I don't think so. Federal law has allowed the IRS to behave
over the years in a terrifying manner. It has seized people's property, shut
down their businesses, hauled them into court, and even sent them to prison
over unpaid taxes. What people fear most about the IRS is owing money. They may
specifically fear an audit, but more generally, the fear is that they'll come
up short on April 15 and not have any ready cash to pay what they owe. Then
they'll owe interest and penalties, both of which mount up very quickly. Once a
taxpayer gets into tax debt, it often takes years to clear the account.
A letter from the IRS is scarier than a cease-and-desist
letter from a lawyer threatening a lawsuit. Those at least are clear about what
the perceived offense is and how to stop further action. The IRS often sends
letters people don't even understand, demanding money according to tax
schedules the taxpayers never used, about taxes filed years in the past. The
IRS also has a well-deserved reputation for bullying taxpayers over very small
dollar amounts, in order to terrify the rest of us. It works.
How do taxpayers protect themselves from the threat the IRS
represents? We overwithhold. It's a simple yet winning strategy. Maybe when
banks were paying 5% interest on savings accounts, we might have been tempted
to underwithhold and just pay up on tax day. But that strategy doesn't help us
sleep at night, and banks these days don't pay interest worth talking about.
Laughably, several of the articles I've read that
sanctimoniously say we're fools to get refunds also say that we should have put
that refund money, month by month, into the stock market and made a killing.
Right. We also could have lost it all. This is not brilliant advice, and it's
not even a sane comparison. Comparing a speculative, uninsured stock investment
to the dependability of receiving a tax refund from our stable federal
government is nuts.
There's also the little matter that Congress changes tax
rules every year, but drags its heels and often does it on the last day of
December. How are taxpayers to plan in January for not-yet-enacted new tax rules? We can't.
Overwithholding gives the government free use of our money,
the critics say. But we the people are the government, so we're saving
ourselves the interest the government would have to pay to borrow the money
we're lending it for free. Our patriotic gesture, in fact. Meanwhile, we're
also arranging for forced savings that can result in a large chunk of cash that
we'd never see in one place otherwise. Could we obtain that chunk of cash by
mere savings? Not easily, because there are so many daily demands on our money.
By overwithholding, we create a happy tax time scenario:
We're getting a refund! Hurray!
The financial critics should lay off.
