Zeitgeist Watch: Kansas May Suspend Tax Refunds

Kansas is in the middle of a budget brawl, and tax refunds may be on hold if it isn’t resolved pronto. From the Kansas City Star:

The Kansas Finance Council was to meet at 1 p.m. today to vote on whether to borrow $225 million from healthy state funds to cover expected payments to schools, state workers and taxpayers. The state did the same thing last December when it ran into a cash-flow problem.

But Republican leaders said they wouldn’t authorize the new loans until Sebelius, a Democrat, signs legislation designed to erase the state’s current year budget deficit. That bill, passed Thursday, cuts statewide school funding by $32 million and makes millions more in cuts to other state agencies.

State officials are scrambling right now to determine what the cash flow problem will mean. Budget director Duane Goossen said it’s likely to mean a delay in tax refunds, state employee pay, reimbursement to Medicaid providers and school districts.

The Kansas City Business Journal reports that the state has only $5 million in the till (versus a $6.5 billion annual budget) so they do indeed appear to be out of cash.

Now this showdown can be seen as politics as usual; budget brinksmanship is hardly unheard of in the US. But there are a couple of noteworthy threads here. One is the insistence on a balanced budget, which folks like Paul Krugman maintain is nuts in times like these (he worries that spending cuts at the state level will offset any federal fiscal stimulus).

But second is bringing refunds into the fray. This is potentially explosive. Cutting or freezing budgets usually hits specific groups: state employees, contractors who have the state as an important client. people who depend on certain programs. But a tax rebate cut hits a broad swathe of people. Even thought the amount at issue may often be small, it sticks in voters’ craws.

I have long thought it would take a lot to rouse Americans to action. We tend to complain but not do much. But if moves like this become more common, we might see a big shift in the collective attitude. Consider these remarks in the Star’s comment section:

donshapley is right it is not even their money it is ours. I personally recommend that everyone who is owed a refund change their withholdings to 9 on the W-4. It will reduce your withholdings. Not sure if it is true but a friend who did payroll told mw putting 10 triggered a red flag.

Now the key is you must be disciplined enough to put the additional money from each check in savings so you have it to pay when you come up owing taxes next year.

Think how the state would freak out if a third of the people who work did this……….would love to see the state have to wait until 4/15 to get the bulk of their money……….

And this via reader Marshall:

Why is it when the state is hurting and strapped for cash we are all just suppose to sit back and say, “it’s okay, just keep my refund until you are good and ready to send it to me”? however, if it were the other way around and I owe them then there is NO excuse for my lateness. Seems a bit double sided if you ask me. EVERYONE is hurting in today’s economy and I understand that the state isn’t any different…but it frustrates me that when the shoe is on the other foot then its okay for the government but not okay for the citizens. I think that the state should pay US interest on our refunds in the same amounts that we have to pay them when we are late!

And I suspect we are going to see more of this sort of thing, both suspension of refunds and citizens at least contemplating tax gaming, perhaps disobedience. But I also suspect the only thing that will focus the minds of the officialdom would be bona fide collective action, and Americans aren’t inclined towards that sort of behavior.

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  1. Mara

    With the poor state of cash flow as it is for businesses and govt, I imagine about 20% of the populace just going 30 days late would probably bust the whole works. Given the current econ situation, it wouldn’t even have to be particularly organized, tho I’ve seen more and more noise lately about MOWA (max-out, walk away).

  2. MyLessThanPrimeBeef

    The world is full of big ideas and small ideas.

    This tax refund suspension seems like a small idea or what I would call ‘ideaette’ (pronouced ‘idiot’).

  3. Anonymous

    Krugman is such a joke. It’s a travesty of economics that that political operative was given a Nobel Prize. As with Myrton and Scholes it shows how irrelevant the Nobel Prize in economics is (it’s not even a real Nobel Prize).

    The problem is that the entire country spent way too much and put itself into way too much debt (private debt is almost 300% of GDP).

    There is only one way we can safely get out of this: spend less, save more, produce more. This will require a hugely painful recession, but it can be quick – like the Depression of 21 when Harding just let it run its course – or it can be prolonged and agonizing, like the Depression or Japan’s lost decades, where the government constantly fiddles and attempts to stimulate.

    What has been forgotten in all this is the great economic calculation debate of the 30s, which the socialists of the time thought they had won. It was only in the late 80s that Heilbroner, the socialist economist and philosopher admitted that Mises had been right all along.

    And what is the lesson of economic calculation? That a central authority can not rationally allocate resources in the absence of a price function. This is why the stimulus bills are doomed to failure. It is as logically impossible for them to succeed as it is impossible to square a circle.

    Of course, most neoclassical boobs, like Krugman, don’t even know about the economic calculation debate. They’re too busy twiddling their meaningless lines and using their langrange multipliers as if these things have any relationship to reality.

  4. alexblack

    Given that something like 2/3 of the Amrerican people believe that the universe is 6,000 years old and Adam lived with dinosaurs, and another 3/4 or so believe that we have regular visits from alien UFO’s, I’m rather happy that Americans are NOT prone to collective actions.

    We only engage in radical collective actions in small groups during momtnts of hysteria – lynchings, Beatles’ concerts, etc. I suspect any “collective action” on the part of a “I’m fed up and not going to take it anymore” movement would less resemble an intelligent civil disobedience than it would the Cultural Revolution in China.

    I’m a landlord – I don’t want my tenants hanging me from a lamppost with impunity.

  5. Tom

    Anon 6:25pm
    Just acts done in a just and self-controlled way?

    You’ll get the rest of the meeses a bad name.

  6. MyLessThanPrimeBeef

    A couple of things about the Nobel Prize.

    First, since economics is a dismal science and an economist is a dismal scientist, the winner of a Nobel prize in economics is then the most dismal scientist.

    The second is actually a Zen koan: How many Noble peace prize winners does it take to bring world peace?

  7. Carlosjii

    Sorry to be a nattering Nabob of negativity BUT………
    I have an outstanding prediction that the Federal Reserve itself, the magic money making machine created by an inept congress years ago, WILL FAIL. And sic transit Gloria mundi if you asked me!

    The chickens of 1913 are coming back to ………

    “The combat and instability would continue because its real source was the political contract struck between democracy and capital back in 1913, the implicit decision that democratic politics could not be trusted to act responsibly in the national interest. Therefore, the authority and responsibilities of elected politicians were permanently curtailed. Put another way, the elected government was allowed to be permanently irresponsible – free to indulge its own follies and protected from the accountability by the higher authority, the non-elected central bank. The creation of the Federal Reserve represented a great retreat from democratic possibilities. The maturing of self-government was forever stunted.” Pg. 534, Secrets of the Temple – How the Federal Reserve Runs the Country, William Greider, Simon and Schuster, 1987

  8. Anonymous

    Anyone who gets excited about a tax refund every year is engaging in poor tax planning. Period.

    When I blogged a bit, I wrote the following on the Tax Payment Act of 1943:

    Many Americans are wage earners, meaning they get a paycheck on a regular and consistent basis. The gross pay is one thing, and net pay is another. What’s most important to us is that our net pay gets deposited into our checking accounts. (Business owners and independent contractors are required to file and remit taxes quarterly.)

    A little known fact about our tax system is that the concept of ‘withholding’ income taxes was not always a fact of life. Between 1913 and World War II, an income tax existed; however, taxes were not withheld from paychecks. Instead, when April 15th came around, most Americans wrote a check to the US Government for the full amount taxes, not the net difference (as we do today).

    The reason for this change in the tax regime was to fund our efforts in World War II and to a lesser extent, pay for the New Deal programs enacted during the 1930’s. Here is a link to the US Treasury website explaining the history of taxation. Below is an excerpt from the website:

    Another important feature of the income tax that changed was the return to income tax withholding as had been done during the Civil War. This greatly eased the collection of the tax for both the taxpayer and the Bureau of Internal Revenue. However, it also greatly reduced the taxpayer’s awareness of the amount of tax being collected, i.e. it reduced the transparency of the tax, which made it easier to raise taxes in the future.

    What an understatement! By withholding the tax at the time of pay, Americans slowly forgot just how much they paid in taxes. Any tax increase (or decrease) while amounting to a sizeable amount over a year, is hard to miss when your net pay changes by only 10’s of dollars.

    (Editor’s note: I have a sneaking suspicion that every administration gets to put out their message on the facets of government. I wouldn’t be surprised if this historical overview is part of that larger message, especially in light of the ambititious plans Presiden Bush has for the tax code and Social Security in his next term .)

    Imagine having to save $5,000, $10,000, $20,000…to pay the tax man at one time! That seems daunting. But have no fear: our employers are effectively agents of the IRS in that they compute and remit each our payroll taxes each pay period. (A slip up on the employer’s part will most certainly invite an IRS audit!)

    Because of this, the income tax return has become simply a reconcilitation between what was withheld (and remitted) and what is actually owed, with the difference being owing more or receiving a tax refund. Most people get excited about their refunds. So excited in fact they take out a loan to get the money “now” and use the refund to pay the loan “later” at usurious interest rates. (The best situation is to owe a few extra dollars, essentially an interest free loan from the government. A huge refund, on the other hand, is an interest free loan to the government.)

    If you are consistently receiving huge refunds or owing significant amounts of money, contact your payroll department and have them walk you through IRS Form W-4.

    For those so inclined, here is an in-depth paper on the Tax Payment Act of 1943. Warning: it is a bit heady and hard to follow.

  9. doc scarecrow holiday

    I’m grateful to be the first here:
    Wizard of Oz

    Wizard of Oz ccene where Dorothy discovered that she had the power all along to return to Kansas.

    Take that Toto!

    Also see: Bryan also fits the allegorical reference to the Cowardly Lion in that he retreated from his support of free silver after economic conditions improved in the late 1890s. However, it has also been suggested the cowardly Lion represented Wall Street investors, given the economic climate of the time. The Munchkins represented the common people (serfdom), while the emerald city represented Washington and its green-paper money delusion. The Wizard, a charlatan who tricks people into believing he wields immense power, would represent the President. The kiss from the Good Witch of the North is the electoral mandate; Dorothy must destroy the Wicked Witch of the West—the old West Coast “establishment” (money) with water (the US was suffering from drought). Moreover, “Oz” is the abbreviation for the measuring of these precious metals: ounces.

  10. Richard

    Yves reposts the following from the comments:

    “I personally recommend that everyone who is owed a refund change their withholdings to 9 on the W-4. It will reduce your withholdings.”

    It will also trigger a penalty, added cash money owed by anyone who follows this course.

    The system is pay as you go. Your employer withholds as you earn. If your income is not of the sort that can be withheld, you, beloved taxpayer are expected to make estimated payments. And if you fall short of The Law’s standard, you pay a penalty, added to what you owe.

    On the larger issue, government’s today are owned lock stock and barrel by special interests, public employees, public employee unions, the not-for-profit agencies with government contracts and the clients they all claim to serve. The aim of stopping refunds is tell taxpayers they’re the ones who are going to take it, so shut up.

  11. Anonymous

    This anti-tax mentality took hold after the 60’s when Republican rhetoric painted government as a nefarious plot to transfer ‘your’ money to dark hued welfare ‘queens’. So now the rubber hits the road. And the precious denizens of America’s painted white suburbs are about to go spinning down the drain because they can’t bear to fund essential services.

    Hah. Ha. Ha.

    No wonder the rising powers are in the East. Asia values education.

  12. Anonymous

    I claim 99 on both my federal and state returns and ‘pay’ a flat amount each pay period.

    The total paid is my tax estimate for the entire year. Last few weeks I shut it off and glide into a +/- $100 difference on both.

    No problems here.

  13. whitetower

    …they can’t bear to fund essential services.

    The problem is that in the view of the tax-and-spenders, there is no such thing as a non-essential service.

    Which is how we got into this crisis in the first place: too much spending and borrowing at every level of government, among the private sector and individuals.

    (In this regard, Krugman’s concerns aren’t anything new from him. He always “worries” when government isn’t able to spend as much of an individual’s money.)

    The solution to this is to not continue to spend and borrow in the attempt to prop up insolvent companies and banks. Insolvent firms should be allowed to go under, thus clearing out the bad debt that is scaring away investors and lenders.

  14. DoctoRx

    Agree w whitetower and Anon 6:25 re Krugman and simplifying the econ scene. IMO it’s bad enough that the Feds and the Fed can do unlimited deficit spending and credit creation without extending that privilege to states that do not control the currency.

    So far as an undefined type of collective action in response to the suspension of withholding payments, I just don’t see it. So far as Kansas goes, this is politics in a recession. The checks will go out soon.

    Remember the Clinton-Gingrich gov shutdown showdown? Clinton won, and thus won re-election. In Kansas today, one party or the other will win or lose, or it will be a draw, and life will go on, and the economy will still stink.

  15. tyaresun

    Used that abstract discipline of game theory and stopped paying my estimated taxes starting the Q2, 2008.

  16. Anonymous

    What is interesting is politicians and bureaucrats like to send voters a message by making the most visible, public cuts while lots of pork and business as usual continue.

    The problem is, these moves are gradually undermining the fabric of society, which, can be thought of as like “capital”.

    The normative order have the legitimacy, and the obedience of the populace in exchange for a regular renew of the mandate.

    At a certain point, the undermining can result in visible, organized collective action (aka riot, etc.) but in today’s environment, is just as likely to turn into disengagement and with it, de-legitimation of the US regime.

    One of the really interesting movies coming is what happens when the President’s new administration do not deliver tangible benefits to their supporters in the next 6 months?

    The broad base of supporters is a great source of funds, campaign contributions and workers, but precisely because of this nature, should it ever turn against the Administration, it can also change lighting fast the other direction.


  17. Richard

    I enjoy paying taxes. Its the price I pay for civilization. Most of the anti-tax comments from “anon” and others of his ilk who feel that they really do earn their income, and that it is not at least in part due to the accident of birth and the fact that others paid taxes that supported their education, police forces and courts that sustained a civil order, and armed forces that keep the barbarians at bay. And if you don’t think our Government does these things well, not just for us but for others (see Japan and Europe), then I suggest you move to Somalia, or if that is little to anarchic for you, then Mexico. It also provides provides a minimum decent life for those of our fellow citizens who have drawn the short-stick of life’s fortune, some at birth, some with a chronic disease, and some with a disabling injury. Ayn Rand let loose a great evil in the world when she sanctioned utter selfishness and narcissism and treat one fellow citizens as mooches and leeches (the logic being that if they are not masters of the universe, well they really don’t deserve to live except to the extent I do need someone to clean my toliet, and which leads to the next logical thought that they are sheeped to be sheared and doing inside deals to my own benefit and to the detriment of investors who are leeches and mooches, well that is just getting what is rightfully mine! John Galt, meet Bernie Madoff and Stan O’Neal!

  18. charlie

    Yves’s essential point is valid: at what point do governments (and for lack of a better word) political class cry uncle? We can continue to operate in this zombie economy for at least another year. I don’t see the Republicans mounting an effective midterm challenge.

    However, I disagree with her that having a few states declare bankruptcy really means anything. I don’t think the political class would really pay that much attention and change their views. States could pay script to employees for another few months and default on some debt payments — that is not such a big deal.

    California going down — as it looks like it is — might draw some attention but the problem in CA is the 2/3 majority needed to pass a budget.

  19. IF

    By how much are you overpaying state taxes? If it is more than 100 bucks, adjust your payments. Otherwise the discussion is silly. The problems are bigger than a few bucks outstanding.

    And remember: states/munis can tax you even if they don’t provide any services in return. They can do this just because you exist as a US person (or just were silly enough to buy a house in that town). Actually, the threat right now is the shutdown of essential services. Worst case the state/muni will tax and pay off debt just like everyone else. Who needs a civil society? Well, I am in CA and things are getting interesting here.

  20. Anonymous

    Whoever keeps posting these unsubstantiated attacks on Krugman in every thread is an idiot. (See, other people can do ad hominen attacks as well.)

    Just a hint…disparaging one figure (Krugman) and praising another (Mises) should not be mistaken for actual, you know, analysis.

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