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Tax Season Blues (Gwen Moritz Editor’s Note)

4 min read

We’re two weeks out from Tax Day, and the new tax law that is the major accomplishment of the Trump presidency is no more popular than it was when Republicans adopted it unilaterally and without the kind of hearings and debates that used to be referred to, quaintly, as “regular order.”

Technically, it is working as designed: lower tax revenue offset by more borrowing, the benefit of which has flowed primarily to corporations and the wealthiest individuals. But politically, it’s a bust.

Most Americans seemed to understand all along that the benefits were not aimed at the middle class. That’s why President Trump in October started promising to deliver a big middle-class tax cut in time for the November midterm election — an absurdity second only to his signature promise that Mexico would pay for “the wall.” (Curiously, I haven’t heard a peep from him about that since, even though you’d think the Democrats who now control the U.S. House of Representatives would be at least as eager to work with him to benefit the middle class as Republicans would be.)

Then filing season rolled around and many taxpayers, already underwhelmed by the tax changes, started to realize that their refunds could be lower than they were accustomed to. And because the U.S. Tax Code is so complicated and the average American so financially clueless, many thought this meant they were actually paying more taxes — a misunderstanding that Democrats and some news organizations were happy to reinforce.

Even people who understood that they had actually been getting their refunds in installments because less had been withheld from the paychecks were frustrated by the bottom line — either smaller refunds or an actual balance due.

The phenomenon of refund shock is real, although every household is different. An Oregon couple interviewed by the Associated Press in February found that they owed $10,000 rather than getting back a few hundred. In other words, they had been enjoying an extra $900 a month all last year and assumed that the tax law had lowered their taxes by that much. Not even close.

What has surprised me more than confused taxpayers is the number of news reports — on TV and in print — that have been the opposite of helpful in educating the public. Readers of that AP story featuring the Oregon couple had to get to the 10th paragraph to get the full picture: “Their total tax was up slightly — by about $300 because of changes to their financial picture. Their effective tax rate was lower, but they still owed the government.”

Yes, they did. And it’s not even hard to understand. They took home way too much each month and then owed Uncle Sam the difference, but it was less than they would have owed under the old law. Readers who didn’t finish the story deserved to know that.

A reporter in Jackson, Mississippi, was worse. Far worse. On Twitter, Ashton Pittman wrote, “Supporters of the tax cuts argue that increases in worker wages make up for the 17% reduction in refunds. But the average workers’ wages grew just 3.2% year-over-year (as of January).”

Some people should not be trusted with percent signs. A lower refund means the taxpayer received more in his paychecks — along with any raise he got. There was nothing to “make up for,” and no one who understands basic taxation would make that argument.

Now, it is true that many supporters of the tax law claimed — and some may have actually believed — that the cuts would pay for themselves. Magical thinking never goes out of style. Others may have believed that corporations would pass on much of the tax savings to workers — and some of that certainly happened, although it’s hard to separate the effects on wages of the tight labor market from the effects of the tax cut.

We know this: That rash of bonuses for rank-and-file employees that were announced immediately after the tax law was enacted has cleared up. The left-leaning Center for Public Integrity noted a couple of weeks ago that Grover Norquist’s Americans for Tax Reform, which tracked bonuses and benefits announced in response to the corporate tax savings, “hasn’t reported any announcement for three months” — even though the tax law is permanent and the savings ongoing.

My husband and I typically got a small refund under the old law; this year we owe the feds $500 and change, but our effective tax rate was slightly lower. But a few more dollars each month did not relieve me of the realization that we are wasting whatever is left of the current economic expansion running up our federal deficit to recession levels.

Or beyond. The deficit in February was the biggest for a single month ever — $234 billion.

Email Gwen Moritz, editor of Arkansas Business, at GMoritz@ABPG.com and follow her on Twitter at @gwenmoritz.
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