was due. Of course, this presupposes you have a bank account or use a credit union (many of the poor do not), and you have the self-discipline to set that money aside and really not ever use it.
You can do this to a certain extent but there’s a limit. You can’t, for example, decide you’ll tell your employer to withhold nothing with the intent that you’ll write a check for the full amount when it’s due on April 15. The law says you must have paid 90% of your eventual tax liability within the year it was earned. You can pay the remaining ten percent on April 15 when you file.
So you either have to have your employer withhold some of your income or you have to submit quarterly payments yourself during the year for an amount of at least 90%. Anything less and you’ll get fined even if you pay it all off when you file.
My wife does estimated taxes. If you don’t have a steady income, you have to track things.
This is not a new proposal - the right has proposed eliminating withholding to make taxes hurt more for decades. It boils down to them thinking that people are too stupid to look at their pay stubs to see how much is taken out, and the the right is just livid at the thought that people aren’t as outraged about it as they are.
Besides the very valid worry that people on the brink are not going to be able to save enough to pay the estimated taxes, we have an endowment effect issue. That is a feature of our brains that makes stuff we have more valuable than stuff we don’t have. Money removed before it hits our bank accounts is less valuable to us than money sitting in our bank accounts. That is what they are counting on. I bet they would object if the tax bill came with a benefits bill also.
The one thing not mentioned so far is that this is going to cost the government money. First. it is a lot harder to process tens of millions of checks than the electronic transfers mostly done today. Second, it disrupts cash flow, the government will have to do more short term borrowing to make up for the money not received each week, which has interest charges. Why do you want to increase the deficit, OP?
Isn’t there a logical disconnect between simultaneously believing that (a) people are, in large numbers, too stupid to realize how much money they pay for taxes and (b) smart enough to save enough to pay a quarterly tax bill?
If anything, at least amongst the folks I talk to, people tend to OVERestimate how much they are paying in taxes (I’ve heard people claim as high as 60%, which is pretty much impossible).
Holy crap, my Federal form last year, including worksheets, broke more than 100 pages. I have investments all over the US and in Europe which are subject to fluctuating exchange rates, receive income from 4 sources, have a personal business with all its overhead on top of this…it would take me quite some time to do this.
Plus given the math aptitude of the average American, I see 4 chances to make a terrible mistake, as opposed to 1.
We shouldn’t make laws that inconvenience people and make it easier for them to fall into financial difficulties for the sake of pursuing a political agenda. The agenda is “Oh, if only great unwashed were as informed as I am! Then they’d be for tax cuts! The only way the ignorant masses will ever fathom how much they pay in taxes is for them to cut the checks four times a year themselves.” What a crock. 99% of people read their pay stubs. They can see how the gross pay becomes net pay. They aren’t morons. and even if they don’t see during the year what their tax liability is they see it when they fill in the 1040.
The other issue is that if your income is variable for the year, you tend to do a static amount in quarterly payments. As you said, you don’t FIGURE your taxes each quarter, you just pay 1/4 of what you think you are going to owe. Which is fine if you have a $50k a year job at the beginning of the year, work all year, and at the end of the year still have a $50k a year job. And sucks if you have a $50k a year job through the first quarter, get laid off, and then have nine months of unemployment payments.
Better yet, scrap the income tax entirely, and have the federal government be funded by a sales tax. That way, when you buy a $2 tube of toothpaste and pay $1.25 in taxes*, you’ll realize how much the government costs.
(No, I’m not serious. This is what this kind of thinking leads to, though.)
The numbers were invented on the spot and not based on any facts. Why sully satire with mere facts?
Seriously: I’d hate it, because I hate any additional paperwork burden. That said, it’s not much extra work. I was self-employed and managed to do it. It’s not one day per payment, it’s an extra 30 minutes (if you’re slow) to calculate once, and however long it takes you to find the stub, write a check, and mail it in, each quarter. This, unless your income varies considerably. Mine did, but I still stuck with the estimates and that worked out OK.
The real problem is that much of it would go unpaid, and would cost the government more to collect, and said collections would be partial because the money would often be gone. Withholding dramatically increases revenues and minimizes government collection costs. (Of course, it adds to the admin burden of employers.)
The reason we have withholding is largely related to compliance and enforcement not making taxes invisible or more palatable. The rate of non-compliance is MUCH higher among small businesses and self employed than W-2 wage earners.
If you pay people $100 a month and tell them to pay $60 in taxes at the end of three months, you get a lot of people who don’t pay taxes because they don’t have $60 in their bank account at the end of month three.
The current tax withholding scheme dates to 1943 after going through various other iterations the decades before. See a general history here.
I’ve never been a W2-employee and have paid quarterly estimates since graduating from college. In general, I like the idea of people really understanding how much they’re paying in taxes. The act of physically writing and mailing a check for a large chunk of money isn’t fun. I think it would bring more scrutiny to how tax money is spent and maybe eliminate some waste in the system.
That said, many people are simply too stupid or irresponsible for this to realistically work.
I would change that to once per year. Also, the government should have to send us a bill for how much we owe. In the current system, I am deprived of the fruits of my labor, and I am deprived of my Constitutional freedom from self-incrimination (not to mention my freedom from involuntary servitude is compromised when I am forced to fill out a government form once per year).
Great idea. If the government had full access to all your investment information, all your bank accounts, your credit card records, your business books if you have your own business, and I’m sure some other stuff I forgot the IRS could do your taxes for you and send you a bill.
You right wingers have such great ideas. :rolleyes:
If the goal is simply to make taxpayers better informed about what they are actually paying in taxes, aren’t there about a million ways of doing this that aren’t an unnecessary hassle for everyone that will create huge enforcement costs (and thus effectively raise taxes)?
Criminy, just send everyone a statement each year with their tax refund, showing “you earned X, you paid Y in federal taxes”. Then you can itemize out you paid this percentage for military spending, this percentage for Medicare, et cetera. Hell, print it right on the back of the refund check if you want and send them an email statement for automatic deposit.
If that’s not even enough, make them fill out a little online test to get the refund. You need to enter what you paid in taxes and your total income, open book test from the statement, press a button, type your name. Bingo, now you’ve treated the American taxpayer like a child who just can’t see the wisdom of your political philosophy unless you make them jump through stupid hoops to verify they’ve seen the information they apparently are too stupid to get – all without creating a gigantic financial mess for the poor (not to mention the IRS) while you’re at it.
Or maybe some sort of form they have to fill out to get the refund in the first place that clearly shows the amount withheld, the amount of tax owed, any deductions, credits, etc. I doubt we’d get the form right the first time, but after 1039 failures I bet the next Form would be perfect.