The Trojan Horse: A New Tax Reform Strategy

2013 is the 70th anniversary of the greatest crime perpetrated on the American taxpayer, save for the Sixteenth Amendment itself. In 1943, concerned with maintaining government tax revenues and cash flow to support World War II, Congress enacted — and President Franklin D. Roosevelt signed into law — the “Current Tax Payment Act of 1943.”

As per Big Government’s standard operating procedure, the benign title obscured how the legislation dramatically altered the relationship between citizens and their government.

The act established what is known today as Title 26, Subtitle C, Chapter 24 of the United States Code. Title 26 is the Internal Revenue Code; Chapter 24 is entitled “Collection of Income Tax at Source on Wages.” The provisions of that chapter mandate that your employer must “collect,” i.e. seize, your income taxes from you before the money ever gets in your hands. When it was passed, it was a very unpopular measure. Not only was it unpopular, it was also characterized as a temporary measure for war funding that wouldn’t be needed after victory was attained. As with most tax legislation — except for rate reductions that include automatic sunsets to get them passed — what was sold as temporary wound up becoming permanent.

The new law taking Americans’ tax payments automatically was so unpopular that the Federal Government financed a propaganda campaign to get the public on board. Their use of the Walt Disney Company to do it should have featured Mickey Mouse (to use the analogy of an organization filled with ineptitude), but we got Donald Duck instead:

There’s some horrific dialogue in that short bit of wartime cinema, but I’ll just point out the most egregious: “Taxes to beat to earth the evil destroyer of freedom and peace.”


And here we were all thinking that taxation, cast in a veil of patriotism, originated in recent times since the extension of the “Bush Tax Cuts” was first debated. I call the legally-mandated withholding of wages for taxes “the greatest crime on American taxpayers” because so many of our fellow citizens simply have no idea how much they actually pay. Consider:

  1. Direct deposit, coupled with the increasing prevalence of electronic pay stubs, means that post-tax wages just “show up” in our bank accounts without the payee ever seeing the variance between gross pay and net pay.
  2. Many people equate getting a tax refund with not paying taxes. Yet the vast majority of taxpayers get nothing close to their entire withholding back after filing their returns.

Government has an enormous incentive to camouflage and conceal from taxpayers how much they are actually paying — and as much as it pains me to say it, “conservatives” in Congress are often just as duplicitous when it comes to taxpayer accountability as their progressive colleagues. We can preach fiscal conservatism until we’re blue in the face — as I’ve done on my own blog with respect to defense spending and transportation infrastructure — but the numbers are so staggeringly high and out of the range of comprehension for John and Jane Q. To most of the public, they’re meaningless. We’ve got to find a new approach and if people aren’t going to think we’ll just have to make them feel.

Americans ought to feel the pain of having to make their own income tax payments quarterly like the self-employed have to.

Getting rid of automatic tax withholding isn’t an original idea. Richard Winchester demonstrated the attractiveness of withholding repeal in a March 2013 piece in American Thinker, and also pointed out the likelihood of getting it passed is nil considering the current state of the Congress and the President. But is there a zero chance of getting it passed, even with today’s Washington, DC politics?

I think there’s a great chance of getting rid of withholding; all it takes is a present-day legislative Trojan horse.

Fortunately, our Congress gives us potential Trojan horses on a regular basis and they’re in just about every major bill that’s proposed: for example, the 908-page Patient Protection and Affordable Care Act, a.k.a. “Obamacare.” Then-Speaker of the House Nancy Pelosi famously said of Obamacare, “We have to pass the bill so that you can find out what’s in it.”

My advice to conservatives and libertarians in Congress is this: take her advice!

Legislators pushing for fiscal responsibility and tax reform should start by burying provisions that help our cause in legislation.

Every bill that comes down the pipe is ripe for this tactic, particularly those many-hundred page “comprehensive” bills best suited for unintended consequences. It’s obvious that so many of our legislators and their staff don’t read what they vote on. This is based on post-enactment comments as bill supporters are hoisted on their own petards by “Easter eggs,” to use a gaming term, that come as complete surprises to them.

All it would take is one sentence in an unrelated bill to get a tax revolution started: “Section 3402 of Title 26 of the United States Code is hereby repealed.” If that got through all the way to Presidential signature, then the legal requirement for employers to act as agents of the State in collecting income taxes would be removed. Assuming employers decided to save the cost of compliance with a law they no longer are compelled to comply with, immediately we would restrict the cash flow to the Federal Government and their ability to spend.

Within six months, we could have a large majority of wage earners from all income brackets demanding tax reductions because they will finally see how much money they have sucked out of them just for having a job. For the first time they’ll have to write out the check to Uncle Sam. Will it be painful to a whole lot of people who don’t properly budget? Yes, it would. If everybody thought as we do, there’d already be enough pain and negative reinforcement coming out of Washington DC to want to change, well, everything. But thanks to things like tax withholding, we’ve softened accepting tyranny.

The possibilities for this approach are endless — it’s not just restricted to tax reform.

Tack in a sentence obliterating an onerous environmental regulation or two (or two hundred) to education legislation. Insert a seemingly innocuous sentence enhancing privacy rights in the wake of NSA surveillance into the “Farm Bill.”

Right now, our side wastes a lot of legislative cycles on largely symbolic measures, like dozens of attempted Obamacare repeals and the incredibly unlikely proposition of having President Obama’s signature legislation defunded. Stands on principle are to be commended, but we could use some more cunning tactics on the part of like-minded legislators.

Hey, even if we never get anything beneficial out of this method, we could still accomplish something vital: Senators and Congressmen might start reading the legislative advancements of statist soft-tyranny before voting.