Tags: Tax | Christmas | April | IRS

Tax Time Is Now Christmas in April

Image: Tax Time Is Now Christmas in April The idea of the tax refund as a “gift” from Washington turns out to be an illusion.(Getty)

Monday, 01 Apr 2013 02:50 PM

By Ira Stoll

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One of the most important but least noticed changes in American life over the past 20 years is the way that tax season has gone from a time when Americans write checks to the Internal Revenue Service to a time when the IRS sends money to Americans.
 
It’s a turnaround in the basic deal between Americans and their government.
 
When you pay taxes, you are the customer. You might complain about the service you are getting for the price, or you might be proud, as a recent New York Times Op-Ed piece put it, of exercising your “duties” as a citizen.
 
In the other case, when you are getting paid by the government, the government is the giver, and you are the recipient. You might be grateful to Washington, or to your state government, for the gift of the tax refund.
 
This idea of the tax refund as a “gift” from Washington turns out to be an illusion. In many cases, the tax refund isn’t a gift from the government but a refund of the taxpayer’s own money, which has been excessively withheld from paychecks or in quarterly payments of estimated tax.
 
The taxpayer getting the refund has in essence given the government a no-interest loan, some of which the government is finally paying back.
 
There are some cases where, because of certain refundable tax credits, the taxpayer really is getting back more money than he or she paid in. But even that money isn’t a gift from Washington or from a state capital. It is money that has been taken away from other taxpayers who earn more.

Tax refunds are just another way of redistributing wealth. Instead of (or in addition to) a food-stamp benefit card, the recipient is getting a check or an electronic funds transfer from the IRS.
 
As clear as the economic facts of the situation may seem to be, though, the politics and psychology of it somehow appear to change based on the idea of tax season being a time when people get money from the government. One doesn’t need to pore over polling data or political science papers or spreadsheets from the Tax Foundation to see this; it permeates popular culture.
 
In New York, subway cars are lined with posters from the city’s Department of Consumer Affairs featuring pictures of families with wide smiles. “It’s tax time. Go get your refund!” they advise.
 
Similar signs decorate the lobbies of the city’s public libraries. “Your annual tax refund can underwrite a summer vacation,” the website of Intuit, the makers of the TurboTax tax software, advises. The Travel Channel offers a slide show of “12 Places to Travel on Your Tax Refund,” suggesting, “Take a trip to a desert oasis with Uncle Sam’s generous refund.” A publication aimed at car dealers, Dealer Marketing News, reports, “tax season is the only time that many customers have the disposable income necessary to make a substantial down payment.”
 
In other words, for many Americans, tax season isn’t a moment to grumble about the cost of big government while trying to figure out how in the world to raise the cash to write that check to the IRS. Instead, it’s become their favorite time of year, a kind of Christmas in April, with Uncle Sam playing Santa Claus, and the hard decisions involving the choice of whether to spend that windfall on a new car or on a trip to a desert oasis.
 
An economic policy official in the George W. Bush administration, Keith Hennessey, writes that much of the increase in people getting money from the government at tax time instead of paying it in is the result of the expansion of two refundable tax credits, the Earned Income Tax Credit and the child tax credit. He says that the dramatic increase in people owing no income taxes since the mid-1990s “was driven almost entirely by the creation and expansion of the per-child tax credit, a policy driven by the Right.”
 
Whether you blame (or thank) Republicans who expanded the child tax credit or Democrats who expanded the Earned Income Tax Credit, the transformation of tax season from a time of pain to a time of bounty is a big change.
 
It may bring smiles to the faces of those anticipating refunds (and the car dealers or travel agents hoping to profit from them). But the expression it is likely to elicit from those writing checks to the IRS, and from those hoping for an overall trend of reduced taxes, smaller government, and more private-sector growth, is dismay.
 
Ira Stoll is editor of FutureOfCapitalism.com and author of “Samuel Adams: A Life.” Read more reports from Ira Stoll — Click Here Now.
 

 
 
 

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