POLITICS: Your tax refund is a total scam that blinds us to DC’s spending

Another Tax Day — and amid the April procrastination and paperwork, an annual reminder of how disconnected we are from the true cost of government.

For many Americans, filing taxes feels like a payday rather than a moment of reckoning.

That’s because of a system we rarely question: automatic tax withholding.

Withholding, created during World War II to fund the war effort, has made federal, state and local income-tax collection a seamless, nearly invisible process.

But by requiring employers to automatically deduct taxes from employees’ earnings each pay period, withholding masks the burden of income taxes.

What was once a deliberate act of handing over money to the government has become a core feature of the modern fiscal state, distorting how we understand our own personal finances.

Roughly two-thirds of American taxpayers receive a federal refund each year, averaging about $3,000 apiece.

But your refund is simply the US Treasury’s return of money you overpaid throughout the year — the result of a series of interest-free loans you unwittingly made to the federal government.

It’s like having your wallet stolen, losing all your cash and credit cards, yet celebrating when you find your driver’s license within the empty wallet tossed in the bushes.

Sure, it’s a modest win — but wouldn’t it have been better not to get mugged in the first place?

Before withholding was introduced in 1943, Americans paid their previous year’s income taxes in a lump sum every April 15, or through installments over the following year.

That made any tax increase immediately obvious — and painful.

While small-government advocates often lament the 1913 ratification of the 16th Amendment, which authorized the modern income tax, the tax alone was not sufficient to unleash the modern federal fiscal project.

It was automatic withholding that allowed the income tax to expand from a narrow levy on the wealthy to a mass tax on working Americans.

And the tax-refund fiscal illusion cuts two ways: while it makes raising taxes easier by masking its effect over dozens of paychecks, it makes cutting taxes harder, too.

After President Trump’s 2017 tax cut, roughly 140 million American households paid less in taxes throughout the year — but many received smaller refunds than they had in the past, because the government adjusted employer-withholding guidelines early in the year to account for the lower tax rates.

The outcry was swift and loud.

Even though 80% of taxpayers sent on average a couple thousand dollars less to Washington, only 17% thought they’d gotten a tax cut — proof that many Americans gauge their tax burden not by how much they pay throughout the year, but by the size of their refund.

The automatic withholding system keeps them in the dark.

Now, the IRS has doubled down on automatic tax compliance through its “Direct File Program” — a Biden-era creation that Trump has not yet dismantled.

Despite the lack of any congressional authorization, the tax agency in 2024 launched a massively complex technology project to calculate Americans’ taxes for them.

It’s a huge step toward nationalizing the private tax-preparation industry — and it handed the IRS the deeply conflicting dual tasks of maximizing tax collections while helping taxpayers minimize their payments to the government.

Republicans in Congress are working to stave off a steep automatic income-tax increase set for the end of this year, when the 2017 Trump tax cuts expire.

Our largely automated tax system is part of the reason few Americans are even aware of this looming tax hike.

Congress should end the IRS’s Direct File effort — and end automatic employer withholding, too.

Let Americans opt in to withholding if they wish to, or let them write the check themselves.

Tax Day should trigger a moment of reflection, not a refund celebration. If we want democratic oversight of fiscal policy, we must stop hiding the bill.

Adam N. Michel is director of tax policy studies at the Cato Institute.