[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1919 Introduced in House (IH)]
111th CONGRESS
1st Session
H. R. 1919
To amend the Internal Revenue Code of 1986 to repeal the withholding of
income and social security taxes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
April 2, 2009
Ms. Foxx (for herself, Mr. Paul, Mr. Burton of Indiana, Mr. Franks of
Arizona, Mr. Duncan, Mr. Garrett of New Jersey, Mr. Bartlett, Mrs.
Myrick, Mrs. Blackburn, Mr. Pence, Mr. Kingston, and Mr. Wilson of
South Carolina) introduced the following bill; which was referred to
the Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to repeal the withholding of
income and social security taxes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Federal Withholding Tax Repeal Act
of 2009''.
SEC. 2. FINDINGS.
Congress finds the following:
(1) At the onset of the Civil War, Congress passed the
Revenue Act of 1861, which imposed a tax on personal incomes
and to assure timely collection, taxes were ``withheld at the
source'' by employers.
(2) The need for Federal revenue declined sharply after the
war and in 1872, the income tax was abolished and along with
it, the Federal withholding mandate.
(3) With passage of the 16th amendment to the Constitution,
Congress swiftly passed legislation creating a Federal income
tax, withheld before employee salaries were paid.
(4) In response to growing taxpayer criticism of the
withholding mandate, Treasury Secretary William G. McAdoo
stated that ``it would be very advantageous to . . . do away
with the withholding of income tax at the source'' because it
would ``eliminate a great deal of criticism which has been
directed against the law''; a statement reflecting the
sentiment which ultimately led to the repeal of Federal
withholding authority in 1917.
(5) In the 1920s and 1930s, income taxes were due on March
15 following the end of the tax year and could be paid either
in one lump sum on that date or in quarterly installments.
(6) With the onset of World War II, fearing that taxpayers
might refuse to pay the higher tax rates and surcharges
associated with funding the war effort, Federal officials,
lawmakers, and political leaders such as President Franklin D.
Roosevelt used the military crisis to draw on Americans' sense
of patriotism and resurrect the Federal withholding authority
as a ``temporary wartime measure''.
(7) The campaign to reinstitute a permanent system of
withholding overcame public hostility with the passage of the
Withholding Tax Act of 1943 which incorporated suggestions
proffered by Beardsley Ruml to eliminate individuals' 1942 tax
liabilities by counting amounts paid or withheld in 1943 as tax
payments for that year.
(8) Since that time, Congress has stubbornly refused to
repeal the Federal withholdings mandate contained in the
Withholding Tax Act.
(9) In fiscal year 2007, the Internal Revenue Service
refunded overpayments amounting to over $248,625,001,000 more
than actual individual income tax liabilities, effectively
denying interest payments otherwise owed to taxpayers and
amounting to a hidden tax.
(10) These overpayments are returned annually in the form
of tax refunds to taxpayers who often confuse the payments as a
reward.
(11) According to an April 2007 report released by the
Joint Economic Committee, millions of families, many in the
bottom fifth income percentile, have either zero tax liability
or receive a net transfer from the Government due to the
refundable portion of the Earned Income Tax Credit or the Child
Tax Credit. Those without Federal tax liability would benefit
the most from keeping their entire paycheck, rather than
temporarily surrendering portions to the Government.
(12) The absence of the Federal withholdings mandate leaves
employers and employees free to negotiate alternative, private
means of collecting and paying Federal income taxes, thereby
allowing individuals to voluntarily earn interest on their
withhholdings.
(13) The Federal withholdings mandate allows the Federal
Government to disguise tax increases and hampers Federal
accountability and transparency by requiring the assistance of
an intermediary tax collector.
(14) Complying with the Federal withholdings mandate
imposes costly burdens and legal liabilities on employers
forced to act as de facto IRS agents, without compensation for
lost time and resources.
(15) Referring to the Federal withholding mandate in his
work Public Finance in Democratic Process: Fiscal Institutions
and Individual Choice, 1986 Nobel Prize winning economist James
Buchanan stated that ``The individual who does not have
possession of income before paying it out cannot'' sense ``the
real cost of public services in a manner comparable to that
experienced in a genuine act of outpayment.''.
(16) In CATO Institute study, Charlotte Twight has noted
that ``[W]ithholding is the paramount administrative mechanism
enabling the Federal Government to collect, without significant
protest, sufficient private resources to fund a vastly expanded
welfare state.''
(17) The Federal tax withholding mandate was listed by
Human Events in 2005 as the fourth ``Most Harmful Government
Program'' and seventh ``Worst Tax Law'' in 2006.
(18) The National Taxpayers Union notes that the
incremental nature of withholding masks the true cost of
Federal income taxes, which would be much more apparent if
individuals had to write monthly, quarterly, or annual checks
to the Federal Government.
SEC. 3. PURPOSE.
The purposes of this Act are--
(1) to increase transparency and accountability in the
Federal tax system by providing the public with a more accurate
account of--
(A) the annual tax burden; and
(B) the Federal budget deficit;
(2) to decrease the overall tax burden and increase the
personal wealth of taxpayers by allowing for the personal
collection of interest during the fiscal year on overpayments
that are otherwise used by the Federal Government to partly
avoid interest payments;
(3) to decrease the burden on employers by freeing them
from the task of collecting income tax withholdings from their
employees; and
(4) to end the deceptive practice of masking higher tax
rates from taxpayers.
SEC. 4. REPEAL OF FEDERAL INCOME AND SOCIAL SECURITY TAX WITHHOLDING
MANDATE.
(a) In General.--The following sections of the Internal Revenue
Code of 1986 are hereby repealed:
(1) Section 3102 (relating to deduction of social security
tax from wages).
(2) Section 3202 (relating to deduction of railroad
retirement tax from compensation).
(3) Chapter 24 (relating to income tax withholding).
(b) Requirement of Estimated Tax Payments for Employee Social
Security Taxes.--Subsection (f) of section 6654 of such Code is amended
by striking ``minus'' at the end of paragraph (2) and inserting
``plus'', by redesignating paragraph (3) as paragraph (4), and by
inserting after paragraph (2) the following new paragraph:
``(3) the taxes imposed by section 3101(a) and 3201(a),
minus''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid on or after the first January 1 occurring after 1
year after the date of the enactment of this Act.
SEC. 5. CONTINUED VOLUNTARY TAX WITHHOLDING.
(a) Authority of the IRS.--Nothing in this Act may be construed to
limit the authority of the Internal Revenue Service to accept voluntary
tax payments from employers electing to continue collecting Federal
income taxes from employees.
(b) Voluntary Employer Participation.--Nothing in this Act shall be
construed to prevent voluntary employer sponsored withholding of
Federal income taxes on behalf of employees.
(c) Voluntary Employee Participation.--Nothing in this Act shall be
construed--
(1) to require any employee to participate in an employer
Federal income tax withholding system, or
(2) to prevent any election of an employee to opt in to an
employer Federal income tax withholding system, with all terms
and conditions for participation being negotiable between the
employee and employer.
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