AFTER A BRIEF respite for consideration of less contentious issues--nuclear warfare, the plight of Central America and the decline of American education--political attention will return this week to the matter of withholding taxes owed on interest and dividends. Under pressure from large numbers of House supporters of repeal, the Ways and Means Committee plans to take up the matter on Thursday.
How could a simple rule that would impose no new taxes, deny no honest benefit and create no real burden on commerce become such a cause c,elMebre? Employers already apply more complicated wage withholding rules, every candy shop manages to withhold sales tax and the securities industry has prepared uncomplainingly for the more difficult task of withholding dividend taxes on rapidly shifting portfolios. Why the furor over bank deposits?
The banks, of course, have both the money and the access to customers that enabled them to paper Congress with preprinted complaints. But what is the banks' motivation? Perhaps the banks--especially smaller banks--are afraid that withholding will energize people who still have savings in low-interest passbook accounts to move their money to the higher- yield accounts now available. Or perhaps withholding provides an unpleasant reminder to computerless banks that, sooner or later, they are going to get driven out of business by their highly automated competitors, who can already perform far more complicated transactions than withholding at minimal cost.
But these are narrow concerns of the banks. What has stirred up the general public? Misleading propaganda is part of the answer. Who wouldn't be annoyed by the notion that Congress has underhandedly imposed a "new tax" on savings, as Sen. Robert Kasten's mail-outs asserted? But since it clearly isn't a new tax--at least for any conscientious, complying taxpayer--what do these self-appointed protectors of American savings really have on their agenda?
No serious person can believe that withholding will have any measurable effect on savings. Small savers are exempt, and persons with any substantial savings must already pay taxes quarterly. For the people in between, the loss of compound interest from paying taxes quarterly is at most a dollar or two--far less than the new fees banks are imposing on small depositors. A more plausible (if less high- minded) ground for objection comes to us from readers who assert that withholding makes it "too easy" to collect taxes--if only volunteers paid taxes, government couldn't spend as much.
No question that withholding is easy--in the sense that it is efficient, low-cost and fair. That's why the president and most tax reformers support it. There is, of course, no evidence that Congress won't spend money it can't collect--witness the federal deficit.