Tax Day Isn't Bad If You're Getting A Refund

The day that many dread is here: It's Tax Day. Of the 143 million federal tax returns filed last year, more than 80 percent qualified for a refund. Steve Inskeep talks to David Wessel, economics editor of The Wall Street Journal, about the economics of tax refunds.



OK, you're running out of time to pay your taxes. Normally the deadline is April 15, that was a Sunday. April 16 is Emancipation Day in the District of Columbia, so that was out. Now finally, Tuesday, April 17, you're final day to get your taxes in the mail. For a lot of people that means writing a check, but not quite everybody, in fact, not everybody at all.

Our friend David Wessel, economics editor of The Wall Street Journal has been tracking this.

Good morning, David.

DAVID WESSEL: Good morning, Steve.

INSKEEP: OK. So get some numbers for us here. How many people will pay with the tax return? How many people will be getting a refund?

WESSEL: Well, based on last year, there were 143 million tax returns filed with the IRS and more than 80 percent of them produced a refund. In fact, the IRS says that for every dollar it collects it returns about 25 cents in refunds. An awful lot of people get refunds either because they have too much money withheld from their paychecks during the year or because they qualify for something called the earned income tax credit. It was a cash bonus that the government gives to low wage workers to encourage them to work.

INSKEEP: Does any financial sense to be paying the government more than you owe through the year and then expecting a check back at the end?

WESSEL: Well, economists used to say it was complete lunacy. You're basically giving an interest-free loan to the government. Some people are on autopilot and they just don't pay attention. Other people would rather pay a little more rather than face the pain of paying a little - having to pay taxes on April 15th or April 17th this year. But it's, there's new evidence that an awful lot of people see this as a way to force themselves to save.

In fact, there was a survey the University of Michigan did of low income and moderate income people in Detroit and it found that a lot of them got refunds - usually around $2,000, which is a lot for people who say they have trouble making ends meet - and almost 80 percent of them told the researchers that they didn't want to change that. They would rather get a bigger refund than have more money during the year. They want to use the tax system to save - either so they have money to buy a refrigerator or a car or because it's the only way they can set aside money for emergency.

INSKEEP: Oh gosh. We had the IRS commissioner on the program yesterday and he was saying actually, we write checks to most people. People love us or should love us for that reason. We're misunderstood. It sounded like spin, but you're telling me well, actually, that's how people think.

WESSEL: People are never going to love the IRS.


INSKEEP: Maybe expecting a little too much. Turns out that saving though, is a bi-product of the tax system, is what you're saying.

WESSEL: Right. And in the past few years, people in the government and outside the government have begun to say the Tax Day could be a way to nudge people to save who don't tend to save very much money. Mark Iwry, who is the point person on this stuff at the Treasury, calls Tax Day a savable moment.

So the IRS, for instance, has begun telling you when you get a refund you can put some in your checking account but we'll make it easier for you to put some in a savings account or an individual retirement account, and about three-quarters of a million people last year - a small slice to be sure - actually did that.

INSKEEP: Do you need a bank account in order to do that?

WESSEL: Well, to do that you do. So now the IRS has been saying if you want you can buy saving bonds - good old fashion savings bonds with your tax refund. About 30,000 people bought $11.5 million worth of savings bonds last year. So far this year, sales are running 60 percent ahead of last year. And even though the IRS - I mean, even though Treasury has done away with the old fashioned paper savings bonds for everybody else - you have to buy them electronically...

INSKEEP: Mm-hmm.

WESSEL: If you buy them through the tax code, if you buy them through your refund, you can get the old paper kind.

INSKEEP: You getting a refund, David?

WESSEL: I am. And given that I would be getting much interest at today's ultra-low rates, I told the IRS to apply it to the taxes I expect to owe next April.

INSKEEP: Oh my gosh, paying ahead. David, thanks very much.

WESSEL: You're welcome.

INSKEEP: David Wessel is economics editor of The Wall Street Journal.






Support comes from: