What Your Money's For

So in 1993 2003 we got some kind of $400 instant rebate from the IRS for having a child. Like a dope I deposited that check and forgot about it, and when we did our 1993 2003 taxes we claimed the full child credit. (The $400 was just an advance on our tax bill for the year.) Now we're getting dinged for the $400 plus interest and penalty.

The real story, though, is what happened when my wife went down to the IRS office to gripe about getting a temporary handout that we didn't ask for and didn't need, and that only caused us more paperwork headaches. The response from the woman at the desk: "The President provided these credits because he wanted to stimulate the economy."

Glad to be of help, W! But next time, include a note with the check telling me how to spend the free gift: I suspect putting it right in the bank probably didn't do much for the GDP.

Comments

[Jennifer]

Tim--

What? What is the justification for making you and your wife pay that money back?

I'm guessing it's one of those pointless explanations that will make people's eyes glaze over when they hear it. Am I right?

(I hope I don't get busted for banking the $300 check we all got a few years back.)

[hunter]

W wasn't president in 1993!?

[Pooh]

Erm, that's 2003 right? Lest we get deluged with "see, Clinton was still worse" rhetoric from the LGF crowd...

[Jennifer]

Hunter, Pooh--

Hating the IRS is a non-partisan issue.

[Pooh]

Jen,

Hate the tax code, not the poor schlubs enforcing it (ok, hate them too, just less).

[mediageek]

Tim, don't get all huffy.

"Taxes are the price we pay for civilization." -Oliver Wendell Holmes

(I find it highly telling that nobody trots that quote out any more.)

[The Wine Commonsewer]

The clumsy way of handling the $400.00 upfront money was directly due to IRS incompetence. It may have been a bad idea to start with, but the execution came from the IRS and not from GWB or the CON-gress.

Here is a tip: Never deposit a refund check from a government agency until you are sure it is accurate (I was going to say: until you are sure it is rightfully yours, but that is a given since all of it is rightfully yours).

So long as you don't cash the check there will be not penalties or interest.

[kmw]

I got hit with this too, and I was furious at the time. But fortunately it didn't cost me more than the original refund, because I found out about it before that tax year's deadline.

I guess I did stimulate the economy, because it was spent on furniture for the kids rooms. But it would have been really nice if someone had said this is just an interest free loan, not a refund. Since I have two kids, there was $800 on the line for me.

[The Armchair Economist]

Money put in a bank (at the margin) increases the supply of money available for loans and lowers interest rates, stimulating the economy. (It also lowers the savings rates, encouraging people [again, at the margin] to spend money from their savings accounts, stimulating GDP.)

[mediageek]

So long as you don't cash the check there will be not penalties or interest.

That's the most depressingly hilarious thing I've read all week.

[dead_elvis]

I suspect putting it right in the bank probably didn't do much for the GDP.

Not to nitpick here, I understand the sentiment and I sympathize with your complaint, but I would think that theoretically, it *would* help the GDP. The bank isn't just going to stick your money in a mason jar and bury it. They would have invested it, and gotten more growth out of it than if the gov't would have wasted it on a hammer or toilet seat.

[Rick H.]

My very, very, very limited experience with government checks is that they expire after a short time, right? So waiting wouldn't be the best solution.

[biologist]

I can beat that story. for fiscal year '95, the IRS sent me a check for ~$800 after "correcting" my tax return and finding that I was owed an additional sum for some sort of earned income credit or something that was done that year (that might not be the exact thing, I don't have kids or understand the tax code), but the additional refund was only supposed to go people that were born in 1970 or earlier, I found out later (I was born after 1970). I had to return the money plus interest because of the IRS's erroneous correction of my tax return, since they didn't bother to double-check the year I was born before sending me money I didn't ask for.

[Ira]

"The clumsy way of handling the $400.00 upfront money was directly due to IRS incompetence. It may have been a bad idea to start with, but the execution came from the IRS and not from GWB or the CON-gress."
The President is ultimately in charge of the IRS, so I think we can blame him for any IRS incompetence.

[Jennifer]

but the additional refund was only supposed to go people that were born in 1970 or earlier, I found out later (I was born after 1970).

What? The more of these stories I hear the less sense they make. Does anybody know the rationale of the 1970 cut-off year? It's not as though people born in 1970 are officially Elders, or something. What is so magical about that year?

[Ira]

Jen,
I don't know about that specific provision, but have you ever read part of the tax code? There are all sorts of random cut offs that make no sense. They get put in to help this or that interest, to make some budget target, or because some congressional staffer liked that number that day.

[rich]

Again, the pres is only following his policies to the letter of the law - how better to stimulate the economy than with extra interest from millions of people who did exactly the same thing?

this really *is* the CEO president in action.

[John]

The mistake wasn't depositing the $400 check...that was the correct thing to do. The idea was to give the economy a bounce by giving us all some extra disposable income. Whatever.

The error was made when you (or your tax preparer) prepared your 2003 tax return. You were not supposed to claim the credit again.

The IRS didn't screw up, Congress didn't screw up, even W didn't mess this up. The person(s) signing the incorrect tax return did.

[John]

Oh, and you should request abatement of the penalty for reasonable cause. Lots of people made the honest mistake of claiming a tax credit they previously received.

[dead_elvis]

The screw up was wasting millions of dollars sending people checks, when it was money they would have gotten anyway when they did their taxes. I would argue that any economic benefit was outweighed by the extra administrative cost of sending out checks.

[biologist]

I don't know the actual rationale (although rationalization might be a better term), but it might have to do with when the average person leaves college, or stops being claimed as a dependent on their parents' tax returns

I neglected to include in my post that, similarly to Tim, I had to pay it back, with interest

[John]

/I would argue that any economic benefit was outweighed by the extra administrative cost of sending out checks./

Perhaps. We now have data to support or refute this argument.

I would ask you argue your case to the lower income people living paycheck to paycheck if they would like to have their tax refund 9 or 10 months sooner.

And kmw has it exactly backwards: The government wasn't loaning you the credit. It was giving it to you in a timely manner after congress passed the law. You would be loaning the money interest free to the government had you not received the check before April 15, 2004

[Derek]

Tell them it was an unsolicited gift, cite Title 39, United States Code, Section 3009, specifically the part that details which things which are sent to you, unsolicited, via the United States Postal Service are considered "gifts" and that it is a federal crime to follow that gift up with a bill or dunning of any kind.

Further, file a complaint with your local postmaster. Yes, seriously. Cite the statute, describe the situation, and demand that the USPS prosecute the IRS. Let them fight it out.

[js]

But if taxes are too complex for the average person to figure out then Congress and W did screw up. Of course this situation is not new.

"Taxes are the price we pay for civilization."
Oh yea, I remember that one. It must not have the same pretty ring in these days of gulags and torture.

[James Anderson Merritt]

"Taxes are the price we pay for civilization." -OWH

And yet, one good measure of civilization is the extent to which coercion is NOT a factor in everyday life and business. Taxes, of course, are collected via coercion; otherwise they would be donations.

So, as far as civilization goes: the cheaper, the better. Wouldn't you think?

[Peter]

So, Tim, every dime you've ever deposited in the bank just stays there? Even from your pay checks? You don't ever take money out from your bank and spend it? Or when you take money out from your bank to spend you'd made sure it didn't come from the $400 portion of the Bush gift you did not need? Also, did you tell the bank not to give you interest from that $400 (if it's not an interest free account)?

[dead_elvis]

You would be loaning the money interest free to the government had you not received the check before April 15, 2004

Good point.

I would also say though, that if a person is getting money back, it's stupid to wait until April 15. File February 1st, and avoid several months of that lack of interest.

[Ron Hardin]

The money they sent you is money they got from somebody else, unless the Fed is inflating the money supply. It does, however, lead voters to think they got something, or perhaps that Bush is doing something about whatever it was he was getting slammed for not doing something about.

Blame the economically illiterate press for causing the need and the response both.

[Tim Cavanaugh]

What? What is the justification for making you and your wife pay that money back?

The error was mine: The $400 was an "advance" and was supposed to be deducted from the child credit we claimed when we did our taxes. I just assumed it was my 2002 refund (it came at a time when all our tax records were packed away) and forgot about it.

I'm not making any excuses for the error, just commenting on the logic of this Keyensian approach to taxation. If they were really interested in "stimulating" the economy in this way (and a disturbing number of people on this thread seem to think that's a good idea), they'd end "emergency" withholding entirely and just make all your money due on April 15. I seem to recall that Germany and Japan have been defeated, so the emergency doesn't exactly apply. I also recall Dick Cheney debating Joe Lieberman and saying the difference between the Republicans and the Democrats is that the Dems want to use taxation to reward you for certain behaviors while the Reps just want to reduce your taxes.

[John]

Interesting point about "emergency" withholding. I had not heard that term before.

In any case our current system is more accurately termed "pay as you go." To make all taxes due on April 15th of the following year is folly squared on so many levels, beginning with the prediction that most people will have spent the taxes and would not have the money to pay their entire year's worth of taxes in one shot.

I apologize for not grasping Tim's mainpoint. He now says he was commenting on the "logic of this Keynesian approach to taxation," while I thought it was about the hassle of paperwork due to the mid-summer rebate and subsequent filing error.

Dead Elvis at least makes the salient point that the cost of the mail-out could have exceeded any macro-economic benefit of the stimulus. He could be right, I dunno. I used my check to buy stuff for the kids, and if you check out monthly GDP for that era it did spike, then mellowed out to 3-4% sustained growth. I'll leave the answer to that question to economists out there.

The same approach is being used by this administration all the time regarding the tax code. Increased depreciation limits, increased retirement contribution limits, lower tax rates on investment income and cap gains, etc. You may argue that Keynes was wrong, but I doubt the GDP over the past 5 years laid over the past 5 years tinkering with the tax code is a good way to do it.

[Mo]

Uh John, but what about the decrease in GDP due to people having to pay back the credit. So on balance, the stimulating effect had no net effect on GDP and just had the additional cost of the extra mailing.

[Jennifer]

To make all taxes due on April 15th of the following year is folly squared on so many levels, beginning with the prediction that most people will have spent the taxes and would not have the money to pay their entire year's worth of taxes in one shot.

Even if so, I am very uncomfortable with the idea that adult citizens of this country have their government treat them with the default assumption that they're just too goddamned stupid to be trusted with their own money.

The FIRST year all taxes were paid on the 15th would probably be a nasty one. By the second year, the smart ones will have no problems, and the stupid ones. . . . well, they're prone to economic difficulties anyway.

[Tim Cavanaugh]

It may be folly squared, but it's the way this country ran its business until the middle of World War II, when the government was presumed to have such an immediate need of revenue that instant withholding began. Like so many emergency measures, this one outlived the emergency, and now has become so engrained that people think the government does it as a favor to us, to make taxpaying more simple. Until they spend some time self-employed, that is, and have to pony up that quarterly payment. Now that's real fucking convenient.

[NoStar]

And to think we have Milton Friedman to thank for payroll withholdings.

[The Wine Commonsewer]

Ira, yes GWB is in charge of IRS (technically), but in reality the bureau chiefs largely run the bureacracy in a fairly independent way and not the president. That is especially true with IRS, who have, for example, codified a set of regulations that apply to all taxpayers that are loosely based upon actual tax code. Don't get me wrong, when push comes to shove the actual tax code applies but for everyday dealings with audits and other matters it is the IRS regs that apply.

I think IRS could have done a clearer job of letting people know what was going on, but the info was available in the instructions. OTOH, private provider Turbo Tax did a really horrible job of clarifying the law and the procedure in their software that year. Many people who used TTax did exactly the wrong thing because it was so difficult to understand the instructions.

Jon is right, Tim should ask for a penalty abatement. However, Tim should also double check the notice from IRS, there may not have been a penalty in the first place. In many cases IRS only asesses interest when a taxpayer forgets something that is later turned up in a routine computer audit where info on the return is compared to third party info reported to IRS (including the IRS own records).