Indirect Taxation: A Plan to Collect All Wage Income Taxes Indirectly

Most Americans earn their living through wages, salaries, and hourly work. Justice, logic, and practical administration all support the principle that indirect taxes should be collected through indirect means at their legal source, rather than by imposing compliance burdens on millions of individual workers. Under current law, employment taxes are within Congress’s power to levy and collect, and the Constitution requires that such taxes be collected at the source.

When employers withhold employment taxes before paying wages, they become the true point of collection, and those costs are then built into the prices of the goods and services they produce. If taxes on wages are fully collected at the source—by employers—individual wage earners would no longer need to file returns or keep extensive records merely to prove compliance. This would save trillions of dollars and countless hours now spent filling out forms, maintaining receipts, and living under the constant threat of penalties, audits, and criminal sanctions.

When employers deduct employment taxes before paying their employees they rightfully become the source of all of employment taxes that collected, which is then passed onto whatever product or service of commerce. If collected at the source, employment taxes should require no further action other than the business or corporation passing the taxes onward to the federal government. By collecting these taxes indirectly by way of employment taxes would relieve individuals from the burden of filing forms and lists and compliance. This was the case with early tax laws, including Social Security and Medicare taxes (FICA taxes).

Historically, early federal tax laws—including Social Security and Medicare (FICA) taxes—relied on withholding at the source as the standard method of collection. Until the 1942 “Victory Tax Act,” fewer than 2 percent of Americans paid income taxes, where most revenue came from taxes on wealth, corporate profits, and specific activities. Forcing every wage earner to navigate a tax code sprawling across tens of thousands of pages wastes enormous time and resources, generates anxiety, and diverts human effort from productive work. When the 16th Amendment was proposed, much of the nation’s wealth was concentrated in the top 1 percent, and those fortunes were often shielded from taxation. The income tax was presented as a way to ensure that large accumulations of wealth contributed a fair share to the cost of government, especially when public spending helped to protect and sustain those fortunes. Senator Owen and others warned that untaxed monopolies and speculative fortunes were producing an inequitable distribution of the fruits of human labor.

Yet beginning in 1944, millions of wage earners were brought into the income tax system. Since then, wage earners have come to shoulder the bulk of federal income tax collections, even though the original political justification focused on taxing concentrated wealth. Payroll taxes have grown dramatically since 1944 and now provide a large share of total federal revenue. The solution is to restore the original constitutional principle: collect indirect taxes indirectly, at the source, and remove ordinary wage earners from ongoing tax filing obligations. Wage taxes should be collected once—by employers at the time of payment—so that wage earners can compete more effectively in an AI-driven global economy without being burdened by duplicative compliance.

There is no need to place all the citizens into a compliance of 20,000 pages of rules when even all hours of human effort is a waste of trillions of funds and hours of our lives filing out forms with anxiety.

In forming the 16th Amendment Income Tax most of the wealth was in the top 1% was able to escape paying most taxes which seemed absurd at the time when the government may need money in times of war or otherwise. The income tax was seen as a solution to tax wealth that had been able to escape taxation through legal means. Most Americans at the time were common folk without much wealth and supported the idea that gross wealth ought to bear a burden of government because much expenditure was used to protect it. This is a complaint during the debates into the formation of the income tax amendment to the Constitution in 1909 made by Senator Owen. :

However, in 1944, millions of individuals were introduced to paying income tax on wages. These workers now pay the bulk of federal taxation, even though the original intent was to tax the wealthy. Taxes on wages have increased exponentially since 1944. Read: external link showing in 1944 payroll taxes increase to now, to the bulk of all federal revenues: History of Federal Receipts by Source

The government should require all payroll taxes to be paid by employers upon the payment of wages, as such is the practice and law is now, except to relieve the wage earner from any further liability. As with all other indirect excise taxes, including the gas tax, once it's in the tank the end user has already paid the tax and is done with it.

Our financial institutions, literatures, textbooks, and all other nations describe income taxes as a direct tax. In opposition to this, the US Supreme Court historically and to-date catergorizes the income tax to be an indirect tax to avoid the Constitutional requirement that direct taxes are to be apportioned.

WITHHOLD PAYROLL TAXES INDIRECTLY

By eliminating individual filing requirements and any further liability for wage earners once employers have withheld and remitted the tax, hundreds of millions of Americans would no longer need to calculate, complete, and file tax returns. This would save billions of dollars in compliance costs and countless hours of unproductive effort. Collecting income and employment taxes at the employer level maintains their character as indirect taxes on activity and commerce. Imposing additional liability directly on individuals risks converting those levies into direct taxes on property, raising constitutional concerns.

Under such a system:

• Wage earners would have no further filing obligation once taxes are withheld at the source.
• The IRS and related agencies could be dramatically reduced, lowering administrative costs.
• The tax code could be simplified, with far fewer pages of regulations and instructions.
• The government would still receive revenue efficiently and predictably.

1. Current Tax System Challenges
2. Complex tax code and regulations span more than 20,000 pages.
3. The average individual spends about 13 hours preparing and filing taxes each year.
4. Americans spend an estimated 140 billion dollars annually on tax preparation and compliance.
5. A system of indirect collection at the source could allow elimination of more than 90 percent of IRS personnel.
6. Returning to constitutional principles would place indirect taxes on transactions and commerce, not on individual wage earners.

Restate federal tax policy to require that all wage-based taxes be collected “at the source” from employers, and remove wage earners from the attachment of any personal tax liability on wages. This returns to the constitutional principle that indirect taxes should be placed on items and activities of commerce, not on individuals, while making wage taxation uniform, efficient, and compatible with a modern, AI-driven economy.