Radio Address to the Nation on Withholding Tax on Interest and Dividends
My fellow Americans:
Yesterday, April 15th, was tax day, and I know many of you are still recovering. So, I hate to mention taxes again, but there's something I think you should know. It's about misrepresentations surrounding the withholding tax on interest and dividends. People are being badly misled, and that misinformation shouldn't go unanswered.
Americans have been arguing over taxes ever since the Boston Tea Party more than 200 years ago, when an angry band of taxpayers dumped a shipload of tea into Boston Harbor. Well, in the spirit of the Boston Tea Party, I'd like to dump all the misinformation you've been getting on withholding taxes. In fact, I'd almost like to dump overboard some of those who've been spreading this misinformation and scaring people, especially our older citizens, many of whom have written me very frightened.
As you may recall, this whole business started last summer when the Congress passed, and I signed, the law requiring banks and other financial institutions to withhold 10 percent on interest and dividend income.
This withholding, which starts this coming July, is not a new tax. I came to Washington to reduce taxes. And I can tell you, I wouldn't have signed the withholding law if it had been a new tax on our people. It's simply a more effective way of collecting tax money that's already owed, just as employers have been withholding taxes from our paychecks for almost 40 years, a procedure most wage earners accept as both fair and necessary.
What it really gets down to is this: Even in a law-abiding country like ours, there's still a minority of people out there who cheat on their taxes. Last year, Uncle Sam lost billions of dollars in taxes on unreported interest and dividend income. President Kennedy, back in 1961, said, "This is patently unfair to those who must, as a result, bear a larger share of the tax burden." Well, that was true then, and it's true now. I agree with what one editorial writer said about those who cheat. "When they don't pay their taxes, someone else does—you and me."
Withholding 10 percent on interest and dividends will allow the Internal Revenue Service to recover an estimated $18 billion in otherwise lost revenues over the next 5 years—and that's without taxing honest taxpayers a penny more than they now pay.
Past experience has proven that withholding is by far the most effective means of combating those who don't pay their tax bill to the government. The only people who stand to lose under this law are those who haven't been paying their taxes in the first place, and what's wrong with that?
While I'm at it, let me expose a few of the myths which may be bothering some of you. First off, withholding will not place burdens on our older Americans or lowerincome individuals. The vast majority of older Americans—85 percent—are exempted under the law. And to get that exemption, all they have to do is fill out a form no more complicated than a deposit slip. As for low-income individuals, anyone who paid $600 or less in taxes last year, or married couples who paid under $1,000, are exempt as well. In addition, everyone with small savings accounts with interest payments of $150 or less are also exempt. So, for example, most kids' accounts wouldn't have withholding.
All of this raises an obvious question. If withholding is nothing more than a more effective collection method, what's all the controversy about? Well, some of the banking interests seem to think withholding will inconvenience them. But we've taken measures to make sure this changeover isn't burdensome. And as for savers, it will actually be a real convenience for many of them. For example, withholding will free many taxpayers from the chore of preparing quarterly tax payments. It will prevent other citizens from being faced with a substantial accumulated tax bill on April 15th. Most wage earners already prefer to have tax withheld from their paychecks, rather than having to come up with the whole bundle on that annual day of reckoning.
Some of the banks and savings and loans have said withholding will reduce the incentive to save. Well, that just doesn't make sense. Withholding will have a minimal effect on accrued interest. For example, the annual loss on a $1,000 account, earning 9-percent interest, would be less than 50 cents. And such an account would be exempt anyway.
But I think most Americans would forgo the 50 cents if it meant others who are cheating on billions of dollars of unpaid taxes would have to pay their fair share.
The fact of the matter is that those already paying their taxes can get back all of the amount withheld by reducing their estimated tax payments or by adjusting the number of exemptions on their wage withholding.
Thanks to the pressure from a very busy lobby, however, the Congress is now considering repeal of withholding before it's even gone into effect. This would help no one who's doing their fair share, but it would let all those who are not paying their taxes on interest and dividends off the hook. So, I'm not about to let it happen. Rather than asking those who are paying taxes to pay more, I say that those who already owe taxes should pay them. And I'm carrying my veto pen right behind my ear. If the repeal passes the Congress, I'm all set to veto it, just as I am prepared to protect the July tax cut and indexing with a veto if necessary.
Until next week, thanks for listening, and God bless you.
Note: The President spoke at 12:06 p.m. from Camp David, Md.
Ronald Reagan, Radio Address to the Nation on Withholding Tax on Interest and Dividends Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/262628