Question

Many years ago a famous member of Congress proposed eliminating federal income tax withholding. What criterion for evaluating tax systems did this proposal violate? What would likely have been the result of eliminating withholding?

Answer 1

Solution:-

Eliminating withholding would violate the convenience criterion – i.e., a tax system should be designed to facilitate the collection of tax revenues without undue hardship on the taxpayer or the government (i.e., a tax system should make collection as easy as possible). Eliminating withholding would most likely have slowed collection of taxes and increased taxpayer aggressiveness (or tax evasion). Prior research suggests that taxpayers are more likely to take more aggressive tax positions when they owe additional taxes when filing their return.

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