The US tax system and collective American madness

So I filed my first US tax return yesterday, and it was pretty good in two senses. One, I used this great online tool provided by H&R Block that did it all for me, walked me through, provided useful pointers, calculated the tax and sent it to the IRS within an hour – very impressive. Secondly, and rather wonderfully, I have actually been granted a tax rebate, or refund. And it is a HUGE one – $8,000.

I’m going to put the money aside and into my van and helicopter lessons. But hang for a second. How come the government is *paying me* such a huge sum of money. All the Americans think that this refund – nearly four thousand pounds – is terrific. “Aren’t you lucky?” And it seems that getting a tax refund is a very common event. The systems are all in place and look extremely efficient – a sure sign in government that it happens alot. It seems talking to people as well that many of them actually wait for their refund – even look forward to it – in order to do something special. There is the sense that this is somehow free money. That you’ve lucked out.

Which is quite clearly collective madness. Having a massive refund doesn’t mean I have massive amount of cash to spend – it means I have been hideously over-charged on my taxes through the year. It means I have effectively given the US government a huge interest-free loan. And it means that the systems my company has put in place is taking, completely unnecessarily, more money out of my wage packet than it needs to – a LOT more than it needs to. It means that those months in which I have had to judge how much of my credit card I pay off, and figure out when my wages will appear in my account, have been completely unnecessary.

And yet somehow I am supposed to be overjoyed about this and go spend the money handed back to me on pumping up the failing US economy. Talking of which – another really odd thing. President Bush has given everyone – or appeared to give everyone – $600 direct by simply taking it off their tax bill. Or, if your tax bill is under $600 (which still strikes me as crazy) GIVING people money. I don’t understand – isn’t this direct manipulation of the economy by the government? Doesn’t that go 100 percent against the concept of the free market that is held is such enormous regard here in the United States of America?

Considering this is the most capitalist society on the planet, I simply can’t understand these two interventionist economic policies – holding your money interest-free for a year, and directly injecting funds using the tax system. I may have to read up on this. In the meantime, because I don’t know any better, I will have to simply enjoy the fact I have a big chunk of cash I wasn’t expecting.

  1. Why do you think the tax refund is such an American thing? I’ve had tax refunds from the Inland Revenue in Britain and from the Dutch tax authorities. Some of it’s bad system design, some of it’s bad tax code and some of it’s the inability to predict changes in circumstances that will result in less tax being owed.

    To their credit though, at least the Dutch tax authorities paid interest on the money they owed me, which made the whole thing that much more palatable.

  2. Hey Leo,

    Why do I think it’s such an American thing?

    Because I was talking about it here (in the US) and everyone was completely at ease with the idea of a tax refund. A large number *expected* a tax refund. And some were annoyed they weren’t *getting* a tax refund.

    This is completely alien to me. I file my tax return and then I have to hope I’ve saved enough to pay the bill.

    I suppose the difference is that in the US you *have* to file a tax return, so there is much more institutionalised pre-paid tax from employers and so to be conversative and save nationwide pain, it tends to be over what’s needed; whereas in the UK, an employee mostly doesn’t have to bother.

    Still strikes me as odd.


  3. If you had a large refund, you could probably change your number of deductions.

    Yes it is odd.

  4. actually, maybe you should not have had that big a refund. Depending on the agreement between your home country and the US, when working part of the year in one country and part of the year in the US you may not have as many deductions as if you worked the entire year in the US. I cant remember when you joined icann nor do i know the rules from the UK….but…maybe – alternatively, David is right that you need to chnage what you pay throughout the year 🙂

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