I’ve found it rather surprising how often I’ve seen this story popping up on cable news and in the papers this winter. It seems that some people have finished their taxes early and are complaining that their tax refunds are less than they were used to seeing in previous years. I’m sure that comes as a disappointment, but what could have caused it? According to the Washington Post, it’s an easy question to answer. It’s all Donald Trump’s fault, of course, and his stupid tax cuts.
Millions of Americans filling out their 2018 taxes will probably be surprised to learn that their refunds will be less than expected or that they owe money to the Internal Revenue Service after years of receiving refunds.
People have already taken to social media, using the hashtag #GOPTaxScam, to vent their anger. Many blame President Trump and the Republicans for shrinking refunds. Some on Twitter even said they wouldn’t vote for Trump again after seeing their refunds slashed.
The uproar follows the passage of a major overhaul to the tax code in December 2017, which was enacted with only Republican votes and is considered the biggest legislative achievement of Trump’s first year. While the vast majority of Americans received a tax cut in 2018, refunds are a different matter.
This is certainly a clever bit of “coverage” of a story based primarily on people bitching on Twitter. Notice how the WaPo manages to promote a hashtag denigrating the tax cuts in the second paragraph. The premise here is clearly that the tax cuts reduced some people’s refunds, only Republicans voted for the tax cuts, therefore the tax cuts must be bad and so are the Republicans.
You could just take that and run with it if you liked, but perhaps we need to look a little deeper. First of all, unless you fall into a very small group of people, your taxes went down last year. That means you kept more of your money. The logic trail required to get from that point to something considered “bad news” is startling indeed.
But since we have to play this game, let’s figure out why your refund is smaller. Did you get a raise or a significant bonus last year? Did you perhaps start a new job that pays more? Were there any other major changes in your financial situation? Tax filing company Intuit has a list of possible explanations you could look for. They include things such as your filing status changing, the selling of assets or the possibility that you were hit with a penalty.
There will be a small number of people who lost out on part of their SALT (state and local tax) deductions, but that should really only have a significant impact on people in high-tax states like New York who are earning well into six figures. As for everyone else, if your income went up, did you adjust your withholdings accordingly? If not, perhaps you need to have a chat with an accountant.
Before closing out this critique, I wanted to bring up one painful fact about tax refunds. Do you really want a large check from the government every spring? It may sound great at first, but think about what a tax refund really is. It means that you probably filled out a W-4 form with your employer and told them to withhold more taxes than you were going to owe. That means that you sent in too much money and let the federal government sit on it all year long without paying you a dime in interest or any other benefit. Then, at the end of the year, they were nice enough to send it back to you.
Does that really make any sense? We’ve always tried to balance ours so we either receive a small refund or a small bill. In fact, you could argue that it’s better to owe the IRS some money every year. That means that rather than letting them sit on your money, you’re sitting on their money without paying them any interest for months on end. You’re better off putting that cash in a savings account, earning a little interest and sending it in next year.