Abstract
World War II brought with it a substantial increase in federal income tax rates, and introduced income tax withholding for wage income. Rates increased prior to withholding, so an examination of tax payments paid prior to and subsequent to withholding can offer some insight into the degree to which taxes were evaded prior to withholding. The data reveal a substantial increase in number of returns filed, taxable income reported, and income taxes paid due to the implementation of withholding, indicating that a substantial amount of tax evasion prior to withholding was reduced because of withholding. The additional income tax revenue that resulted from withholding undoubtedly had a substantial impact on the increase in the size of the federal government following World War II.
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Notes
- 1.
Prior to 1976 the federal government’s fiscal year ran from July 1 to June 30.
- 2.
- 3.
Data on inflation taken from the Federal Reserve Bank of Minneapolis website, www.minneapolisfed.org.
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Acknowledgements
The authors gratefully acknowledge helpful comments from Joshua Hall, Carl Kitchens, Phillip Magness, and Russell Sobel.
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Holcombe, R.G., Gmeiner, R.J. (2021). Income Tax Evasion Prior to Withholding. In: Hall, J., Khoo, B. (eds) Essays on Government Growth. Studies in Public Choice, vol 40. Springer, Cham. https://doi.org/10.1007/978-3-030-55081-3_5
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