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US government to start issuing IOUs in lieu of tax refunds?

Everybody assumed that when California started sending out State IOUs instead of checks for income tax refunds, it was a sign of the State's dire financial status.

Now buried in the middle of a story about President Obama trying to provide more incentives for retirement savings, we find this nugget of fool's gold at The Hill:

President Barack Obama announced a series of policy changes Saturday aimed at making it easier for Americans to save money for retirement.

Among the changes are expanded access to 401k plans, small tax policy changes and a pledge to let workers convert vacation days into retirement savings.

The president framed the new policies as a response to the recession....

Second, a checkbox will be added to tax forms letting Americans receive their tax refund as a savings bond.


The neat part about this--from the State's perspective--is that not only will millions of unwary Americans bite on this tactic voluntarily, it will have established the principle that the government does not have to give you your tax refund in cash.

Nothing to see here, folks. Move along.

Comments

Mark H said…
Steve, I've actually changed my withholding to the break even threshold just in case :)
Miko said…
However, such bonds are tradable on the open market. Any move by the government to mandate this would lead to the mass sale of the bonds, leading to a severe drop in value. While this would hurt all individuals affected, it'd hurt the state's ability to issue new bonds even more severely.

Since acquiring such bonds currently requires an individual to act through a broker, this could be seen as giving individuals greater financial freedom. As long as it stays in essentially the current form (always doubtful...), I don't see this as problematic.
Delaware Watch said…
Steve, this is an option for people, not a requirement, one which allows people to earn some interest on their refunds if they choose. I don't get your alarm about this.
Perry said…
Because of what Miko just explained, it is a misnomer to imply that this practice is equivalent to a CA IOU.

I remember the "War Bonds" during WWII, which matured in 10 years, when $18.75 magically turned into $25. Even those were not IOU's, as they could be liquidated for $18.75 at any time.

Incidentally, I note that CA has begun to return cash for their IOU's.
tom said…
"Steve, this is an option for people, not a requirement,"

for the moment. but what if they declare it such a huge success that they make it the default, and then gradually over a few years phase out your ability to opt out and take cash instead.

"one which allows people to earn some interest on their refunds if they choose."

this is nonsense. you will still have to hold the bond to maturity to earn any interest, just is if you took your cash return and bought savings bonds on the day you received it.

people already have the option to earn interest on their return. they just choose not to out of laziness or ignorance.

to do so you must estimate your taxes in advance, and set your withholding to the minimum amount that will not trigger a penalty. divide your estimated taxes by the number of pay periods in the tax year and direct deposit this into the highest interest savings or money-market account you can find. then on 4/15, write a check from this account to cover your taxes. if you want a "refund", divert more of your paycheck into this account.

but instead people loan their money to the government interest free, in order to get a refund, and the IRS encourages this foolishness.

"I don't get your alarm about this."

that is because you trust the government--as long as the right lizard is in charge.

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