I'm considering whether to change witholding to 0.00 for 1999, and keep that money aside in the event that the IRS survives intact, although certainly I could be persuaded to spend it if TS really HTF next summer.

Does anybody know what the likely percentages will be if the flat tax is instituted? Technically, the IRS should legally have to tell us whether our 1999 taxes will process correctly by this Christmas. If they can't promise perfect custody of our tax dollars, are we still legally compelled to fork them over?

-- Lisa (lisa@comp.com), July 20, 1998

Answers

I'm not a tax accountant, so this isn't legal advice....

Eliminating withholding entirely is a big gamble. I think that if you claim more than (six?) exemptions, the IRS will want to know why. They may be legally required to do this. You *could*, however, underwithhold and pay "estimated" taxes each quarter like many small businesses do. The advantage would be that you could keep an eye on developments as they happen & adjust your tax situation accordingly. The disadvantage is that if you can't get to your money, and the IRS doesn't shut down, you're royally screwed.

Reducing your withholding may be a good idea, especially if your income doesn't vary wildly. If you can estimate your total tax due, you might try aiming to underwithhold *just a little* so you don't have to worry about a refund but also don't get dinged for penalties.

Remember, any large institution -- government, business, or what-have-you -- is going to maintain the illusion of "business as usual" for as long as they possibly can. I would expect the IRS to extend the filing deadlines, maybe even waiving penalties for underwithholding, before admitting defeat & going to the flat tax. In fact, I think that it would literally take an act of Congress to make the flat tax happen. Congress writes the tax bill; the IRS is simply the collector/enforcer.

In closing, the gov't is going to do whatever it can to protect its revenue stream. If we get into a recession/depression, it's possible that the IRS will be authorized to hire millions of unemployed people to process returns manually. So don't count of the IRS going under if anything else remains intact.

-- Larry Kollar (lekollar@nyx.net), July 20, 1998.