The Liberty Papers

Here’s the outrage of the day, coming straight out of the UK:

The UK’s tax collection agency is putting forth a proposal that all employers send employee paychecks to the government, after which the government would deduct what it deems as the appropriate tax and pay the employees by bank transfer.

The proposal by Her Majesty’s Revenue and Customs (HMRC) stresses the need for employers to provide real-time information to the government so that it can monitor all payments and make a better assessment of whether the correct tax is being paid.

Currently employers withhold tax and pay the government, providing information at the end of the year, a system know as Pay as You Earn (PAYE). There is no option for those employees to refuse withholding and individually file a tax return at the end of the year.

If the real-time information plan works, it further proposes that employers hand over employee salaries to the government first.

Now, I’ve read the full proposal (1st link inside the blockquote), and I should, in the interest of fairness, clarify one discrepancy between what is stated above and the intended proposal: The HMRC would not be gathering salaries first and then disbursing what is “left over” after tax to the employee’s bank account. Rather, the HMRC would be involved as a third party — i.e. when the employer directs a salary payment, the HMRC advises the employer’s bank what the tax percentage for withholding is before the bank itself makes the payment. Some would say that it’s a distinction without a difference, but I would mention that the government is not, be default, a true middleman that intercepts the payment itself on its way to the employee.

That said, we’ve all seen what happens between legislation’s introduction and its passage, and I definitely am concerned that a) this little distinction could be removed quickly, or b) that this simply notches the gov’t one step further to being the actual middleman.

The article above goes on to express concern at the likelihood of mistakes in the system, but the real issue is greater government ability to step in and damage your ability to live if they see fit. Assuming that they don’t get direct control over the bank account itself, the government is likely to get compliance from a bank if, for example, they decide that someone’s “deduction” should be 100%. Right now the system is decentralized, so the employer has to calculate deductions based upon published rules and pay their employee accordingly. It doesn’t allow for the government to directly, invisibly, and immediately intrude on the arrangement. That would change, and certainly not for the better.

Even without the nightmare scenario, it allows for much less visible and more immediate changes to the tax code. Enabling centralized deductions ensures that if the legislature approves a tax rate or policy change, they don’t need to inform employers and set up a long lag time — citizens just start seeing a slight change to their take-home pay. This will make it easier to raise taxes.

Finally, I’ve often said that the nanny-state and regulatory-state policies of Britain are a leading indicator for the US (although oddly, reading deeper I think we may have beat them to withholding by a year — lucky us!). If this is being pushed there, it is no stretch to think that it’ll be very long before our own politicians want to follow their example.

Of course, it’s only appropriate to close with the song “Taxman”. While I’m partial to the Stevie Ray Vaughan version myself, with this being a story from the UK it’s gotta be the original: The Beatles.

Hat Tip: Billy Beck