People like getting the big lump sum and some don't even realize it was their money all along that they just overpaid throughout the year. It's not a good thing for individuals to overpay.
Nah, because for people with poor financial skills, the ability to save is very difficult (even if they had the "Extra" money in their account each pay period instead of paying extra taxes). So even though you're technically getting your money "back", for some people they would not have been successful to 'save' so much without it being forced on them.
The people that enjoy a tax refund would not really even notice the small amount they "could have had all along" by adjusting their withholding amounts.
It is not a good thing because it is interest free and inflation exists. If you would have had that money earlier you could have put it in high yield saving account or payed down debt.
There are a number of different overpayment interest regimes[1]. Mine was paid based on time elapsed from the time of overpayment (overpaid quarterly estimated taxes).
I did not deliberately overpay as an investment strategy :-).
Last time I looked, you needed to be in a higher tax bracket than I was to make Muni bonds worth it, in part because my state (WA) does not have income tax. Something like the 35% bracket.
And anyway, my investment strategy is not long bonds at this point in my life.