Settle Withholding by the Dollars, Not Control
11 Pages Posted: 25 Aug 2012
Date Written: 2012
Current law requires withholding tax from compensation paid to employees but not to independent contractors. The current law definition of independent contractor is vague and arbitrary, with the standard using a tort standard of control. Withholding improves the efficiency of interim reports and tax collection, and increases tax compliance. Refunds improve the taxpayer’s attitude toward his government. The proposal discussed in this article would replace the employee/independent-contractor test with a bright-line rule. Withholding would be required of any employer with more than two fulltime workers. Households expected to pay more than $2,000 a month for one employee would also be required to withhold.
The proposal is offered as a part of the Shelf Project, a collaboration of tax professionals to develop proposals to raise revenue without a VAT or a rate increase. Shelf Project proposals raise revenue while making the tax system more efficient and reducing deadweight loss.
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