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Winner in a Classic Struggle

November 23, 1986

Thank God for tax simplification. First Congress spent months orating about making everyone's life a little easier, and then gave us a new tax code that turns out to be three or four hundred pages longer than the one it replaces. Now the Internal Revenue Service is about to give us a new W-4 form, the thing employees fill out to claim withholding allowances, that it admits is longer and more complex than its predecessor. Devising the form, IRS Commissioner Lawrence Gibbs says, "was a classic struggle between simplicity and fairness." It was no contest. Simplicity lost, hands down.

Employers will soon be getting the new W-4 to distribute to employees. Completed forms are supposed to be turned in no later than next Oct. 1. That sounds ominous. If nearly 10 months are allowed to fill out a four-page form, how long might it take to fill out the tax return itself?

Not to worry, though. The long lead time is really something of an illusion. The IRS is urging employees to turn in their completed forms as soon as possible. That way, when the new law goes into effect on Jan. 1, withholding will match taxes actually owed as closely as possible.

Otherwise, not far down the road, taxpayers could find themselves singing the old Under-withholding Blues, which for some unaccountable reason never made the Top 20-- I took home more than I should have, and that was swell/ Yes, I took home more than I should have, and it was really swell/ But now they're gonna take it all back/ And I may have to pay a penalty as well.

The flip side of the Underwithholding Blues is the Overwithholding Shuffle, when misinformed or overcautious employees allow too much money to be withheld from their paychecks. Last year nearly three-fourths of the 102.4 million tax returns filed qualified for refunds because of over-withholding. Each check sent out averaged $982. That's a lot of money kept out of consumers' hands over the course of a year. Looked at another way, it's a lot of money that the Treasury was able to use interest-free.

Anticipating that the new forms will produce some confusion, and maybe even some panic and hysteria, the IRS is offering help. It plans to provide publications, seminars and a videotape to employers and employees giving line-by-line instructions on how to use the work sheet that will accompany the W-4s. That's nice. Of course, the IRS could have eliminated all this extra explaining by making the W-4 and its work sheet easier to understand in the first place. But it didn't, and so the eternal truism has again been proved: In the classic struggle between simplicity and fairness, bureaucracy wins every time.

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