Some Americans are fretting over their federal tax refunds, or lack thereof.
The average refund amount so far this year is down somewhat compared to the same point in last year’s filing season, according to Internal Revenue Service figures. That’s evidence of a real problem, but not a problem you might expect.
Some journalists and politicians have twisted the data to suggest refunds are down because the tax reform package signed by President Donald Trump at the end of 2017 hiked taxes on a significant portion of Americans.
In maybe the most misleading response, U.S. Sen. Kamala Harris, one of the Democrats hoping to challenge Trump in 2020, wrote on Twitter this month, “Let’s call the President’s tax cut what it is: a middle-class tax hike to line the pockets of already wealthy corporations and the 1%.”
I suppose that will be potent fodder for campaign literature, but it’s not true.
Iowa’s U.S. Sen. Chuck Grassley, newly seated chair of the Senate Finance Committee who voted for the tax law, is speaking out against misinformation about tax refunds.
“The size of your tax refund has nothing to do with your overall tax bill. It merely reflects what you overpaid the IRS in your paychecks last year,” Grassley wrote in a USA Today guest column this week, co-signed by U.S. Rep. Kevin Brady, the ranking Republican on the House Ways and Means Committee.
A few people’s taxes have indeed gone up because the 2017 law eliminated some deductions taxpayers used to lessen their burdens. However, even the Tax Policy Center, widely considered left-leaning, estimated about 90 percent of middle-income households would pay less under the law.
The way I see it, the real problem is that the supposedly “historic” tax law Republicans championed did little to simplify our behemoth federal tax system. That’s supposed to be a conservative policy priority.
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The IRS publishes resources to help estimate appropriate withholdings, so taxpayers can avoid paying too much or too little throughout the year. However, if you have even slightly complicated finances — like multiple income sources, investments or deduction eligibility — you likely found it impossible to correctly estimate your tax liability, especially if your financial situation changed during the year.
Ever since the law was signed in 2017, financial professionals and taxpayer advocates have lamented that the impacts are unclear. Many people won’t know their tax burden until they sit down to sort out last year’s return.
The underlying problem here is that the tax code is not simply a tool for raising government revenue. Instead, policymakers use it to encourage certain desirable behaviors, or to discourage undesirable ones. All of those special credits and exemptions cloud taxpayers’ ability to predict their tax payments.
Tax refunds are akin to short-term, no-interest loans we make to the federal government. We should be glad if our refund is $0, because it means we kept more of our money throughout the year.
So, yes, Trump’s tax law is partly to blame for some Americans’ wildly fluctuating tax refund amounts. But that’s not because the government is keeping more of your money.
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