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It’s Not Really Your Money Anymore

April 7, 2010

Sorry for the absence, but honestly, this has been an impeccably slow news week, other than the President discussing changes he plans to make on our offshore drilling and nuclear retaliation policies that will never happen anyway.  Here’s some fresh news that is sure to piss off the Tea Partiers:

Individuals who don’t purchase health insurance may lose their tax refunds according to IRS Commissioner Doug Shulman. After acknowledging the recently passed health-care bill limits the agency’s options for enforcing the individual mandate, Shulman told reporters that the most likely way to penalize individuals that don’t comply is by reducing or confiscating their tax refunds.

So we get Withholding, Part II.  You’ve been wearing blinders if you didn’t figure that enforcing the penalty wouldn’t take a gargantuan effort from an increasingly inept government that can’t even get high-profile characters like the Chairman of the Federal Reserve Bank of New York to pay their taxes and you’re even more naïve if you thought they’d be able to pull it off.  So this is their answer.

As Megan McCardle explains here, you don’t want a tax return in the first place because it means you’ve “made an interest-free loan to the government”, the last borrower I’d ever expect to pay me back.  After this process starts up, your return will become that money (which was initially yours) that the feds “give” you back as a reward for properly filling out your W-2s and paying the penalty that you brought upon yourself for not buying that health insurance you didn’t need because the feds need to finance that giant health-care reform law.  Keep in mind: that was your money to begin with.  If you think that’s kind of messed up, then you’ll be even more surprised by this fact: the whole thing was Milton Friedman’s idea, of all people.  Why?  He explained a few years ago:

I was an employee at the Treasury Department. We were in a wartime situation. How do you raise the enormous amount of taxes you need for wartime? We were all in favor of cutting inflation. I wasn’t as sophisticated about how to do it then as I would be now, but there’s no doubt that one of the ways to avoid inflation was to finance as large a fraction of current spending with tax money as possible.

In World War I, a very small fraction of the total war expenditure was financed by taxes, so we had a doubling of prices during the war and after the war. At the outbreak of World War II, the Treasury was determined not to make the same mistake again.

You could not do that during wartime or peacetime without withholding. And so people at the Treasury tax research department, where I was working, investigated various methods of withholding. I was one of the small technical group that worked on developing it.

One of the major opponents of the idea was the IRS. Because every organization knows that the only way you can do anything is the way they’ve always been doing it. This was something new, and they kept telling us how impossible it was. It was a very interesting and very challenging intellectual task. I played a significant role, no question about it, in introducing withholding. I think it’s a great mistake for peacetime, but in 1941-43, all of us were concentrating on the war.

I have no apologies for it, but I really wish we hadn’t found it necessary and I wish there were some way of abolishing withholding now.

Yeah, that’s the problem with the feds.  Things don’t get abolished.  If I were the guy who had introduced withholding to the country, then doubtless I’d be remorseful too.  What’s interesting, and not just depressing, about this is that the Dems are really counting on the mandate to prevent serious adverse risk from destroying the private insurance market (that is, unless you’re one of those people who thinks that’s what they’re trying to do).  And now we’re realizing that they might not even be able to get people to pay the penalty for not buying health insurance.  I forget: was this a bad idea?

EDITOR’S NOTE: My first sentence had no semantic meaning before I fixed it.  Sue me.

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