A rebate to taxpayers? Let’s pay down debt instead

Published May 16, 2024

By Paul Stam

Some legislators have proposed that the General Assembly send some tax money back to us. That sounds like fun.

I have another idea: Use whatever money is in mind to pay down state debt. State debt currently stands at $8 billion. This would not change the state balance sheet. It would reduce the chance of future tax increases. It would keep in place the rate at which income tax rates will go down in the future. Our income tax rate for 2024 is 4.5%. It is already in law to go to 3.99%. Why upset the applecart?

Paying down state debt would reduce the temptation to spend “one time” (nonrecurring) money on low priorities. This is a big problem in state government. There is too much “one-time money” sloshing around in state reserve accounts. As a result, in 2023 there were record amounts of “directed local projects” — especially in the districts of those controlling the budget. We used to call this “the pork barrel.” I remember the election of 1988. We campaigned and won against the “gang of eight” and their “pork barrel.”

There are practical problems with a “rebate” to taxpayers.

First, it makes it more likely that in the future the state will either have to raise tax rates or forego future tax-rate decreases.

Second, if we are passing out tax dollars, who gets how much? Does each person who filed an income tax return for 2023 receive an equal amount — say $1,000? That is the thought of at least one budgeteer. Can you imagine the howls from those who paid $50,000 in taxes looking at those who only paid $1,100? Or is the rebate in proportion to 2023 tax liability? In that case I can imagine the howls of indignation and scorn from those cashing a $50 “rebate” check. What if the taxpayer amends the 2023 return in 2025? Does she get more then? Does this rebate include other taxable entities like estates and trusts? These are people too. What do we do with rebate checks to people who died recently? The practical problems are endless.

Third, it is inefficient. Collecting state income tax only costs about one cent on the dollar. Paying it back out probably costs 3 cents on the dollar — a combined waste of 4 cents on the dollar. Paying down debt has transactional costs of zero.

Fourth, this will be perceived as an election year gimmick. Will it work?

In 2020, I received $32.00 from the IRS, along with a personalized letter signed by the president. I don’t think it helped him in November 2020.

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