It Makes No Sense to Take Back Taxes From Stimulus Checks

There have been a few articles recently about state and local governments intercepting federal stimulus payments in order to take out taxes owed. Missourinet has one of those stories about our own state. I hate to sound like a defender of tax scofflaws, but it makes no sense to intercept the money. If the point of the stimulus plan was to stimulate our economy (we’ll leave aside for now what a stupid idea it is) then how does it do any good to have that money go from one government to another? There is no stimulus effect or consumer spending in that transfer (assuming those things exist in the first place).

The stimulus plan is deficit spending, nothing more. If the feds send $600 to a Missourian, and the state takes half of it, federal taxpayers (all of us) are still out the $600 the feds sent, but now there is $300 less to be used to stimulate the economy. So, basically, it’s a shell game in which the feds increase deficit spending while the states add it to their collections. It might make more sense for the federal government to withhold their own back taxes, but in this case you would be essentially giving a gift to a tax scofflaw without any stimulus effect at all.

I want to be clear that taking out money for back child support — which makes up a lot of what Missouri is doing — is a different matter, and should clearly be continued. Money collected in this way will be transferred to other people, not just to the government, and those people will be able to spend the money in ways that might stimulate the economy. (Again, this whole post is based on an assumption that the feds should “stimulate” the economy, which I don’t necessarily agree with.) Although just taking out back taxes alone from the stimulus money might make a state’s bottom line look better, it misses the supposed point of the entire program in the first place.