The Finch Formerly Known As Gold

8 February 2006

Now: slower refunds!

It's always seemed at least slightly perverse to me that the American taxpayer, by and large, prefers to overpay (via withholding) his taxes during the year and then draw a fat refund the next spring. Of course, if he had to pay the entire sum at one shot, he'd be very, very unhappy, which is one reason why it's simply not done. (Another, more subtle, is that it tends to obscure the sheer vastness of said sum.)

Earnest Pettie, the Idea Man, is undoubtedly aware that the amount of the fat refund constitutes a de facto interest-free loan from taxpayer to government; taking this into account, and noting that Americans, as a whole, don't save very much, he proposes a system to offset both these issues:

Giving Americans tax refunds on debit cards could convince us to start saving again. Imagine that the amount of the tax refund given a citizen were considered by the government to be a bond, accruing interest for the recipient for as long as the government were allowed to hold onto the money. The recipient would be allowed to spend the money in his account, and as he spends it, there is less available to accrue interest. This would represent an incentive for a recipient not to spend their entire refund, encouraging the recipient to save money, without that person having to go to any trouble (such as the effort required to open a savings account) to start saving. The people who need savings accounts most, the poor, are the ones who least can afford to open them. This could be a huge opportunity to turn those people into savers.

Seems like this would get some extra mileage out of the Earned Income Credit, too.

Who loses? All those firms (including tax-preparation firms) who make loans based upon the expectation of getting their hands on refund checks. I can't say I'd shed many tears for them.

(Via BatesLine.)

Posted at 9:11 AM to Common Cents