Withholding's origin and purpose

In this episode of Complex Systems, Patrick McKenzie riffs on why public sector payroll modernization is even more likely to fail than the typical public software procurement project. He then goes into a wider discussion about payroll providers and their role as software, payment rails, and a sink for an enduring controversy in political economy. We want robust state capacity and hate income taxes. He breaks down the history of tax withholding as a state-deputized collection mechanism and explains how providers like ADP manage a lucrative "conveyor belt" of money to earn interest on the "float". Finally, he discusses how fintech innovations like Earned Wage Access (EWA) are providing a pro-social, daily-pay alternative to predatory payday loans.

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Full transcript available here: https://www.complexsystemspodcast.com/public-payroll/

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Presenting Sponsors: Mercury, Meter, & Granola

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If meetings consistently leave you with hazy action items and lost context, Granola handles the transcription so you can actually participate and gives you searchable notes afterward. Try it free at granola.ai/complexsystems with code COMPLEXSYSTEMS

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Links:

• Mikey Dickerson episode: https://www.complexsystemspodcast.com/episodes/fixing-government-technology-with-mikey-dickerson/ 

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Timestamps:

(00:00) Intro
(01:10) Why government payroll projects keep failing
(02:08) The root cause: rules nobody can write down
(05:22) Fraud in plain sight: pension spiking
(10:18) The Information theory problem
(11:57) Essay: “Payroll Providers, Power, Respect”
(13:54) Why does payroll exist, anyway?
(16:13) Enter tax withholding
(18:20) An aside about tax preparation software 
(20:05) Sponsors: Mercury | Meter
(22:54) An aside about tax preparation software (cont’d)
(25:00) Withholding taxes were an operational disaster in early implementations
(27:08) So what happens in payroll, anyway?
(29:50) “Where is the risk transfer?”
(33:43) What about those other payments?
(39:01) Where is the frontier in payroll?
(39:25) Sponsor: Granola
(41:15) Where is the frontier in payroll? (cont’d)
(45:59) Rideshare apps vs. payday loans: Byrne Hobart's insight
(46:05) FinTech's net impact
(47:12) Wrap