Why Tax Refunds are Bad

It is good to know so many Helium writers are also financially disciplined. Sufficiently disciplined to increase their withholdings by $200 a month to eliminate the $2,400 refund at the end of the year, in one example in this thread.

I am not as confident of an answer for two reasons. First, while I may possess a level of discipline, I am not able to impose order on others. Seconds, the US tax laws should apply equally to all of us and some people like some of the writers.

This year I am getting a refund significantly larger than the national average. What I did not know in the first quarter is that both my wife and I would spend part of last year unemployed. The good news is that we had a large capital gain in a stock. Like good little tax payers, we made quarterly, estimated tax payments to cover the tax due on the unemployment compensation (we expected our tax rate to higher than the state’s assumption for all unemployed) and for the capital gain. Then, we did other things. The result was our refund about equaled our estimated tax payments.

Had I known then when I know now, I would not have made the estimated payments. But, my Chrystal ball is not working (damn hard to get replacement parts). And, if I had guessed wrong, I would have been charged under-withholding penalties.

OK, not every year has multiple unemployment and capital gain. Though, in the word the words of a sage, “Its aways something.” Next year it could be additional child care credits or the purchase of a Prius. I just can’t plan the way I would like.

My experience tells me that other people plan to get refunds. The writers in this thread do not want to give “tax free loans to the government.” Other people lack the discipline to put money aside every month and so rely on the refunds to be the savings plans.

An avocation of mine is preparing taxes for H&R Block. I get my share of Earned Income Credit customers. I get still more wage earners who use their refunds for cash flow planning. They are willing to give the government the tax-free loans.

We are all big boys and girls here (at least I assume so). Many of us and our peer put aside money every month in savings. Some of us by making deposits to savings. Others by having “too much” withheld by the IRS and state so they can get “big” refunds each Spring. No one is hold guns to their heads. They have chosen that strategy for their taxes and financial planning. I am not willing to second guess them.

I do not believe a flat tax would be better. The American tax philosophy is progressive (we pay more when we are more able to do so). This means I pay more than others who may not have the capital gains, etc. I am not willing to give up the goal of procreativity to get a simpler tax plan. Though, there are way to simplify the tax plan and actually make it more progressive.