Make Taxes Visible
November 23, 2010
Here is an idea that should receive support from just about everyone: the taxpayer savings account (TSA). Instead of the current withholding system, amounts withheld from your paycheck would go into a segregated account that you own. Interest that accumulates would be yours to keep, instead of accruing to your employer or the government, says Michael Whalen, policy chairman of the National Center for Policy Analysis and the president and chief executive of Heart of America Restaurants & Inns.
- The balance not needed for taxes would grow tax-free for your retirement or could be withdrawn tax-free for your personal consumption.
- Income taxes you owe would only be paid when they are due -- on April 15.
- Social Security and other federal payroll taxes could also be put in the account, and remitted quarterly to the government.
The current withholding system distorts individual perception of tax liability. Your money is automatically whisked away from each paycheck, and most folks receive only their "take-home" pay. Then, when their final tax liability is computed, they rejoice when they receive their tax "refund," which is simply the excess of taxes they paid throughout the year, says Whalen.
Each taxpayer's taxpayer savings account could earn a modest return. The taxpayer could see that the account contains his/her money. If the taxpayer does qualify for a refund, it could be direct-deposited into the account. Because the refund has already been taxed (along with any additional funds in the account) the TSA functions like a Roth retirement account -- the balance in the account and cumulative interest earned would never be taxed again!
Source: Michael Whalen, "Make Taxes Visible," National Center for Policy Analysis, November 23, 2010.
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