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DOCUMENT PESUME
04273 - [B3394626]
inequities in the Federal Withholding Tax System. PAD-78-5;
B-137762. December 2, 1977. 21 pp. + 2 appendices (8 pp.).
Report to the Congress; by Elder B. Staats, Comptroller General.
Issue Area: Tax Policy: Tax Provisions Impact on Economic
Sta'ilization and Growth (1503).
Contact: Program Analysis Div.
Eudget Function: General Government: Central Fiscal Operations
(803); General Government: Other General Government (806).
Organization Concerned: Internal Revenue Service; Department of
the Trarsury.
Congressional Relevance: House Committee on Ways and Means;
Senate Comittee on Finance; Ccngress.
Authority: T.x Ecduction Act of 1975. Tax 2eduction and
Simplification Act of 1977.
The present system for withholding individual. income
taxes causes most low-income wage earners to be overvithheld.
The pripary reasons are complex tax laws and inadequate
information provided to the taxpayers. Findings/Conclusions:
From 1966 to 1973, 80% to 90% of the taxpayers subject to
withholding had more money withheld than they owed. The average
amount overwitibheld for 1973 was $380. The Federal Paperwork
Commission reported that in 1975 more than 8 million individual
income tax returns showing no tax liability were filed solely to
claim refunds. About 90% of taxpayers earning under $5,000 had
too nuch money withheld. Although the system does not generally
compel ovarwithholding, it strongly encourages it. Congressional
options for solvring the problem of cverwithhoiding include:
simplifying the income tax law to allow a clo-oer match of
amount: withheld with actual tax liabilities; continuirl the
present system, but paying interest on the refunds; and .vising
the present system to give wage eaxners the freedom allowod to
others under the estimated tLx by allowing as many withholding
exemption.s as necessary and by requiring employers to withhold
specific additional a,,ounts for wage-earners also claiming
withholding exemptions. Recommendations: The Secretary of the
Treasury should: provide better information on the withholding
system to employers and employees; coLduct surveys of employers
to determine the withholding methods used and whether these
methods could be modernized; and recommend to the Congress
revisions to the In-ernal Re7enae Code which wculd allow quick
refunds to the unemployed. (Author/SC)](ViewImageLocal?handle=hein.gao/gaobaawhu0001&div=1&collection=&method=preview&ext=.png&size=3)