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Today's Feature Article • Wednesday, August 15, 2001


The Federal Pez Dispenser

Americans from coast-to-coast have been stalking their mailboxes lately, gleefully anticipating the arrival of their personalized tax credit coupon (IRS rebate check). Yes, the federal Pez dispenser is hard at work spewing out millions of these coveted vote-buying bonuses, the largesse of a truly benevolent Congress. 

But, wait! Is the TANSTAAFL principle really in effect? Or could there be a fly in yon ointment? Is there a catch? The following piece is straight out of Alice in Wonderland. Why, pray tell, does any American need "tax relief" when the income tax is imposed solely on qualified FOREIGN sources of taxable income? As for being "unlucky enough to owe taxes", what does luck have to do with the law? Pass the mushroom, please.

My favorite sentence is: "The risk of that (line) approach is that the adjustment could flip you from a refund to a balance due, and you really wouldn't believe you received that money," Dudley said. Believe? What does belief have to do with liability? Money? Where is there any money? The federal government works only with credit. Real money disappeared under Nixon.

I have decided that my favorite movie star of all time is Buzz Lightyear. "To infinity, and beyond!" Buzz is my kind of guy: assertive, proactive, a man on a mission. A mission to Earth! You see, Buzz is no mere plastic action toy. No, indeed, he's a bona fide star trooper! Really! Yep, that's his paradigm and he's stickin' to it.

Most Americans operate in an identical mode. They actually BELIEVE they are taxpayers. "To insanity, and beyond!"

* * *

Tax Checks In The Mail, With A Catch 

-- by David Milstead, News Staff Writer, Rocky Mountain News, 07/21/2001 

The tax-relief checks that will start arriving in mailboxes next week don't have a consumer-warning label, so we're happy to provide one.

Warning: This check is not a "rebate" of taxes you already paid. It's an advance on the refund you'll get when you file next April.

If it's an advance, you ask, does that mean my refund in April will be $300 smaller than it would have been? And if I'm unlucky enough to owe taxes, does that mean my tax bill will be $300 higher?

The answer to both questions is yes. But you'd never guess that from the 1040 you'll fill out next year. It's been designed so that it's nearly impossible to realize how the 2001 rebate checks affect your tax preparation in 2002.

"I think people think what they're getting is a refund of taxes they paid in 2000," said Gary Dudley, the tax partner-in-charge at Deloitte & Touche's Denver office. "If they think their taxes were going to show up lower April 15 (from this change), they're not."

The "immediate tax relief," as the Internal Revenue Service calls it, was designed by Congress and the Bush administration to give taxpayers the benefit of a 2001 tax-rate reduction as soon as possible. Rather than wait for next April, you'll get the tax
cut now.

"Congress intended the credit to take care of the rate reduction for 2001," said John McGreevy, an assistant branch chief for administration with the IRS. "They wanted to get money into people's pockets for an economic stimulus."

Bear with us for the math on how your check is calculated: The rate on the first $6,000 of income for singles and $12,000 for married taxpayers filing jointly is being cut from 15 percent to 10 percent. That's why the refund checks range from $300 for singles ($900 in taxes reduced to $600) and $600 for marrieds ($1,800 in taxes reduced to $1,200).

But if you were to fill out the tax form next April using the new rates, you'd get the tax-cut benefits a second time. That's why the tax tables that will accompany next year's 1040 will charge you the old 15 percent tax rate, not the new 10 percent rate.

The IRS could have included a line at the end of the 1040 where you took the amount of the refund check and reduced your refund by $300 or $600 or, even worse, added that money to the tax bill you owe. You won't have to do that, because the amount owed you pull from the tables at the back of the booklet will have already done that for you.

"The risk of that (line) approach is that the adjustment could flip you from a refund to a balance due, and you really wouldn't believe you received that money," Dudley said.

But before you direct your anger at the IRS, look to the folks who designed -- and are taking credit for -- this advance-refund system: Congress and President Bush.

"It was not left to our discretion," said Marilyn Brookens, an IRS attorney in Washington. "It was a congressional and presidential decision to do it this way, and we're implementing what we were told to do."

Brookens points to the tax-cutting language in the report from the House-Senate conference committee that Bush signed into law earlier this year. The law said that in 2001, the advance refund occurs "in lieu of" the rate cut from 15 percent to 10 percent.

That statement, Brookens said, meant "if we didn't do it this way, we would be in trouble with them." 

But there are practical reasons, too, Brookens said: "It's an effort to have as few people as possible enter a number on the 1040. Every time there's another computation, it increases the likelihood of errors.

"It's the way that will be quickest, most effective and result in the fewest number of errors," she said.