(Mike Maharrey, Money Metals News Service) Have any plans for that big tax refund?
Odds are, you got one. Analysts say around 73 percent of taxpayers will get refunds this year. And they’re getting more back to boot. According to IRS data, the average refund is $3,462. That was up just over 11 percent compared to last year.
You can thank President Trump for that bigger refund. Tax changes passed in the Big Beautiful Bill have boosted refunds, especially for people in service industries who rely on tips.
If you got money back, congrats. But I’m here to throw the cold water of reality in your face.
You still gave the federal government a bunch of money last year.
In the first place, unless you have a low income, Uncle Sam didn’t give all your money back. In the second place, even if you are in the bottom 50 percent of taxpayers who don’t have any federal tax liability at all, you’re still paying out the rear via the inflation tax.
The whole withholding/refund system is a clever propaganda tool.
The withholding system was a brilliant move by the government. It’s like anesthesia. It deadens the pain of taxation. Most people have no idea how much money the government takes from them. Their employer siphons it out of their paycheck and sends it to the IRS. And then they get a refund. I think a lot of people view this as a gift from the government. They certainly don’t feel the pain.
Self-employed people and business owners sure do feel it, though. I know this from experience. I don’t get refunds. I write checks. And let me tell you, writing a check every quarter changes your perspective on taxes. If people realized how much the government took from them, I’m pretty sure there would be a tax revolt.
Instead, we have people celebrating because the government gave them back some of the money it essentially borrowed interest-free for a year.
But hey, it’s always nice to have a little extra money in your pocket, even if it was taken out of your pocket in the first place.
What to Do with That Refund?
So, if you got one of those big refunds, what’s the plan?
I was perusing a few articles featuring folks talking about what they plan to do with their little April windfall. Some said they planned to pay off debt. That seems like a good idea, given that Americans are buried under more than $5 trillion in consumer debt. Some of the refund recipients said they anticipate making a big-ticket purchase that they couldn’t afford before. (Probably because the IRS was taking money out of their checks every month.) Some adventuresome folks have vacation plans. And a few people said they intend to save their refund.
I’ve got some very important advice for you savers. Don’t just stick that money in the bank. If you do, you will almost certainly buy less when you get around to spending it.
Never forget that the plan is to devalue your currency by 2 percent every year. They actually devalue it a lot more than that. But 2 percent inflation is the plan. That may not sound like a lot, but in 5 years, you’ve lost a little more than 10 percent of your purchasing power. And in a decade, every dollar you saved is worth about 80 cents.
There’s one way to avoid the inevitable currency devaluation inherent in our fiat system. Save in real money – gold and silver. Money Metals has some specials on both gold and silver to help you stretch those refund dollars as far as possible!
Consider this. Had I gotten a $3,500 refund in 2020, I could have bought 2 ounces of gold. (The average gold price in 2020 was $1,774.) At today’s price, those two ounces of gold would be worth around $9,600. That’s a 174.3 percent return in six years.
Let’s look at it the other way. If I put that money in a high-yield savings account with a 4 percent APY in 2020, I would have about $4,430 today. That’s a nice 26.7 percent return in six years. However, the CPI over that same period is – about 26 percent. So, I gained nothing. (And as we know, the CPI understates inflation. The real price inflation rate is closer to double that.)
On top of that, most bank savings accounts don’t pay anywhere near 4 percent. The majority only offer annual yields between ~0.39 percent and 0.62 percent. If you are saving in dollars at the bank, you’re almost certainly losing purchasing power over time.
Hey, Mr. Tax Man! What Are They Doing with All My Money?
Since we’re on the subject of taxes, I can’t help but note that I’m not a big fan of this system.
I can already hear somebody saying, “But Mike, taxes are the price we pay to live in a civilized society.”
Is it really, though?
I’m just going to throw this out there – maybe taking people’s money, effectively at gunpoint, isn’t really so “civilized.”
Isn’t that kind of like stealing?
Or maybe extortion is a better word.
Whatever label you want to put on it, I wouldn’t call stealing or extortion civilized. In fact, it’s kind of the opposite of civilized, right?
And then they spend billions to bomb people on the other side of the world. Also, not civilized.
I get it. The government has to be paid for somehow. But please stop trying to sell me on the beauty of taxation. I ain’t buyin’!
I know; I’m supposed to understand that the government is going to take its ill-gotten gains and make the world a better place. That supposedly justifies the extortion and theft. I should feel good about it!
Well, OK. That sounds good in a political speech, or maybe coming from a civics teacher, but it’s propaganda spin.
And by propaganda spin, I mean utter BS.
Think about it: Given the price tag, we should have reached the pinnacle of civilization by this point.
I think we got hosed.
Here’s the truth: Taxation is the price we pay for an overreaching, unconstitutional government that spends way too much money.
In Federalist #45, James Madison explained that the federal government was intended to be rather small. He wrote, “The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite.”
We’ve flipped the system on its head. As a result, we hand over a chunk of our income to the IRS, pay an inflation tax, and the federal government is still running massive deficits month after month.
If the federal government operated the way Madison said it should, we wouldn’t be in this situation.
But here we are.
So, the tax man cometh – over and over and over again.
Every year, as I’m doing my taxes, I listen to a song by Reggae artist Lucky Dube. It sums up the situation perfectly.
I pay my gardener to clean up my garden
I pay my doctor to check out da other ting
I pay my lawyer to fight for my rights
And I pay my bodyguard to guard my body
There’s only one man I pay
But I don’t know what I’m paying for
I’m talking about the taxman
I’m talking about the taxman
I’m talking about the taxman
What have you done for me lately?
Mr. Taxman
What have you done for me lately?
Mr. Taxman
What have you done for me lately?
Mr. Taxman
What have you done for me lately?
Mr. Taxman
You take from the rich, take from the poor
You even take from me, can’t understand it now
I pay for the police to, err…I don’t know why
‘Cause if my dollar was good enough
There wouldn’t be so much crime in the streets
They tell me you’re a fat man
And you always take and never give
What have you done for me lately?
Mr. Taxman
Good question. What have you done for me?
I gotta say – not so much.
I mean, sure, we have roads. But have you driven through Ohio lately? It’s not exactly a ringing endorsement for taxation.
But what about schools?
Yeah. OK. Go chat with some public school students. Also, not a ringing endorsement.
But hey, I’ve sent billions of dollars to Ukraine to help with all of the civilizing going on over there.
You get the picture.
So, whether you’re writing a check or buying some gold with your refund, give Lucky Dube’s song some thought.
I think you’ll come to a similar conclusion – Mr. Taxman ain’t doing much for us.
Mike Maharrey is a journalist and market analyst for Money Metals with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
