Can we finally shoot some sodium pentothal into the idea that tax refunds are a good thing?
Refunds for taxes work on the same principle as refunds for anything else: you paid too much, and the payor returns the difference to you. Except you rarely require a refund in your everyday, non-taxpaying life, because private businesses are smart enough to know what to charge you and what to give you in return.
Imagine if a vendor – say, your home insurer – asked you to pay your annual bill in estimated installments throughout the year, and promised to pay you any overage at the end of the year. In other words, they’d like you to deposit some money with them, and withdraw it at 0% interest later. No homeowner in her right mind would consent to this, and no insurance company that wanted to stay in business would offer such an absurd payment plan.
Why people act any differently with their federal and state governments is a mystery. Especially when the government a) lets you defer payment, and b) might not refund your taxes on timee.
Oh, you didn’t hear? Our federal government is insolvent, as are most state governments. Like Rhode Island’s, whose Division of Taxation managers have now decided to refund taxpayers whenever.
The people who run the state’s Division of Taxation* have already postponed tax refunds a couple of times. The helpful answer for angry taxpayers is to “be patient.” Try telling that to your creditors. It’s a lot more difficult if you’re not representing a state agency.
State employees are keeping Rhode Island taxpayers (and Hawai’i taxpayers, and Georgia taxpayers etc.) waiting unduly long. But the taxpayers themselves share some of the blame, like a homeowner who leaves his door unlocked or a raped woman who wore a push-up bra**.
You don’t have to be in the position of waiting for some government tax clerk to mail you a check, not when it’s perfectly legal for you to make him wait for your check. We’ve said it before, and we repeat it in the book (available now on Amazon – for your bookshelf or your Kindle.) Get the minimum taken out of your biweekly paychecks, invest what you would otherwise have had withheld, and cut the government(s) a check on April 15. (Oh, you live in a state with an income tax? Sorry, couldn’t hear you over the guffawing of the Floridians, Montanans, Alaskans, Nevadans, Washingtonians, Wyomingites, South Dakotans, New Hampshirites and Tennesseans in the audience.) You can do this. You should do this. You’re insane if you don’t.
Why do lawmakers even allow this? Because they know that most taxpayers are terrified – of repercussions, and of themselves. Those pusillanimous taxpayers grossly outnumber the others, so much so that it’s not worth changing the rules to inconvenience those in the latter category. If you’re in the former category, letting the government enjoy your money interest-free all year, you can’t get in any trouble when the deadline to pay your taxes arrives. Government tax managers know this, and thus allow you to pay “tardily” (i.e., by the deadline.) Exploiting that – taking advantage of laws that everyone knows about but hardly anyone capitalizes on – is a crucial component of Controlling Your Cash. The government might be legally authorized to kill you***, unlike private businesses, but don’t forget to take advantage of the Law of Large Numbers. There are 300 million of us. The IRS and state tax agencies, as burgeoning as they are, can’t demand early payment from every one of us. They can only withhold your money if you give it to them first.
Understand, no one’s encouraging you to avoid paying your taxes. But take advantage of the legal ways to postpone the damage as long as possible. You have to cut the government a check anyway. There’s no discount for doing it early. In fact, we’ve shown that you can be punished for doing it early. So why wouldn’t you wait until the last possible second to pay?
*It’s an important distinction: institutions don’t levy taxes, send soldiers to war, nor deny benefits. People do. Just like governments don’t allocate money, so much as government agents confiscate money from taxpayers and then spend it in a place of the agents’ choosing. If this sounds like a rant from a Bircher, it isn’t: my membership expired years ago. But it is an undeniable fact, and it personalizes what people too often think of as happening only in the abstract. The next time you hear “state x has a budget shortfall”, understand that a budget deficit is not some irresistible force of nature. What this really means is “the people who make economic decisions for the state chose to spend more of the taxpayers’ money than they could afford.”
**Relax, skirts. I’m kidding.
***America’s finest satirist, P.J. O’Rourke, points out that if you don’t pay your taxes, you get fined. If you don’t pay the fine, you go to jail. If you try to escape from jail, you get shot.
