Written by Christopher on April 22, 2016

How would the income statement if there were no withholding?

Business

We are in full declaration of income and although many think about paying taxes that apply to us is actually a simple regularization. During the year the state will obtain revenue through withholding, either payroll or banks to give ourselves interests. And the statement is time to regularize taxes last year: adjust the difference between retained and therefore already entered by the State and it really should have paid.

Almost all modern states have some system of with holdings on. This allows prioritize paying taxes, do not charge cone that no risk money that we spend before addressing tax obligations. However, what would a world without deductions?

The statement would always pay

If there were no withholding income statement (except for very low income, who do not pay taxes) would always pay. Just look at the full amount of the statement to see that we pay a considerable amount of taxes. What happens is that we pay without realizing (so many people talk about your salary net without much idea what the gross).

In a world without deductions to deliver the declaration provided would have to settle the bill. This is already the case in other tax payments where there are no deductions, for example when buying a second – hand housing and having to deal with the transfer tax.

Another consequence of this world without deductions is that during the year we would have a higher payroll but would have to save a considerable amount of it to meet payment to finance the following year. How much? Just look at the list and see the retention that makes us as income tax for the approximate amount.

Such a situation would make the tax was much more painful. With the current tax system we did not know much of what we paid, simply charge a payroll (joy of the month) and ignore the fact that there is a part that our company pays Finance. However with a single payment in arrears year we would be much more aware of the amount of taxes we pay and perhaps would be more demanding public services we receive.

There is also an added bonus to tax the following year and that citizens would have the money in our possession and we would pay only taxes that apply to us accurately and the expiration of the year. There would be situations in which the taxes are excessive and have to wait until we are back what we (the statement to return).

Of course, such a system would create a problem for the state: the lack of a free financing in advance. Finance can now play with the date of the return of credit claims to have more than one year zero rate. You can also play with no deductions at all adjusting to the situation of each respondent to have free credit.

Everyone would be required to file

A system without retentions also entails some problems for citizens. Right now there are many people who are not required to file a return. If you earn less per year and there is only one paying no obligation withholding are tight and there is usually not much difference between the amount paid and the corresponding pay.

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However, in a system without withholding everyone should submit the statement of income. And this can be a nuisance especially for the lowest incomes, which currently have no need.

Defaults and more complicated structure curatorial

Another problem is the Treasury would face defaults. Currently the tax is the number one priority of our payroll: before cashing we have already withheld taxes. Not afford them is not an option, it is an obligation of the employer.

In a system without deductions, however, would be many people who could not pay their taxes. If you have not managed to save enough to meet the annual payment directly become morose, with unpleasant consequences for both.

On the one hand many people, especially lower income, would become morose and might have to face fines and liens. On the other hand would need a much bulkier structure to raise with legal guardianship in many cases.

What is more advantageous? Withholding or deductions? If modern states use this system there must be. The current system allows collecting taxes in a flexible and inexpensive for Finance and on the other hand removes headaches for many taxpayers. It is true that for someone who dominates finance a system without deductions would be more advantageous (better to have the money in the account and pay later be expecting a return), but the benefits would be minimal for society.