What would happen to the government if everyone went and had the max number of exemptions on w-4 forms where no tax was taken out and every tax payer just paid in during tax time?

Answer 1

As the wittholding of tax and payover to the Govt controlled by the W-4 in no way effects the actual tax due, the Govt would lose a bit of cash flow fr a short while..whcih really wouldn't effect it much. And it would then have a much, much greater amount of cash and income, as all those underpayments would incur filing penalties and interest fees. Of course, one very realistic thing would be, many people would not have the money to pay their taxes when due, having spent it as earned arther than saving it to pay the tax they actually owed as it was earned. So these people would have severe financial and legal problems, defaults and seizures on property and assets. If everyone was diciplined and saved through the year the amount they needed to pay their taxes (which is what estimated payments and withholding is trying to do), there wouldn't be much effect to anyone as the cash would still be in the banking system as savings...in an account with the US gov or local bank, makes little difference.