January 30, 2008
Stimulus and Tax Withholding

I'm in the stimulus doubters club; I love the metaphor about moving water from the deep end of the pool to the shallow end and expecting the water level to rise.

But set aside such thoughts for a moment. Even if the Senate passed and the president signed the stimulus legislation tomorrow, there are apparently doubts that the government could cut the checks before summer because the check-writing machines will be busy with tax refunds. So here's my question--why not distribute the rebates via temporary reductions in withholding? For example, employers could be instructed to reduce withholding by $300 per month for two months (similar adjustments could be made for people paid weekly, every two weeks, etc.).

Note that I'm not suggesting some sort of trick of reducing withholding but not reducing tax liability. Instead, next year's tax forms could add one more line (hey what's one more!) for filers to net out their rebated tax liability after figuring their liability from the tax tables.

I can think of some legit reasons not to distribute the rebates via withholding adjustments. For example, such a scheme would be a pain for employers and their payroll software. But I wonder if there's something else--adjusting withholding might make some sheeple aware of how baaaadly (sorry, it's late) their paychecks are being fleeced (sorry again). Or maybe the pols think mailing checks is a more effective way of buying votes than a temporary bump in take home pay.

Just a thought ...

Posted by E. Frank Stephenson at 11:10 PM in Economics

The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. -Adam Smith

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