William Federer / June 17, 2019

Withholding Taxes From Paychecks

Do you have a Social Security Number? Social Security numbers came into use in November of 1935, as part of Franklin D. Roosevelt’s New Deal program during the Great Depression.

Do you have a Social Security Number?

Social Security numbers came into use in November of 1935, as part of Franklin D. Roosevelt’s New Deal program during the Great Depression.

It was in response to so many citizens losing their life’s saving when the speculative bank investments of the Roaring Twenties came to an abrupt end with the 1929 Stock Market Crash.

Printed on the card, until 1972, was the statement:

Do you have withholding from your paycheck?

Another government program begun in response to an emergency was withholding taxes from individuals’ paychecks, which started June 9, 1943.

Congress needed money to fight Hitler’s National Socialist Workers Party, which was conquering and enslaving millions of people in Europe during World War II.

The idea of withholding of taxes from people’s paychecks came from Beardsley Ruml, treasurer of Macy’s Department Store who became chairman of New York’s Federal Reserve Bank.

Ruml was helped by Wall Street financier Bernard Baruch and Nobel Prize winning economist Milton Friedman.

Milton Friedman stated in a 1995 interview with Reason magazine’s Brian Doherty:

“I was an employee at the Treasury Department. We were in a wartime situation.

How do you raise the enormous amount of taxes you need for wartime? …

In World War I, a very small fraction of the total war expenditure was financed by taxes, so we had a doubling of prices during the war and after the war.

At the outbreak of World War II, the Treasury was determined not to make the same mistake again. You could not do that … without withholding …”

Friedman continued:

“And so people at the Treasury tax research department, where I was working, investigated various methods of withholding.

I was one of the small technical group that worked on developing it.

One of the major opponents of the idea was the IRS. Because every organization knows that the only way you can do anything is the way they’ve always been doing it.

This was something new, and they kept telling us how impossible it was …”

Friedman concluded:

“It was a very interesting and very challenging intellectual task. I played a significant role, no question about it, in introducing withholding.

I think it’s a great mistake for peacetime, but in 1941-43, all of us were concentrating on the war …

I really wish we hadn’t found it necessary and I wish there were some way of abolishing withholding now.”

The Federal Government got people to sign up for withholding taxes by forgiving them for not paying their lump sum taxes due at the end of 1941.

Called the “Pay-As-You-Go” tax, it was part of the patriotic war enthusiasm which included slogans such as:





So much money came in from the “Pay-As-You-Go” tax with so few complaints that it continued after the war.

John Steele Gordon wrote in his article “American Taxation” (American Heritage, May 1996):

“People will willingly pay very high taxes during wartime.”

John F. Kennedy told Congress, April 20, 1961:

“Introduced during the war when the income tax was extended to millions of new taxpayers, the wage-withholding system has been one of the most important and successful advances in our tax system in recent times …

Initial difficulties were quickly overcome, and the new system helped the taxpayer no less than the tax collector.”

Kennedy continued:

“In meeting the demands of war finance, the individual income tax moved from a selective tax imposed on the wealthy to the means by which the great majority of our citizens participate in paying.”

On September 18, 1963, Kennedy stated:

“The high wartime and postwar tax rates we are now paying are no longer necessary.

They are, in fact, harmful. These high rates do not leave enough money in private hands to keep this country’s economy growing and healthy.”

Kennedy stated February 6, 1961:

“Present tax laws may be stimulating in undue amounts the flow of American capital to the industrial countries abroad.”

He added April 20, 1961:

“In those countries where income taxes are lower than in the United States, the ability to defer the payment of U.S. tax by retaining income in the subsidiary companies provides a tax advantage for companies operating through overseas subsidiaries.”

John F. Kennedy stated September 18, 1963:

“A tax cut means new strength around the world for the American dollar … helping make the American economy … more competitive, by enabling our goods to compete with those who are developing foreign factories, and by making investment in America more attractive than investment abroad.”

Americans have had an historical aversion to taxation.

During the period when the U.S. Constitution was being written, the female Anti-Federalist author Mercy Otis Warren warned In her work, Observations on the new Constitution, and on the Federal and State Conventions, 1788:

“The immediate gift of the Creator obliges every one … to resist the first approaches of tyranny, which at this day threaten to sweep away the rights for which the brave Sons of America have fought …

And when asked, what is become of the rich produce of their farms - they may answer in the hapless style of the Man of La Mancha, ‘The steward of my Lord has seized and sent it to Madrid.’

Or, in the more literal language … Government requires that the collectors of the revenue should transmit it to the Federal City.”

Jefferson noted in his 2nd Annual Message, 1802:

“We are able, without a direct tax, without internal taxes, and without borrowing, to make large and effectual payments toward the discharge of our public debt and the emancipation of our posterity from that mortal canker …

It is an encouragement, fellow-citizens, of the highest order to proceed as we have begun in substituting economy for taxation.”

President Andrew Jackson stated in his 8th Annual Message, December 5, 1836:

“There is no such provision as would authorize Congress to collect together the property of the country, under the name of revenue, for the purpose of dividing it equally or unequally among the States or the people.

Indeed, it is not probable that such an idea ever occurred to the States when they adopted the Constitution.”

Andrew Jackson told Congress, May 27, 1830:

“Through the favor of an overruling and indulgent Providence our country is blessed with general prosperity and our citizens exempted from the pressure of taxation, which other less favored portions of the human family are obliged to bear.”

Jackson stated December 5, 1836:

“No people can hope to perpetuate their liberties who long acquiesce in a policy which taxes them for objects not necessary to the legitimate and real wants of their Government …

The practical effect of such an attempt must ever be to burden the people with taxes, not for the purposes beneficial to them, but to swell the profits of deposit banks and support a band of useless public officers …

There would soon be but one taxing power, and that vested in a body of men far removed from the people …

The States … would not dare to murmur at the proceedings of the General Government, lest they should lose their supplies;

all would be merged in a practical consolidation, cemented by widespread corruption, which could only be eradicated by one of those bloody revolutions which occasionally overthrow the despotic systems of the Old World.”

Andrew Jackson stated in his Farewell Address, 1837:

“There is, perhaps, no one power conferred on the Federal Government so liable to abuse as the taxing power …

Plain as these principles appear to be, you will yet find there is a constant effort to induce the General Government to go beyond the limits of its taxing power and to impose unnecessary burdens upon the people … to fasten upon the people this unjust and unequal system.”

President Calvin Coolidge stated May 31, 1926:

“While many other nations … are struggling with a burden of increased debts and rising taxes, which makes them seek for new sources from which by further taxation they can secure new revenues,

we have made large toward paying off our national debt, have greatly reduced our national taxes, and been able to relieve the people by abandoning altogether many sources of national revenue.”

Prior to 1913, other than Lincoln’s Revenue Act during the Civil War, there was no income tax.

The Federal Government was financed primarily by tariff taxes on imports, called imposts.

President Franklin Pierce stated in his First Annual Message, December 5, 1853, how tariffs on imported goods were sufficient to finance the government:

“Happily, I have no occasion to suggest any radical changes in the financial policy of the Government.

Ours is almost, if not absolutely, the solitary power of Christendom having a surplus revenue drawn immediately from imposts (tariffs) on commerce.”

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