Convert Your Tax Refund into More Debt for the Treasury

Friday, February 26, 2010 , , , , 2 Comments

Pssst, taxpayer, come sit down on JDA's lap for a moment. Get nice and comfy, I'll pet you on the head and you can listen to my very important story. Don't try to pull any funny stuff, I'm not trying to put a broken heart icon all up in my Facebook status.

First of all, little taxpayer...


... you realize that a "refund" is really just an interest-free loan that you provided to the government, right? Worse, they've spent the year inflating the currency so you actually lost some of the buying power you had at the beginning of the year when you kept your exemptions low and loaned them the cash.


... so why on Earth would you then decide to convert your tax refund - that you already foolishly loaned to the government for a negative return - into bonds?


... it's OK, I know, I know. 


The Treasury Department and the IRS have joined forces to allow you the ability to buy Series I Bonds directly with your tax refund. Series I bonds are thirty-year bonds that accrue interest based on a fixed rate, associated with the time you buy the bond and never changes, and an inflation rate, which changes every May and November.

How do you buy the bonds? Fill out IRS Form 8888, Direct Deposit of Refund to More Than One Account, and put 043736881 as the routing number and BONDS as the account number. If your refund is in exact multiples of $50, you don't need Form 8888, just put those details directly into your tax return.

Seriously, you can't make this up (directly from our friends at the IRS):

Starting in January 2010, you can buy Series I U.S. Savings Bonds with a portion or all of your tax refund. Issued by the Department of the Treasury, Series I bonds are low-risk bonds that grow in value for up to 30 years. While you own them they earn interest and protect you from inflation.

Just tell your tax preparer you want to buy savings bonds with part or all of your refund! If you prepare your own return, file Form 8888, Direct Deposit of Refund to More Than One Account. The instructions explain what you need to do.

In any single calendar year, you can purchase up to $5,000 of I bonds under this program. If you purchase bonds with your tax refund, the amount you request must be divisible by 50. If you don’t buy I bonds with 100 percent of your refund, you will need to have another account in which to deposit the remaining amount of your refund. For example, if your refund is $280; you can direct $250 to I bonds and the $30 balance to your savings account.

When you purchase savings bonds with your tax refund, you will receive paper bonds, issued in your name. If you are married and filed a joint return, the bonds will be issued in your’s and your spouse’s name. You cannot designate a beneficiary under this option.

Anyone else smell the overwhelming stench of desperation?

So? I invite Ben Bernanke, Tim Geithner, Chris Dodd, and the rest of the asshats running this thing into the ground to convert their refunds into Series I Bonds. You first, boys.

Assuming the US government can keep it together for 12 months, these aren't all that bad an idea for parking $5,000 (equivalent to a 1 year CD but with a slightly better rate should inflation run hot and interest rates stay low... uhhh...) but that doesn't make them smell any less desperate.

Anyone remember Liberty Bonds? Don't look at me, I'm 29 but fuck, crack open a book and read a little history for Christ's sake (sorry, Wikipedia. I'm being lazy. TLP must be rubbing off on me):

The first three bonds were retired during the course of the 1920s but the fourth Liberty Bond lasted into the 1930s leading to a technical default on the bond the terms of which were for payment in gold. The fourth Liberty Bond had the following terms:

Date of Bond: October 24, 1918
Coupon Rate: 4.25%
Callable Starting: October 15, 1933
Maturity Date: October 15, 1938
Amount Originally Tendered: $6 billion
Amount Sold: $7 billion

The U.S. Treasury called this bond on April 15, 1934, but refused to redeem the face value of the bond in gold as required by the terms of bond which read:

The principal and interest hereof are payable in United States gold coin of the present standard of value.

The legal basis for the refusal of the U.S. Treasury to redeem in gold was House Joint Resolution 192, dated June 5, 1933. This resolution was later held to be unconstitutional by the U.S. Supreme Court.

Since the United States had devalued the dollar from $20.67 per troy ounce of gold (the 1918 standard of value) to $35 per troy ounce in the preceding year the 21 million bond holders lost $2.866 billion dollars, approximately 41% of the bond's principal.

But governments don't do that, do they? For the love of God, America, it wasn't all that long ago, how gullible are you?

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


Anonymous said...

"For the love of God, America, it wasn't all that long ago, how gullible are you?"

Real Estate prices only go up and you better buy land because they are not making it anymore and mortgages are safe bets because people always pay their mortgages........

Translation: pretty fucking gullible. Happy Friday and Happy Thoughts.

Cui bono?

OldSouth said...

What odds would you give that refunds are only given in 30-year saving bonds within about five years?

The reaction, I would suspect, would be pretty unhappy, especially in less prosperous precincts.

They'll finally understand what Hope 'n Change are all about.