Enjoy the illusion that you’re not really paying taxes, when you cash that expensive refund check

CascadeNewLogoBy Steve Buckstein

Are you happy getting three extra days to file your income tax returns this year?

For nearly eighty percent of us, it doesn’t matter much because we are expecting refunds. No check writing for us. Why? Because the withholding system almost encourages over-withholding, thus giving the impression that we don’t pay taxes, the government pays us!

Try a little experiment. Ask ten of your friends how much they paid in taxes. Chances are, eight of them might say something like, “I didn’t pay anything, I’m getting money back!”

This happened because my hero Milton Friedman had one of his few bad ideas when he proposed the withholding concept while working at the Treasury Department during World War II. The government needed money fast to finance the war effort, and as Friedman said years later:

“It never occurred to me at the time that I was helping to develop machinery that would make possible a government that I would come to criticize severely as too large, too intrusive, too destructive of freedom. Yet, that was precisely what I was doing.”

Of course, by over-withholding we’re just giving the government an interest-free loan. But psychologically, doesn’t it feel nice getting that refund check?

So, enjoy the illusion that you’re not really paying taxes when you cash that expensive refund check. You paid dearly for it!

Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

Posted by at 05:00 | Posted in Federal Government, Taxes | Tagged , , | 27 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Ron Glynn

    Steve: Come On! Most of what you write is pretty good. This time you are overreaching. Anyone who signs the bottom of a 1040 knows they are paying taxes! People are just not that stupid! (or are they?)Next you will be telling us that we shouldn’t really have to pay income taxes because the government has a printing press for making all the money it wants. Don’t try to use QE I, QE 2 ,QE 3 and the 20 Trillion Dollar National Debt as an example. Please don’t tell us the Federal Reserve plans to drop money by helicopter to keep the economy going. We will never have a zero lending rate by the Federal Reserve. I just filed my 1040 and reported $1 for my interest earn during 2015. This year, I hope to earn even more unless inflation eats up my savings.

    • Bernice Sanders du jour

      Oh Puilly-Fuisse’ – Hillary Klingon,and Kate Brown Knows will rob you of even more if ewe lettem.

    • thevillageidiot

      Inflation already ate your 2015 dollar 🙂 and has already eaten most of the 2016 dollar. Sarcasm is good! And to continue if you get a refund from the sate and owe back taxes you are better off paying your state taxes forward or the Fed will take it away from you.

      • DavidAppell

        In fact, inflation is low right now.

        From March 2015 to March 2016, the CPI increased by 0.9%:

        https://research.stlouisfed.org/fred2/series/CPIAUCSL

        From the same data, we see that since Obama was first sworn in in Jan 2009, inflation has averaged only 1.6% since then — lower than the 2%/yr Fed target.

        • thevillageidiot

          at .05% (high interest rate on savings) inflation ate the dollar. so your are saying we need more inflation?

          • DavidAppell

            You are confusing interest rates on savings with the inflation rate. They are by no means equal — see the link I gave to the CPI data.

            Yes, we need a little more inflation, so that people buy more stuff. (Sadly, our economy relies on people buying ever more crap.) An economy without inflation — or worse, with deflation — would be a disaster.

    • Eric Blair

      Or, maybe Steve just needs a higher caliber for friends? 😉

      • Skateboard Jugular

        Meanwhile, Eric Blair seethes to have lowered his expectoratory incite to spit wad calibrate.

  • thevillageidiot

    MF is not the great free market economist everyone thinks he is. He has done too much stupid and damaging stuff similar to what you mentioned. Free market? we need more Mises and Rothbard. the current roster of free market promoters Lew Rockwell, Hans-Hermann Hoppe, and Tomas Sowell. less Friedman and no Keyens.

    • DavidAppell

      When have the Mises ideas ever proven themselves in real-world applications?

      • thevillageidiot

        before taxes. before Keynes and no central bank.

      • thevillageidiot

        Oregon recreational marijuana. it is legal so why all the regulations on how much can be possessed, grown, distributed. Oregon microbrews very successful most in nation probably one of the easiest states to start a brewery. why all the regulations on distribution through only licensed distributors? both work under heavy regulation but what would happen without the limitations. with all the limitations the black market in marijuana sales is dong quite well due exclusively to the regulations and heavy taxes. Mises advocated free markets. what do you advocate? Highly regulated markets have lead to mega mergers, mercantilism, barriers to market entry. in other words free markets have a way of surviving in spite of the regulation but you have to go back before the regulations to understand the real success of free markets. before 1913 without the federal reserve (any central bank) the US was already a major world economic force.

        • DavidAppell

          *All* markets are subject to regulations. (That’s a good thing.) You don’t cite any specific regulations, so I don’t see the basis for a conversation.

        • DavidAppell

          You are aware, I assume, that Mises was in favor of fascism:

          “It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history. But though its policy has brought salvation for the moment, it is not of the kind which could promise continued success. Fascism was an emergency makeshift. To view it as something more would be a fatal error.”

          https://en.wikipedia.org/wiki/Ludwig_von_Mises#Criticisms

  • DavidAppell

    Steve wrote:
    “So, enjoy the illusion that you’re not really paying taxes when you cash that expensive refund check. You paid dearly for it!”

    Who holds this illusion, Steve?

    No one who understands basic math.

    I think you’re trying way too hard here to dig deep and create an issue where none exists.

  • Bob Clark

    Ugh. Income tax filings are time sinks, at least a full week’s worth of work per year…lining up deductions, credits, add-ons. In the miraculous event the GOP takes over the state’s governance, would support a constitutional replacement of income tax by equivalent revenue producing sales tax. Washington uses a sales tax instead of an income tax, rewarding the producers and penalizing the consuming.

    • Eric Blair

      Why on earth would you want to penalize the consumers? Without consumers, the producers will not have a market to sell their goods.

    • DavidAppell

      A sales tax is highly regressive. Even moreso than is Oregon’s income tax. Hence highly unfair.

      BTW Bob, with just a little bit of organization as the year goes by, you can spend a great deal less than a “full week” doing your taxes.

  • MrBill

    People just need to pay attention to their W-4s and set their deductions so they either owe or pay as close to zero as possible when tax time rolls around.

    • Sammy

      Hey @MrBill97702:disqus, I could not agree more. Check out TaxBestimates.com. It makes it super easy to view your tax position in real-time and it even provides you with a monthly W-4 as your earnings and deductions change.

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