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Comment by adjkant | Hacker News Reader

Interesting in theory but in practice most Americans do not have the financial literacy to budget properly to meet taxes.

What happens when you don't have the cash to pay? Do we then see a whole new sector of predatory loans? Imprisonment? Increasing unpayable fines? None of those are good ideas, yet when things like this happen, our system has already fallen into these pitfalls. Witholding is an essential idea.

What would be nice is if we make the easy filing system but explicitly highlight the amount you paid in taxes compared to your income. Most people only judge on refund amount and rarely check the math on the exact taxes owed.

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This is actually how things were done pre WW2. If people were able to budget for it then, why not now? The current system makes filing taxes and getting refunded seem like a reward, it should probably be a bit painful to do your taxes.

Without the painful transparency, it becomes too easy for the government to nearly invisibly turn up the tax rate on individuals to pay for whatever boondoggle or foreign war they see fit.

> Without the painful transparency, it becomes too easy for the government to nearly invisibly turn up the tax rate on individuals to pay for whatever boondoggle or foreign war they see fit.

This narrative is based on nothing. The overall tax rate has been basically flat bouncing between 15% and 20% since WWII[1].

[1] https://en.wikipedia.org/wiki/Income_tax_in_the_United_State...

Income taxes in the US applied to a much smaller segment of the population before WW II than they do today.

A situation worth getting back to, imo.

Which taxes (if any) would you prefer?

The point isn't so much that people are taxed. It's that they are taxed by a monolithic out-of-control bureaucracy that has grown much to large for anyone's good. To add to this, I'd be 100% ok if my tax bill was flipped such that the federal government got what my local government had gotten and my local government got what the federal government had gotten.

I’m curious as to how you think your proposed structure would be significantly different from the structure under the Articles of Confederation. It seems as though we’ve already tried having minimal revenue raising structures for the federal government, learned that such a structure does not work well at international scales (240 years ago - we’re even more globalized now) and moved onto a more productive form of taxation.

The things we are spending money on (besides arguably defense) have next to nothing to do with working at international scale. Furthermore, while I'm not advocating we return to the era of AoC, the power granted via the current Constitution does not bestow the power, size, and scope of things that the current federal government has embraced.

Well, one thing that would simplify things and reduce the number of taxpayers that have to deal with filing returns is to simply exempt people who make less than a certain threshold, perhaps $40k. People making so little money are already struggling, so why do they need to pay taxes, and worse, spend time and money filing tax returns for that?

That's already effectively the case, though the numbers are different. If you're married and make under $24k per year, you don't pay tax. (And other credits that low-income people often are eligible for can increase that number.) It is annoying because you still have to file, and if an employer withheld anything, you have to wait until April to get it back.

I meant that it would be nice if people with low (and even middle) incomes weren't saddled with having to file a tax return. It's a huge pain point for people struggling to make ends meet.

This would probably require some simplification of the tax code.

"becomes too easy for the government to nearly invisibly turn up the tax rate"

Or not.

Source. I live in a country where the vast majority have income taxes handled by their employer. It would still be front page news if income tax rates increased or decreased.

Painful transparency is just pain.

It would be front page news for a day then people would forget and you'd never hear about it again.

Do it in the US and it's front page news on the day and then it's on the second and third pages January through April the following year.

That's not my experience. The UK has automatic taxation but the current government lowered effective tax for most people this month and parties make tax-rate pledges during election campaigns.

That doesn't really disagree with what I said.

How many days is it reasonable for something to be front page news? Personally I'd prefer 365 different headlines then the same one for 4 months straight.

How much are income taxes in your country compared to the US?

Its UK, so between 20% and 45%.

It's actually a little ironic who introduced the idea of tax withholding. It was Milton Friedman and little did he know that federal tax withholding would allow the government to grow larger than ever imagined.

> If people were able to budget for it then, why not now?

A failing public education system and increasingly consumerist culture that encourages bad spending habits using psychological advertising tricks, to start. Go look at how little savings Americans have currently as well, which has been covered ad nauseam by most news outlets in the past few years.

> Without the painful transparency, it becomes too easy for the government to nearly invisibly turn up the tax rate on individuals to pay for whatever boondoggle or foreign war they see fit.

Given that it directly affects take-home pay, any significant change is pretty noticeable. Heck, even Trump's very small changes for the middle class were noticed on paychecks slightly, though there was also an unequal decrease in witholding that made people's refunds smaller.

> A failing public education system and increasingly consumerist culture that encourages bad spending habits using psychological advertising tricks, to start. Go look at how little savings Americans have currently as well, which has been covered ad nauseam by most news outlets in the past few years.

While these may play a small part in why people couldn't budget for it now, I think a bigger part of it is that income tax just did not apply to most people in as large of sums that it does today.

For example. The lowest tax bracket in 1940 was 4% and went from $0-4000. Median income at that time in the US was about $950.

Using the tax brackets to measure how much we pay in taxes is incorrect. There are things like Earned Income Credit and other credits that generally relieve the tax burden completely from lower income earners.

Check out https://taxfoundation.org/summary-federal-income-tax-data-20... for an analysis on 2015 US taxes. The bottom 50% of the US paid an average of 3.59% of their income. MarketWatch claims that 44.4% of Americans pay no federal income tax at all: https://www.marketwatch.com/story/81-million-americans-wont-...

Far fewer people were subject to the income tax at the time. The average Joe who couldn't read well or do much arithmetic didn't have to worry about it. For this reason the Social Security tax was implemented as a payroll tax.

The tax was intended primarily as a tax on the wealthy or middle class, but over time by not adjusting the standard deduction/exemptions, more and more people ended up paying the tax. You could also make the argument that more and more people became middle class.

> Without the painful transparency, it becomes too easy for the government to nearly invisibly turn up the tax rate on individuals to pay for whatever boondoggle or foreign war they see fit.

Non-sequitur. Taxes are already seen on every pay stub and tax return. Even if taxes weren't explicitly state, simply having less money is painfully transparent.

If thats your argument, then you must agree to do away with witholding, there is no downside to the rational actor.

Reality is a bit more complex than that.

But if I were to design a tax system, it likely wouldn't have withholding. I'd probably mess around with some weird purely transactional/continuous tax system though.

Here in the UK we receive a letter from HMRC saying how much I'd paid (in income and NI, not counting sales tax, fuel taxes, etc), and where it goes.

https://www.gov.uk/government/news/millions-start-receiving-...

At least if you're using the tax prep software I did it offers a 'payment plan', which seems like an upfront way of asking to have wages garnished post-taxes due, instead of before (like W4?s do)

This is something the IRS does directly to encourage people to file even if they can't afford to pay right then. This helps with cases like self-employment income or capital gains where you can end up owing at the end of the year even with W4 withholding for your primary income stream.

The penalty for not paying is much lower than the penalty for not filling, if you owe.

It's possible your tax prep software does their own version as a middleman, but the IRS offers it directly through the same system that quarterly estimates are paid.

> What happens when you don't have the cash to pay?

You ask as if it would be a new concept to penalize people who don't pay their taxes...

There are clear laws on the books for tax evasion. No need to doubt about what happens.

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