Californians were stunned last year when their deeply indebted state sent them IOUs instead of the tax refunds they were due. It amounted to the state taking a mandatory, interest-free loan from its residents.
But now, other states in a financial pickle are also dishonestly withholding tax refunds that are due to their residents.
Alabama, Hawaii, Missouri, North Carolina and New York are all failing to send out tax refunds in a reasonably timely manner. Instead, they are holding onto the money — in some cases for months — and spending it on other things or using it to earn more revenue through interest. Some of the states have mismanaged their budgets so severely that they’re having to wait to build up enough revenue to cover the refund checks once they finally mail them.
In Missouri, for instance, the state government is delaying refunds by up to four months while it boosts its reserves, The Associated Press reported. It can keep the money until mid-August without paying a dime of interest to the taxpayers to whom it is due.
We are sympathetic to any state that is in financial trouble during the recession, but ironically, states generally do not show much sympathy to taxpayers who are late paying their taxes.
States ought to hold themselves to the same standard they expect of their residents. If a state wants more tax revenue, it should take the honest (though not desirable) path of duly enacting a tax increase. Then voters can decide whether that increase is justified and can keep or remove legislators in the next election.
But it is dishonest for government to use gimmicks and delays to cling to money that rightly belongs to taxpayers.