In typical fashion I put off doing my taxes until tonight. That’s a solid 12 hours ahead of when I did them last year. In untypical fashion, I knew where I’d put all the paperwork needed to complete them. It’s almost like I’m becoming a real adult.
This year was also notable for being the first in recent memory in which I’m receiving a refund, though for the regrettable reasons that I did no paid freelance writing in 2009 and took a capital loss on a mutual fund that I had to sell while recovering from my move cross-country. If I’d realized I was getting a refund I’d have filed sooner. While I’m happy to discover I have a check coming my way, Megan McArdle helpfully explains that getting refunds is not a good thing:
Getting a “refund” on your taxes means that you have just made an interest-free loan to the government. Do you relish the opportunity to make interest-free loans to anyone else, just for the sheer joy of eventually getting your own money back? I hope not.
As it happens I generally only give interest-free loans to people with guns and prisons at their disposal.
I wrote last year about my desire to abolish mandatory withholding entirely. Read the whole thing here or just this excerpt from Charlotte Twight about how withholding manipulates taxpayers to increase the size of government:
We have seen that, on many levels, income tax withholding increases transaction costs to the public of understanding the magnitude of the income tax and of opposing it politically. Government officials always have regarded withholding as a seemingly “painless alternative” (U.S. House Hearings 1980: 35). Lacking an understanding of the concept of present value, many taxpayers do not perceive that withholding causes the real burden of their tax liability to be greater. Indeed, the common practice of overwithholding associates the payment of taxes with an apparent financial benefit rather than cost, distorting taxpayers’ assessments of the actual costs and benefits of government activity. Consistent with a transaction-cost-manipulation model, the expected return of such overpayments makes people feel “happier’” about sending in their tax returns on April 15. The very mechanism of withholding deflects blame from the government by requiring employers to initiate and bear the cost of the forcible extraction of people’s income. Piecemeal collection each payday from income the taxpayer never sees obscures the magnitude of the annual tax. And, because it is a forcible extraction, it raises the transaction costs to the public of expressing political resistance to taxes by not paying them.
And on a lighter note, here’s Reason’s Nick Gillespie and Meredith Bragg reminding us that all this tax money is at least going to a good cause:
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Jacob Grier is a freelance writer, barista, mixologist, and magician in Portland, OR. He writes, eats, and drinks a lot. His articles have appeared in The Washington Post, Reason Online, The Oregonian, and other publications.
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“The very mechanism of withholding deflects blame from the government by requiring employers to initiate and bear the cost of the forcible extraction of people’s income. Piecemeal collection each payday from income the taxpayer never sees obscures the magnitude of the annual tax.”
Yep. I’m definitely in the “refunds are bad” category, but when we did our taxes this year and found out we owed 2k, I was certainly a lot more angry than the years I got a refund — even though intellectually I understand that I’m a lot better off this way than if I got a 2k refund. (Though there was the minor issue of the late charges they tack on, ironic that I can’t charge them similarly).
Perhaps off topic, but I always thought this was interesting:
http://reason.com/archives/1995/06/01/best-of-both-worlds
It’s a great system they have setup for themselves. I especially love when they review a return from 6 years prior and decided you underpaid then…so late fees and penalties are there for your benefit. “Sorry we didn’t know you owed this much money. Please accept our apology in the form of this 200% interest+fees and a threat to seize your assets.”
Anyway, I think that with current technology there is a viable alternative that would still make it easy to pay your taxes if you don’t want withholding. A monthly payment system through the IRS website shouldn’t be that hard to work out, really. Granted, I’d still have to monitor things closely to make sure that I have the $1250/mo to pay, but that sure seems like a tolerable amount when not being withheld compared to the year-end bill of $15K if you had no withholding and no payment method.