Federal “Stimulus” Checks Are Stimulating State Treasuries

June 9, 2008

When the Democratic Congress and President Bush both started talking up the idea of sending “stimulus checks” to most Americans, they deliberately ignored the administrative nightmare they would inflict on the Internal Revenue Service.

The IRS does not fill out our tax returns, and thankfully, it is not charged with keeping track of where we live from year to year. Nevertheless, the Service was forced to administer two massive mailings in 2001 and 2003, and Congress and the President went ahead early this year and hit them with another one.

The Tax Foundation generally disparages such “fiscal stimulus” tax relief on economic and administrative grounds (see here and here and here), but on the administrative end there are usually some unintended benefits and problems that are worth noting.

One surprise this time is the surge in state-level tax collections. The Treasury Offset Program, run by the Financial Management Service within the Treasury Department, is part of the federal debt collection effort that has had greater authority since enactment of the Debt Collection Improvement Act in 1996. The Treasury now systematically subtracts delinquent debt from the more than 850 million checks the federal government sends out annually, including past-due taxes owed to state governments. Here’s an IRS page about the program.

State Tax Notes reports today (subscription) that New York and Georgia have raked in the most revenue so far, with Georgia pulling in $4.7 million in deductions from the current crop of stimulus checks.

Georgia Revenue Commissioner Bart Graham told the Atlanta Journal-Constitution, “I knew we’d get something, but I’ve been surprised by the number, and it takes a lot to surprise me.”

Oregon has posted a good, plain-English 2-pager on how a state revenue department works with the Treasury Offset Program.


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