Trump ad­min­is­tra­tion de­fends smaller re­funds after tax cuts

The Charlotte Observer (Sunday) - - Business - BY ALAN RAPPEPORT

The Trump ad­min­is­tra­tion de­fended it­self last week amid a bar­rage of crit­i­cism from an­gry tax­pay­ers who are dis­ap­pointed that they are re­ceiv­ing smaller tax re­funds after the 2017 Repub­li­can tax cuts.

The slim­mer re­funds, which are down about 8.7 per­cent from the same pe­riod a year ago, have been seized on by op­po­nents of the tax cuts and Demo­cratic law­mak­ers as proof that the Repub­li­can tax law did lit­tle to help av­er­age Amer­i­cans.

On Thurs­day, the ad­min­is­tra­tion rolled out fresh data to try to ex­plain to tax­pay­ers that their 2018 re­funds were smaller be­cause they re­ceived most of their tax cut in the form of big­ger pay­checks last year.

“Most peo­ple are see­ing the ben­e­fits of the tax cut in larger pay­checks through­out the year, in­stead of tax re­funds that are the re­sult of peo­ple over­pay­ing the gov­ern­ment,” a Trea­sury De­part­ment spokes­woman said. “Smaller re­funds mean that peo­ple are with­hold­ing ap­pro­pri­ately based on their tax li­a­bil­ity, which is pos­i­tive news for tax­pay­ers.”

The Trea­sury De­part­ment said av­er­age re­funds dur­ing the first two weeks of tax-fil­ing sea­son were down 8.7 per­cent from the same pe­riod a year ago to $1,949. About 27 mil­lion tax re­turns, or a fifth of the ex­pected to­tal, have been pro­cessed so far.

The new law cut taxes for about 80 per­cent of fil­ers, though the amounts vary widely. The big­gest cuts went to those at the up­per end of the in­come spec­trum, with the top 1 per­cent of earn­ers pro­jected to get an av­er­age tax cut of $51,000, or 3.4 per­cent of after-tax in­come, ac­cord­ing to the Tax Pol­icy Cen­ter. Mid­dle-in­come earn­ers are pro­jected to get an av­er­age tax cut of $900, or 1.6 per­cent of their af­ter­tax in­come.

After the tax law passed, the Trea­sury De­part­ment ad­justed its with­hold­ing tables – which guide em­ploy­ers in de­ter­min­ing how much to with­hold in taxes from a worker’s pay­check – so that tax­pay­ers would see the ad­di­tional money im­me­di­ately. But many work­ers may not have no­ticed since the tax cut was spread over a year’s worth of pay­checks.

As a re­sult, many tax­pay­ers are now un­cer­tain about whether they will be get­ting a re­fund from the gov­ern­ment or if they will owe taxes.

A se­nior Trea­sury De­part­ment of­fi­cial said there ap­pears to be con­fu­sion among some tax­pay­ers who be­lieve that a smaller re­fund means they have a higher tax bill. The of­fi­cial noted that fi­nan­cial ad­vis­ers do not tend to en­cour­age their clients to seek higher re­funds, since that es­sen­tially means tax­pay­ers are over­pay­ing the gov­ern­ment through­out the year.

But some tax­pay­ers pre­fer to with­hold too much as a method of forced sav­ings, while oth­ers view that as giv­ing the gov­ern­ment a loan with zero in­ter­est.

The tax law ush­ered in sweep­ing changes to the in­di­vid­ual side of the tax code such as in­creas­ing the stan­dard de­duc­tion and in­tro­duc­ing a cap on the state and lo­cal tax break. Many of the changes were meant to sim­plify the sys­tem, but the tran­si­tion has cre­ated con­fu­sion.

Democrats have seized on the dis­ap­point­ment as a po­lit­i­cal op­por­tu­nity, in some cases fan­ning the in­cor­rect as­ser­tion that smaller tax re­funds mean Amer­i­cans did not ac­tu­ally get a tax cut.

Sen. Ka­mala Har­ris, D-Calif., a pres­i­den­tial can­di­date, wrote a post on Twit­ter about the smaller re­funds this week and then sug­gested that Pres­i­dent Don­ald Trump in­creased taxes on the mid­dle class. Most mid­dle-class Amer­i­cans are ex­pected to see lower tax bills.

“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%,” Har­ris wrote.

The Trea­sury De­part­ment of­fi­cial said Thurs­day that it was ex­pected that av­er­age re­funds would be smaller this year and that most of the peo­ple who are re­ceiv­ing them are still pay­ing less tax over­all.

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