Thursday, August 13, 2009

What a country that could manage without tax withholding would be like

Let's imagine a country in which it would be practical to replace tax withholding on wages with universal quarterly payments sent in by taxpayers, as Charles Murray proposes in today's Wall Street Journal.

In such a country:

1) Everyone would have checking accounts, so everyone would have a low-cost alternative to using money orders to pay their taxes.

Which in turn would mean that everyone in that country trusts banks, and everyone in that country has the organizational skills, arithmetic skills, and self-discipline to manage their bank accounts in a way that will make it worthwhile for banks to offer them checking accounts.

[Reality check: In 2004, the Federal Reserve estimated that 10 million "unbanked" or "underbanked" Americans lack checking accounts. Some people can't get checking accounts because they've had trouble managing checking accounts in the past. In some cases, their troubles were not entirely of their own making, but due to an irresponsible spouse or other relative with whom they had a joint account. In other cases, the problem was due to depositing a check written by another person which they thought was good, but which was, in fact, not good. In other cases, the problem was due to misunderstanding of the bank's policies on fees and holds placed on certain types of checks deposited in their account.]

2) Everyone in that country has the capability to make reasonably accurate projections of their accrued tax liability each quarter without spending inordinate amounts of time figuring it out.

Which in turn would mean that: the tax system in the country is much simpler than the one we currently have, and everyone has a reasonable amount of number sense and fluency with arithmetic computations.

[Reality check: the National Taxpayer Advocate announced in January that individuals and businesses spend 7.6 billion hours a year complying with tax filing requirements under our convoluted and complex current law. And far too many Americans are innumerate.]

3) Everyone in that country has the budgeting skills to manage their cash flow so they'll have the money available when the quarterly tax payments are due.

Which in turn would mean, again, that everyone has a reasonable amount of number sense and fluency with arithmetic computations, as well as organizational skills and self-discipline.

[Reality check: even a veteran New York Times economics reporter can't manage his financial affairs responsibly. He writes that he repeatedly overdrew his checking account, and he ran up clearly unsustainable and pyramiding mortgage obligations.]

A good friend of mine is an amazingly awesome fifth-grade teacher in an inner-city school, where 85% of the children come from families with incomes qualifying for free lunch. She has a system in which every student has a classroom job, and gets paid in a classroom "currency". They can earn extra currency for various positive acts (and lose it for negative ones.) They have to pay "rent" for their seats in the classroom. Students who build up significant positive balances can actually "buy" other students' seats, in which case they become the landlords and collect the rent from those classmates whose seats they own. They also pay "taxes" in their classroom currency. They can use their currency to pay for various classroom privileges, and there is a monthly auction in which students can use their accumulated balance to bid on items the teacher has managed to collect.

I am in awe of this teacher--she walks on water, as far as I am concerned. She also has her fifth grade students eager to tackle Shakespeare. By the way, half her students come from Spanish-speaking homes and the other half come from English-speaking homes, so she teaches in a special immersion program where both groups of students develop mastery of both languages. She teaches all subjects in English and Spanish on alternating days (all English one day/all Spanish the following day.) And she runs marathons. And she and her husband are working on climbing all the Adirondack high peaks with their own three children (a great way to learn about goal-setting, problem-solving, and tenacity!)

But I digress--in my ideal country, all children would grow up with parents and teachers who would give them the tools they need to manage checking accounts and budgets responsibly, and pay their tax bills themselves, without the need for withholding.

In such a world, it would be practical to replace our current system of withholding with quarterly tax payments made directly by taxpayers, as Charles Murray proposes.


  1. Minor quibble: "items the teacher has managed to collect"

    In the interests of accuracy, in my experience teachers who use an auction method "manage to collect" most of the items through opening up their own purse to pay for the auction items or by spending a large portion of their own personal free time begging for help.

    This doesn't mean the auctions don't work (most of the time). But it does mean the teacher has to be willing to make the sacrifice of several hundreds of dollars out of their own household's budget in order to benefit their students.

    And this on top of the several hundreds of dollars (and several hundreds of hours) out of the teacher's own household's budget which already is required in order for her workplace to become a nurturing environment for the students and/or to allow the classroom to function smoothly enough to keep from her from pulling her hair out.

    Where did you think the money for pencils, paper, and other supplies, which the students' irresponsible parents refuse to purchase, comes from? Or folders and bins to organize the kid's work? Or Kleenex? Or party supplies, food for school events? Or the posters of mutiplication tables and other such motivational/educational items come from?

    The school system's budget? Pardon me while I snicker derisively.

    From the abusive, dope-smoking parents of many of those students? Adults, who often as not, don't make sure their kids have something to eat at home every day?

    From the gangs' elementary school affiliates? Because if you think gangs don't exist and recruit in elementary schools, you're out of touch.

    No, the financial burden is on the teacher.

    And while I'm ranting, I'd also like to point out that "inner-city schools where 85% of the children come from families with incomes qualifying for free lunch" not only exist in blue states where the NEA has a stranglehold on the educational system.

    Those schools, and the teachers in them, also exist in right-to-work states where starting teacher pay and pay for highly experienced teachers can easily be only half of what it would be in a hardcore union state.

    Kleenex and school supplies aren't priced according to teacher salaries....

  2. That's an important point. I've volunteered in both inner city and suburban schools, and I know that teachers in the inner city schools really have to struggle, and often pay out of their own pockets, to provide their students with items that suburban schools routinely expect parents to provide.

    My friend describes some of the details of her efforts to procure items for her classroom auctions here:

  3. Hi, MOK, It's your teacher friend!
    It's true, I've managed to collect many of the items (especially from generous friends who are willing to share!). And it's also true that some of the items come from me opening up my own purse. I'm trying hard NOT to do that this year. However, many of the items at the auction come from my own creativity. Mostly, what these students want/need is time and attention. We always have a mystery bag in the auction and it's usually the hottest item (the students just can't stand NOT knowing what is in that bag!). I generally put "lunch with the teacher" in the bag. The student who wins gets to invite a friend and have lunch in the classroom with me. And they bring their lunch from the cafeteria. Sometimes I'll bring in cupcakes or apples for dessert. That's it. Simple. But very effective.