Wednesday, February 3, 2016

The Irrational Regret of Automatic Withholding

Ladies and Gentlemen, I present you the following:
Today, I found out that my tax filing status was never changed after my divorce. This means I haven't been paying enough and now the government wants its money. FML
source

 A proletarian gripe, yes. But it's a sentiment pretty widely shared. If you have ever taught a principles course, ask yourself how often you've had to explain the permanent income hypothesis to students. Consider how much effort you've expended trying to shoo away the notion that IRS withholding is pretty close to the worst sort of savings scheme outside of payday lending. Now consider how many students out there never bothered to show up to your classroom in the first place.

Now take a moment to think just how easy it might be to hoodwink a democracy.

I am curious how stubborn a tick this automatic withholding it. Some programs cannot easily be dislodged once in place, thanks to popular support. IRS policy seems at first blush to lack popular support, yet I think it enjoys just enough indifference among the people that multipartisan support by elites is sufficient to ensure its longevity.

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