Ken Davis is a former Fortune 500 executive and former deputy attorney general in Virginia. He is currently pushing a controversial idea to reform federal tax withholdings.
Describing the idea on America Family Radio, Davis said the IRS hits later filers with a 7% penalty for filing late, Meanwhile, he complained, millions of taxpayers receive nothing for prepaying taxes – trillions of dollars’ worth – in advance every payday.
“If you're late making the payment,” Davis explained, “the IRS will hit you, and hit you hard, with a stiff late payment penalty that carries with it an interest rate of 7%.
If you make the payment on time, he continued, “you get nothing, not a penny, from the government to cover the cost to you of losing the use of that money during all of these months,” Davis told “The Core” show host Walker Wildmon.
To level the playing field, Davis said the fix is simple: Make the government pay the same interest rate on early tax money that it charges for late payments.
Because it deals with federal revenue, he said, Congress doesn’t even need a 60-vote Senate majority to pass it. That eliminates all the Capitol Hill chatter about a narrow majority and using the filibuster.
“This could be accomplished as a part of the budget reconciliation process,” he advised.
Davis said the now-common paycheck withholding was originally popularized during World War II to mask the true impact of tax hikes by keeping the net take-home pay out of sight.
He dropped a name many might not have heard: the late economist Beardsley Ruml. He was a Federal Reserve chairman and the mind behind income tax withholding.
“Beardsley Ruml came forth with the idea for payroll tax withholding because the government would get the money on a regular basis and they could raise taxes,” Davis advised.
“Because people, over time, would quickly come to think of their net paycheck as their paycheck, the size of the tax hit on their paycheck would be hidden,” he said.
