Treasury wants to quit writing checks

By DAVID MOON, Moon Capital Management, LLC
January 23, 2011

It’s hard to believe, but an estimated nine million American households don’t have a simple checking account. Most of these folks pay bills with currency they get from cashing their checks, including their tax refund.

The US Treasury Department says it would like to provide an entrée to banking services to many of these needy Americans. It is issuing debit cards loaded with refund payments to 600,000 taxpayers who earn less than $35,000.

The government says that it wants out of the tax refund check payment business and these debit cards will achieve its goals of providing consumers a way to pay their bills and save money via a robust convenient transaction account.

I’m expecting someone in the new republican majority in the House of Representatives to question the federal government’s mandate to provide “robust convenient transaction accounts.”

What the government is really doing is making a direct attack on the legal business practices of a company that it doesn’t like: H&R Block (HRB.)

The federal government doesn’t like short-term refund anticipation loans, or any of the several similar type products and services that HRB offers. The details of the various H&R Block products are complex and space-consuming. They may be convenient, but some of them are admittedly not a thrifty way to receive your refund. Some can be exorbitantly expensive.

Some, however, are cheaper than the government debit card.

But the feds have made no secret that they don’t like this aspect of HRB’s business. They scared one of company’s loan-funding sources out of providing capital for the loans, only weeks before the beginning of tax season.

And when that wasn’t enough, the government announced it would go into direct competition with this private company.

These Treasury debit cards are simply taxpayer-subsidized alternatives to the products traditionally offered by HRB. Except when the government charges a $4.95 monthly fee to hold cash on a debit card, it is supposedly morally superior than when HRB does the same thing for free.

The Treasury says one of its goals is to encourage savings. Wrong. The monthly-fee debit cards do the exact opposite; they incentivize the cardholder to spend their money as soon as possible.

If the Treasury really wants to quit issuing refund checks, it could more strongly encourage upper-income taxpayers – those who are almost certain to have the bank accounts – to receive refunds via direct deposit.

Perhaps the most useful step in getting out of writing massive refund checks would be to discourage taxpayers from grossly over withholding income taxes from their paychecks. In 2009 those refund checks amounted to $328 billion in interest free loans to the government.

The greatest area of potential benefit to the taxpayer (even ignoring possible changes in tax rates) is simply addressing the complexity of the tax code. Estimates range between $300 billion and $1 trillion a year for individuals simply to comply with the more than 50,000 pages of regulations.

I’m not holding my breath for that one.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

Click here to subscribe to MCM commentary.

MCM website