Connect with us


Democrats’ tax refund attack on GOP, Trump tax law is misleading



Prominent Democrats are blasting the GOP’s massive tax reform law over reports indicating the average Americans’ tax refund is slipping. But the fresh line of attack against the tax code overhaul isn’t telling the whole story.

The new argument comes after IRS data released on Friday showed the average tax refund in the first week of the 2019 tax filing season was down 8% from the year before, to $1,865. The total number of refunds also fell 24% from last year.

High-ranking Democrats jumped on the decline as proof the GOP tax law, called the Tax Cuts and Jobs Act (TCJA), was not a boon for the middle class like President Donald Trump and Republican leaders promised.

“The average tax refund is down about $170 compared to last year. 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%,” Sen. Kamal Harris, who recently announced a run for the 2020 Democratic nomination, tweeted Monday.

House Speaker Nancy Pelosi also cited a slew of stories from news outlets that reported the slide in refund size as a way to criticize the TCJA.

“Once again, American families are feeling the reality behind the empty promises of the GOP Tax Scam,” Pelosi said in a release.

But while the decline of refunds is drawing the ire of many Americans, the line of attack by the Democrats is missing some key context.

The most glaring error is Harris’ claim that the lower refunds prove that middle class families are paying more in taxes, or received a “hike.” According to most tax experts, a sizeable majority of American households making $100,000 or less are getting a tax decrease this year.

According to the conservative-leaning Tax Foundation, 80% of all households received a tax bill cut in 2018. Those in the middle quintile of income earners saw an increase to their after-tax income of 1.6% on average for the year.

Similarly, the nonpartisan Tax Policy Center estimated the middle quintile of earners would also see a 1.6% after-tax income increase and an average tax cut of $930 per tax unit.

This isn’t to say every single household in the middle class received a tax cut.

According to the TPC, around 7.3% of tax units in the middle income quintile saw a tax increase due to the elimination of certain tax credits and deductions. But the think tanks also estimated that more than 91% of middle income taxpayers saw a cut.

So overall it’s fair to say that the middle class, on average, saw their taxes go down.

In addition to the overall cut for the middle class, a focus on tax refunds does not reflect a person’s overall tax bill.

As Business Insider’s Tanza Loudenback laid out, financial planners say a larger or smaller refund is not indicative of whether a person paid more or less in taxes, but rather how much was withheld from their paycheck.

Employers withhold a certain amount of money from every paycheck a workers received that goes to cover their taxes. When the worker files their taxes at the end of the year, that person either a.) receives a refund if the amount withheld was higher than the amount owed or b.) pays a tax bill if the amount withheld was less their their tax obligation.

“Just because you receive a small refund doesn’t mean you didn’t get everything back you were owed or that you’re worse off financially — it most likely means you paid the right amount of federal taxes you owed during the year and didn’t overpay,” Mark Jaeger, the director of tax development at TaxAct, told Business Insider.

Read more:Financial experts say there’s no reason to panic if your tax refund is smaller this year»

After the TCJA, the IRS rolled out new withholding rules that were generally more conservative about the amount employers should withhold. While this increased take-home pay — around 90% of workers saw larger paychecks due to the TCJA in 2018 — it also means that employers erred on the side of withholding less from workers.

According to a Treasury Department report, a projected four million fewer taxpayers will receive a refund this year while the number of people owing a tax bill will increase by roughly the same number.

Additionally, the Treasury Department responded to concerns about refunds in a tweet on Monday.

“News reports on reduction in IRS filings & refunds are misleading. Refunds are consistent with 2017 levels and down slightly from 2018 based on a small initial sample from only a few days of data,” the Treasury said.

Interestingly, few Americans noticed the bump in take-home pay from the new withholding rules. But according to an October Gallup poll, 64% of people surveyed said they did not notice an increase in their take-home pay due to the tax reform.

And now people are complaining about the lack of tax refunds, with many Americans taking to Twitter using the hashtag #GOPTaxScam.

Whether the TCJA was successful in its other goals, or whether it favors the wealthy over middle-income families is a debate among tax experts and economists. But claiming that the middle class got screwed because of a decline in refunds misses the mark.

Continue Reading
Advertisement Find your dream job