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Dole's Plan Raises Taxing QuestionsBy Jane Bryant Quinn
Sunday, September 8 1996; Page H02
Those might be your options, unless Republican presidential candidate Robert J. Dole is extraordinarily careful about his pledge to "end the IRS as we know it."
His notion is to eliminate tax returns for people who earn straight wages or salaries (no income from self-employment or other sources), receive $250 or less in interest and dividend income and use the standard deduction. This would primarily be people with low and middle incomes.
Instead of filing a return, you'd arrange to have your full federal tax withheld from your paycheck, says Cesar Conda, a Dole policy adviser. You'd enter the appropriate amount of withholding on your W-4 form, which shows your marital status and the number of dependents you claim. Based on this, your employer would deduct whatever tax you say you owe and send it to the IRS.
The happy result, says the Dole campaign: No paperwork for you, no more work for employers than they have now, and no loss in tax payments to the government. No wonder the candidate describes himself as "the most optimistic man in America."
Wage earners already pay most or all of their taxes through withholding. But that's no substitute for a tax return. Your company doesn't withhold exactly the right amount. So you need a return -- to calculate the tax, see if more money is due or find out whether you're owed a refund.
Without a return, the government, too, can't tell if you've paid the right amount. It needs information, such as your marital status, how many dependents you have, whether you contributed to an individual retirement account and whether you're due a child care tax credit.
The Dole plan doesn't say how the IRS could discover these things, in the absence of tax returns. States would be equally in the dark. Most state returns are keyed off the federal returns, so they'd have to work with payment-by-tax-withholding, too.
Here are some of the questions on the IRS's mind:
Wouldn't you have to compute your tax anyway, to tell your employer what to withhold or see if you're owed a refund?
Who would check whether you told your employer to withhold the right amount? The Dole campaign says that the IRS will check the W-2s to be sure you paid the proper tax. But the W-2s merely report how much money you earned. To audit, the government needs more facts.
Will the W-2s turn into mini-tax returns? If so, would employers (who are responsible for issuing W-2s) have to prepare them?
Who would check whether tax-paying children were illegally deducted twice -- once by their parents and once by themselves? The IRS would have no way to tell.
Who would check that you had no more than $250 in investment income? The Dole campaign says that someone (not specified) will have to certify that amount -- not a simple or inexpensive task if the money comes from more than one source. Who would it be certified to? Would employers be responsible for withholding enough money to cover the tax due on interest income?
Say the IRS spotted $300 in investment income, paid to you and reported on a Form 1099. It would have to track you down and get you to file a return. How big a job would that be and how intrusive would Americans find it?
How many people would misunderstand the rules and fail to file by mistake? Thousands of families might innocently under-withhold, file no tax return and hence not know they owe more tax. Does the IRS have enough people to cope with large-scale under-reporting? This system has tremendous potential for setting off mass deficiency notices.
Who would enforce the differing tax rates on married couples and singles? This is a problem even under current law. If you marry, you and your spouse might continue to file as singles -- thereby dodging the "marriage penalty," which raises the tax on a working couple when their earnings are pooled. The Dole plan would make this even harder to spot.
Just for the record, here are three final questions, for people who say they'd still pay all of their tax. What if you learned that some of your fellow citizens shirked? Would your personal rectitude last? Or would you feel like a chump, and decide to shave your own taxes, too?