Tax refunds and 401k's

Marko has a blog entry today with the title, "i’m not holding my breath for tax refund checks." I saw the title and was expecting something a little bit different from what I read.

Given that some states deferred tax refunds last year, I'm a bit nervous. Even though I know it's not an optimal use of my money to give the government an interest-free loan, I've always been one to over-withhold taxes and get back a refund. I prefer that to playing the game of trying to come out perfectly even at the end of the year. Having already paid taxes all year long, I feel a bit resentful writing yet another check in April.

I wonder at what point the federal government is going to decide they can just not pay out these refunds because they need the money. Certainly, it's a short-sighted strategy, as people would immediately adjust by changing their withholding. And most likely, people would go a bit overboard in these adjustments, which could have a bit of an impact on federal revenues.

So it's far more likely they would simply delay the refunds. The question is, how long would they delay them? I guess we'll just have to wait and see, assuming they go this route at all.

These thoughts remind me of something that occurred to me some years ago when I started my first job and first started thinking about starting a 401k. At the time I wondered how long it would be before the federal government decided to nationalize 401k's. Of course, that would probably led to some pretty serious riots, so it's pretty unlikely. (Not that other states haven't done the same.)

How much would they stand to gain if they decided to do so, however? There were about $2.7 trillion in 401k assets in 2007, so it's not an inconsiderable sum. It would certainly be an attractive target.