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The biggest flaw in Washington policy makers and economists is not understanding predictable human behavior. We are not robots, and robotic economic formulas that fail to account for human nature are meaningless.

The good and bad elements of how we think and then how we act based on what we think is what drives all economics, and it is why the understanding of history prepares us to make wise policy decisions.

Unfortunately, making wise policy decisions is difficult due to the very real fact that policy decisions are made by politicians, and as such the purity of these decisions is often corrupted by political self-interest at the expense of good policy. We know this because we know the human condition.

The most long running and nagging policy question in Washington that seems unfixable is the inability of our government to stop its truly grotesque spending habits. This can be explained by a simple acronym, “OPM.” Other People’s Money. My children don’t pay the light bill or the gas bill. That’s why they, despite my remonstrations, leave the lights on and the front door wide open when it is 19 degrees outside.

If you have read my previous articles, you likely are aware of my brilliant western civilization saving ideas. Here is one that the new Trump administration should employ, and while it won’t solve the overspending problem in Washington, it likely will put a sizeable dent in it. Eliminate the withholding tax.

If taxpayers had to write a onetime check out of their own accounts for their tax bill every year, there would be a vast hue and cry throughout the land to cut government spending.  The nefarious underpinnings of the withholding system were crafted in a deliberate manner to “trick” the common man out of his hard earned labor by FDR and his merry band of mendacious ministers.

Governments love a good crisis, and what could be a better crisis to expand the size of government than World War II? The FDR administration quickly passed the Revenue Act of 1942, bringing millions of middle class and low income non-taxpayers into the clutches of the federal income tax system.  Shortly thereafter, the government passed the Current Tax Payment Act of 1943, which required employers to withhold a portion of their employees’ wages to cover each employee’s likely tax burden. Now Dear Reader, I’m sure it hasn’t escaped your attention that the ostensible reason for these two legislative acts, WWII, ended 80 years ago. What’s more, there’s something truly odious, indeed villainous,  about the “far away” government intercepting your money, born from your labor, and extracting its “cut” before your money ever reaches your pocket.

If we are truly a democratic republic that derives its consent from the people, shouldn’t a necessary element of self-governance entail the people handing over money to run the government as opposed to the government taking the people’s money before it ever reaches them? Don’t we want our citizenry to be engaged in the public process such that they have an investment in the efficiency of government operations and spending? Isn’t this the essence of being a free people? The militiamen who fired the shot heard round the world at the Old North Bridge and the Over Mountain Men who charged up King’s Mountain would never in a million years acquiesce to such a system.

FDR and his Treasury secretary Henry Morgenthau knew exactly what they were doing. The record is replete with them understanding the psychological effects of the government taking smaller portions of tax payments out of employee checks over the course of a year, as opposed to the taxpayer having to write the government a large check at the end of the tax year. They knew the public would resist. I find this completely repugnant because I know the way elitists think. They look down upon the people they are trying to dupe. To them, these lumpkin are not really people with families and aspirations for future achievement, they are cattle to be controlled to fuel the pseudo intellectual fantasies of the beautiful people and what they think they can do to save the world by spending other people’s money.

FDR and Morgenthau were of course right, but that doesn’t make what they did right. They knew the benefit of taking a little out at a time would likely prevent a tax revolt. If it’s not too painful at any one time, many might grumble, but not march of Washington with bayonets fixed.

Another element of human nature is a super-majority of people accept the status quo as “just the way it is,” assuming “it’s always been this way,” when in fact it hasn’t and certainly doesn’t need to be “this way.” I’m not a member of such super-majority.

I used to have several hundred employees. I hated it. Why was it my responsibility to collect other people’s taxes, and if I was one hour late, there were severe penalties. As a nation we want to instill individual responsibility in each citizen, and that translates into each individual having an incentive to instill fiscal responsibility in government. Having incentives aligned properly is the only way to achieve efficiency in any economic model. 

FDR’s withholding tax is an example of cunning elitist craftiness to serve the purposes of deep state expansionists at the expense of a thrifty and parsimonious government that serves the interests of the people.  It’s time to end it!

Robert C. Smith is Managing Partner of Chartwell Capital Advisors, a senior fellow at the Parkview Institute, and likes to opine on the Rob Is Right Podcast and Webpage.


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