Why We No Longer Trust Our Government, Reason #759: North Carolina’s Unethical Tax Stall

Every time Gallup  does a poll to find out who the public thinks is ethical and unethical, one result always comes out the same. Over 95% of those polled will say that most ethical person they know is…themselves. I used to make fun of this result in my seminars as a classic example of self-delusion. The used-car dealer really thinks he is the most ethical person he knows? Tom Delay and Charlie Rangel really think that they are the most ethical people they know? I don’t believe it.

But I recently had an epiphany. People don’t really think they are the most ethical. What we do think is that each of us is the one person  that we most trust. Not our spouses, not our parents, not our employers, not our elected officials…no matter how virtuous they may be, the person whom we know, with absolute certainty, won’t betray us  is our self. That is an especially American attitude, embodying self-reliance, autonomy, and independence, and I was wrong not to misread it. Those who deride us for not trusting the government to solve our problems are wrong not to recognize it too, particularly when the attitude is being reinforced by stories like this one, from North Carolina.

The North Carolina Department of Revenue is reviewing  230,000 unresolved tax returns going back to 1994, including cases in which taxpayers overpaid and are owed money by the state. The state, however, has rigged the rules to make it less likely that the refunds are ever made.

E-mail messages obtained (after much resistance) by the Charlotte News & Observer show that North Carolina’s Department of Revenue has been intentionally avoiding alerting taxpayers who sent too much money to the state, and has avoided paying its citizens back what it owes them.  North Carolina law gives taxpayers up to three years to claim a refund from a filed return. In the past, department policy allowed for overpayments to be refunded to excessively generous taxpayers after they were flagged by Revenue Department computers But that policy changed last year. Department officials now say that an overpayment flagged by a computer will not be considered  “discovered” until it is has been verified by an agency employee. As a result, the Revenue Department can hold on to overpayments until it doesn’t have to pay them back….because it would have stalled long enough for the statute of limitations to bar recovery by the taxpayer.

How much money is being unethically held by the state this way? The state doesn’t know how much money it owes out of those 230,000 returns; it only knows that it wants to keep it. Until 2007, state law required the Revenue Department to return overpayments it discovered to the taxpayer “as soon as possible, together with any applicable interest.” But that language was repealed in favor of a new law that lays out a procedure in which the department has to refund money only when three conditions have been met:  the statute of limitations has not expired, the amount shown due on the return is not correct, and that correction shows that the taxpayer overpaid.

The statute of limitations requirement is the key to the state’s dodge. Since the computer-flagged overpayments must be “verified” by a live employee before the taxpayer has to be notified, and because the department doesn’t have enough employees to handle the backlog (and doesn’t intend to hire them), a large proportion of the backlogged overpayments won’t be official until the statute of limitations has run, barring taxpayer recovery. Since the overpaying taxpayer won’t be able to sue to get back his money, there is no reason to notify him that he overpaid. What the taxpayer doesn’t know doesn’t bother him, and the state gets to keep the money.


What do you think is the strongest motivator in this situation…fairness, honesty and public service, or the desire to keep as much money as possible as revenue so jobs and programs don’t have to be cut?

It is fascinating, when you think about it. Politicians scream about the greed and selfishness of private sector corporations, how they are trying to cheat consumers and care only about their own profits and salaries. Yet those who run, manage and work in corporations have the same character traits as those who work in government, and are  controlled by the same non-ethical considerations.  Why would any one believe that the human beings in government service are certain to be more ethical, straightforward and selfless than their private sector counterparts? They certainly aren’t in North Carolina.

As trust in all institutions go into free-fall, blatant examples of government betrayal and perfidy like this one accelerate the drop. A state government that manipulates the laws so that it can keep money that rightfully belong to its citizens is a criminal enterprise. Ridicule the excesses of the Tea Party movement if you must, but remember: that populist revolt is based on distrust of governments, and as the North Carolina Revenue Department shows, the distrust is well-earned.

[Thanks to the boys at Popehat for the link.]

2 thoughts on “Why We No Longer Trust Our Government, Reason #759: North Carolina’s Unethical Tax Stall

  1. This is a point that people overlook. We have been dismantling all of
    The intermediate institutions between people and the state. If an insurance
    Company denies you treatment for health problems, you can appeal to the state for help.
    If the government denies you coverage, who do you turn to? The
    State is not really more virtuous than a company.

  2. Pingback: Why We No Longer Trust Our Government, Reason #759: North … | North Carolina

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