California Confiscates Tax Refunds

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I would wager that those who withheld more than they owed on their State of California taxes didn’t think that they would be making a zero interest loan to the state.   I would be absolutely furious.   I am thinking that many will never see their refund, as California  appears to be  on the precipice.  

California has had no money in its general fund for the past 17 months, and has been paying its bills by borrowing from Wall Street and special internal funds.

If the state’s legislators and governor do not reach a budget agreement that brings immediate funds into the state’s coffers, the state’s borrowed funds will be entirely exhausted at the end of February, according to the controller’s office.

I would also wager that workers will be making a lot of changes to their withholding so as not to be owed any refund at the end of next year.   Fool me once, shame on you, fool me twice…

Then again, the feds could come to the rescue and print some money for Cali.   Good luck with your bond rating, California municipalities and (insert project here) districts.

Some muni bonds are actually paying very good rates right now.   As I was sitting across the table from a financial advisor we discussed the rates that some municipalities and state agencies in California were paying and then we both laughed out loud and moved on to looking at munis from more stable cities and states.   I am thinking that this conversation has been played out millions of times at brokerage desks across the nation.

10 thoughts on “California Confiscates Tax Refunds”

  1. “I would also wager that workers will be making a lot of changes to their withholding so as not to be owed any refund at the end of next year. Fool me once, shame on you, fool me twice”¦”

    Keep telling them.

  2. And California leads the nation. My girlfriend was supposed to have her refund direct-deposited today, but it wasn’t there. She looked it up and apparently she’s not the only one. She called the IRS and they said the “website was showing the wrong dates.” Mr. Geithner, I presume?

  3. California has the problem that it can’t print its own money. It can only print up letters saying “This letter represents $257.35 of the ‘We Promise To Pay You Back California Taxpayer’s Fund’.”

    Now, if they were the Federal Government, they could go to the Treasury, give them a letter saying “This letter represents $850 billion of the We Promise To Pay You Back U.S. Taxpayer’s Fund”, and the Treasury would print up $850 billion of real, honest to goodness paper money. Paper that you can’t distinguish from the other paper money in circulation, so that you wouldn’t know to reject it as payment (as you could with the California letters).

    So, we are all better off with the Federal Government than those peasants in California.
    (Yes, sarcasm)

  4. Funny Andrew and I feel for your gf Matt.

    I am wondering if any of our legal scholar readers know enough about the California constitution to be able to tell me if this is even legal. You would think that the state would have to file bk before confiscating the property of the people.

  5. I too wonder how this can be legal. Refund money by definition is money that the state collected in excess of its statutory authority. It has no legal right to hold the money past the refund deadline.

    Of course, it doesn’t matter what the law is does it. What are you going do, call the cops?

  6. So, basically… by withholding these refunds, some California citizens get to steal money from some other California citizens. Actually, that’s not quite right: They stole the money when they taxed it in the first place. So I guess it’s more like: Some California citizens are benefiting more from stolen money than some other California citizens.

  7. Those who have too much withheld from their paychecks have always been making a zero-interest loan to the various governments. The only thing that has changed here is the certainty of the loan’s repayment. That’s how it goes when you get into the business of lending money. You are at the mercy of your debtor’s ability to repay. So, if you are just now realizing that you should adjust your withholdings so that the government gets only what they have coming (and yes, that’s a debate for another day) it’s your own damn fault.

  8. Of course, it doesn’t matter what the law is does it. What are you going do, call the cops?

    Good point, Shannon. Once the government does whatever is convenient for it – that is, breaks the law at will and without consequences for itself – we no longer have rule of law. We have the arbitrary rules of monarchies and tyrannies.

    Those who have too much withheld from their paychecks have always been making a zero-interest loan to the various governments.

    Interestingly, it doesn’t work the other way around. As a business owner, if I owe taxes, I must pay them quarterly. If I don’t, I incur a 7% interest on the amount I underpay from the moment I owe it because, at that point, the government treats the taxes owed as a loan to me. Great spread, no? Borrow at 0% and lend at 7%. If I don’t pay my taxes with interest, the government will jail me. If the government doesn’t repay its 0% loan to me, I can do nothing about it. I’m sure this is exactly the kind of limits on government the founding fathers envisioned [/sarcasm].

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