The Single Most Important Law That Tipped the Balance Towards Big Government

My vote:  mandatory income tax withholding.  Taxpayers never see most of the money they pay the Feds.   They don't have the shock of seeing the amount of money going to the government in one big check.  Since most formulas lead to over-withholding, people are actually eager to file their tax returns to get refunded the money that was withheld in excess of liability (e.g. interest-free loan to government).  Employers, who live in fear of violating one of a hundred thousand different labor rules, are more than willing to withhold whatever the government asks - they certainly aren't going to stand in front of the tanks to protect their employees' money.

California is taking this law to the next logical level of abuse:  Increasing the interest-free loan that citizens must give the state.  If free credit markets won't lend you money at a rate you can afford, force your citizens to lend it for free:

Starting Sunday, cash-strapped California will dig deeper into the pocketbooks of wage earners "” holding back 10% more than it already does in state income taxes just as the biggest shopping season of the year kicks into gear.

Technically, it's not a tax increase, even though it may feel like one when your next paycheck arrives. As part of a bundle of budget patches adopted in the summer, the state is taking more money now in withholding, even though workers' annual tax bills won't change.

Think of it as a forced, interest-free loan: You'll be repaid any extra withholding in April. Those who would receive a refund anyway will receive a larger one, and those who owe taxes will owe less.

I am starting to feel a sort of anti-irredentism for California.


  1. Michael:

    The state is still using IOUs. These people will get their 10% back sometime next year but there is a very good chance it won't be in currency.

  2. morganovich:

    if you make estimated tax payments, california has already been doing this all year.

    when i filed my 2008 taxes, i got this interesting surprise - california had altered the ratio for estimated payments. no longer was it 25% per quarter. now it was 30%/30%/20%/20%.

    while this is not technically a tax increase in absolute dollars, it does mean that they are getting the return on my interest free loan for longer.

    this desperation to get cash flowing in sooner tells you everything you need to know about CA state finances.

    and, of course, this whole program is much more ominous from a state that pays refunds late and possibly with nonconvertible IOU's.

  3. Anne Cleveland:

    Yes it was the graduated income tax law which passed in 1913,which really started this country on the down-fall to socialism.

    Those being paid with tax-dollars, elected and appointed, never seem to run out of devious ways to implement thievery. Despite any ways and means to justify,stealing is stealing, and always wrong.

    Anne Cleveland


    I still feel irredentism for parts of CA. Can we in AZ just annex their beaches?

  5. jhc:

    I agree that this is a strong candidate for single-most-important change in favor of Big Gov. I make estimated quarterlies so it's painfully obvious how deep the gouge is.

    And to think Milton Friedman was instrumental in bringing it about (see to finance WW II.

  6. GU:

    I would vote for the Sixteenth Amendment as the most important law in tipping the balance towards big government. The federal income tax was literally held unconstitutional by the Supreme Court prior to Amendment XVI. Tax rates in many states are onerous, but they are nothing compared to federal taxes (at least if you're in the top 50% of earners).

  7. GU:

    I should add that the ability to leave a state—to vote with one's feet—is the major reason why states have lower tax rates than the federal government. You can leave California for New Hampshire, but its much harder to leave the United States.

  8. feeblemind:

    One wonders how many states are watching this scheme and gauging voter reaction? Unless the voters make the pols pay with their seats, this tactic could spread over the entire USA.

  9. GU:

    "One wonders how many states are watching this scheme and gauging voter reaction? Unless the voters make the pols pay with their seats, this tactic could spread over the entire USA."

    California has at least two nationally important cities (L.A. & SF/SV) and unbelievably awesome natural amenities (climate, beaches, mountains, etc). California politicians have a lot more slack than most states' pols.

  10. perlhaqr:

    I wanna know if you can send one of those tax refund IOUs to the DMV or whatever to pay your car registration with.