'From Contested Concept to Cornerstone of Administrative Practice' : Social Learning and the Early History of U.S. Tax Withholding

The process of establishing a stable and effective system of taxation is a hallmark of nearly all modern states. Among the many modern administrative innovations adopted to facilitate effective tax compliance in the United States, arguably none has been more significant than the use of third-party reporting and tax withholding. Yet, like most administrative achievements, the effective implementation of information reporting and tax withholding did not occur quickly or easily. The evolution of withholding and third-party reporting thus raises a series of important historical questions: how did a contested administrative concept become an accepted and celebrated method of tax collection? What were the pivotal periods of administrative reform during this seemingly path-dependent process? Why were activists, commentators, and lawmakers opposed to the growth of this administrative practice? And, how did reformers and government officials overcome this hostility during critical junctures in the development of this important administrative achievement? One of the principal aims of this article is to attend to the early U.S. history of income tax withholding and third-party information reporting. Building upon earlier studies, this article contends that examining the pre-1943 adoption of income tax withholding is critical not only to a deeper historical understanding of how information reporting and withholding were transformed from a contested concept to an administrative cornerstone, but also to our future expectations of administrative and bureaucratic reform