ABSTRACT
In 1962, President John F. Kennedy proposed withholding to combat tax evasion from the non-reporting of more than $3 billion in dividends and interest on individual income tax returns. Despite the familiarity with wage withholding, which was instituted in World War II, and the equity of applying it to at least some forms of capital income, Kennedy's withholding proposal encountered an enormous wave of public opposition and was ultimately rejected.
Why did dividend and interest withholding generate such populist outrage? In part, the populism was manufactured by businesses that mobilised their base of depositors and investors to protest it. This is only part of the story, however. The industry-led campaign struck a chord with the millions of taxpayers who held dividend or interest-bearing accounts and who had become disaffected by the special tax preferences enjoyed exclusively by high bracket taxpayers. They viewed omitting dividends and interest as a form of self-help and were indignant that Congress would attack tax evasion by going after them rather than high-end tax evasion. In effect, the rejection of dividend and interest withholding was a function of this populist ambivalence about efforts to combat tax avoidance.
