Harry Smith Says Tax Refunds Are 'Too Much'
The average American will receive a $2,500 tax refund this year, a statistic that left CBS “The Early Show” host Harry Smith “stunned” on the April 11 broadcast.
“I am stunned to know what the average refund is,” Smith said. “$2,200 [in 2007], that’s too much, right?”
“It is too much,” said Money magazine senior writer Janice Revell.
But while the two complained about the size of refunds, Revell explained that the checks may seem like a “windfall,” but they actually represent an interest-free loan between the government and taxpayers.
“When you get your refund it feels like this big windfall, you’ve won the lottery, but in essence what you’ve done is you’ve loaned your money, interest-free, to Uncle Sam for the year,” Revell said. “It just makes no sense.”
But Revell wasn’t suggesting Americans get too much of their money back. She was suggesting they’re giving too much to the government in the first place.
Revell said that when tax refunds get to be more than $500, a taxpayer should adjust their withholdings by filling out a new W-4 form with their human resources department.
The interview also warned against refund anticipation loans or loans given by organizations ahead of getting an actual check from the government.
“Terrible idea, terrible idea. This is basically a cash advance on your own money that your probably going to get in two weeks anyway. The fees are exorbitant, worse than the highest interest rate credit card you can imagine. Just don’t do it,” said Revell.
Revell also told viewers to spend 10 percent of what they get back as a way to “treat yourself,” but use the rest to reduce credit card debt, invest in retirement and build an emergency fund.
On April 11, USA Today also provided solid financial advice for readers. It encouraged people to “jump-start a retirement savings plan” as a way to use the tax rebate checks ranging from $300 to $600, or $1,200 for married couples.
“Consider: If you invest $1,200 in an individual retirement account and continue to save $1,200 a year while earning an average annual return of 8%, you'll have more than $21,000 in 10 years. If you use the money instead to buy a flat-screen TV, then 10 years from now, you'll have an old flat-screen TV.”
But, USA Today suggested one could go even further than just utilizing tax rebates to save for retirement, saying that refunds from the Internal Revenue Service could be added on top of that leaving one with “a solid foundation for retirement security.”
