Tax Refunds for All!

I just got the federal part of my tax refund and was thrilled to realize the government owed me money. Virginia paid me a whole $3 and I’m still waiting on North Carolina to pay me a larger amount. I was thrilled – I mean, who wouldn’t be happy to have the government pay them extra money? And then I realized something that took away my joy.

The government was simply giving me money back that it had forced me to lend it without paying me any interest!

While I can understand giving people the option to have taxes withheld if they would prefer not to keep track of setting aside money to pay in one lump sum, or using it as a punishment for delinquent tax payers, having the government borrow my money interest free is ridiculous. Not only that, but if for some reason you don’t have enough taxes withheld, the government gets to charge you penalties. Just a little one-sided, don’t you think?

Not only that, the “refund” I get obscures how much I really pay in taxes each year. Because people are so accustomed to taking home less than they earn, they just become accustomed to not having that income. Therefore, if you had asked me how much I paid this tax season, I would have said, “Nothing, I actually got a paid by the government.”

“Really? REALLY?” Seth might ask. No, I didn’t get paid by the government. No, the government didn’t donate some money to me. Really, the government just gave me back all the extra money I paid over what I owned. The only difference between paying for a Big Mac with a Benjamin and paying taxes with withheld earnings is that the McDonalds cashier gives you the extra back right away and Uncle Sam takes several months.

It took me taking a second – and third, and fourth – look at my tax return to figure out how much I had actually paid the government. I doubt many people can say exactly how much they paid, and if people can’t say how much they paid, how upset can they possibly be if it is misspent? And if I think the government paying me, they must be doing something right!

Withholding is a genius idea to dull people’s sensitivity to paying taxes. Instead of citizens writing one big check each year, they simply miss a smaller amount each paycheck, and since they’re not used to having it anyway, people don’t miss it. Even tax increases are blunted. Nobody care much about a cup of coffee costing five cents more until they realize how much it costs them per year – but how many people actually total their coffee spending for their year? And coffee companies don’t even give a refund at the end of the year. If the government takes an extra $20 out of your weekly paycheck, but passes a stimulus package that gives you a big, one-time check of $600, most people are going to remember the refund, not the fact that they were paying an extra $1,000 over the year.

Don’t just look at the bottom line of your 1040 for your refund. Look a few lines up for how much you actually paid.