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.