The Value of Positive Pain

Ever since the Federal Government adopted Financier Beardsley Ruml's ingenious invention of tax withholding back in 1943, the system has been about as unassailable as motherhood. Government officials love it, since paycheck deductions help disguise the size of the tax collector's take. Most taxpayers also approve of withholding as a relatively painless way of parting with their pelf. Only a non-politician of rare courage or naivete--or both--would dare challenge it. Sure enough, a non-politician par excellence, California's Governor Ronald Reagan, did precisely that last week as he marked the end of his first 100 days in office with a televised state-of-the-state message.

Reagan plans a 65% increase in overall state income tax collections--along with boosts in general sales, whisky, cigarette and franchise taxes--to raise the $946 million needed to balance his record $5.06 billion budget. He concedes that withholding, in addition to easing the pain of that wallop, would bring him a number of economic advantages. There would be a "one-shot" windfall because Californians would, in effect, be paying next year's taxes in advance. There might also be a "recurring windfall" of some $20 million a year from citizens--mostly from "those least able to afford it"--who would not normally pay any taxes and would subsequently neglect to file for refunds. According to some proponents, there would be less cheating on returns because the taxes would already have been paid.

No Sugar. Depite these potential profits, said Reagan, "I am opposed to the state using such a method to obtain revenue. I reject the idea that the state might take advantage of its citizens or that it should operate its finances on the one-shot windfall theory or that the average man will cheat his government."

Though both Democratic and Republican assembly leaders have strongly urged the withholding system, Reagan insists that he would approve the plan only if "they held a hot iron to my feet, and I was bound hand and foot." Faced with an almost certain veto, proponents are beginning to back down. "I don't intend to force it down his throat," says Democratic Speaker Jesse Unruh, who is puzzled nonetheless by Reagan's opposition to a system that most politicians regard as means of sugar-coating higher taxes. Warns Unruh: "I think the Governor may find, when he doubles the income tax and when that jolt hits the people next April 15, that withholding looks very good indeed."

Reagan is aware of the problem, says he is looking for ways to prevent "the big bump coming all at once." But he refuses to retreat. "Withholding is a painless way of extracting money, and the very fact that it is painless means Government is always willing to ask for more," he says. "It is Government's responsibility to use your money wisely." That responsibility, he insists, is his--whatever the political fallout.

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