The tax season, now regulated by President Trump’s tax code for the first time, is well underway, and for some Americans it was not associated with a pleasant start. Despite the President’s promises that most people would get tax cuts once his tax code is implemented, refunds for some taxpayers turned out to have the effect of a cold shower, being smaller than expected. The IRS figures showed that as of February 1st, the number of returns accounted for 16.04 million, which is 12.4 percent down compared to the same period in 2018. At the same time, the average refund accounted for $1,865, 8.4 percent down in comparison to 2018.
A lot of people have taken their frustration to social media and published their complaints online, calling this season’s tax refunds a scam. However, some experts advise not to judge one’s taxes on refunds and say that withholdings are the key indicators to look at. The Tax Foundation came up with an online calculator that shows the difference between taxes paid under the new and old tax codes.
Richard Thaler, Nobel Prize-winning economist in 2017, says the tax cut reform also entails adjustment of the withholding tables. In practice, the IRS collected fewer funds from every paycheck, but since such change does not require any new legislation to be passed, it received less publicity, when the new tax code was voted for at the end of 2017. He also says that from a rational point of view, a lower withholding means more money now, rather than at the end of the year. However, he also added that end-of-the-year refunds are perceived by many as savings, and since most do have trouble saving, they rely on their refunds as a means to cope with the debt.
Democrats oppose Trump’s tax code, arguing that it benefits the top wealthiest, rather than middle-class families. Indeed, the data shows this is the case. Families making $500,000-$1,000,000 will see a 4.3 percent increases in their income on average after paying taxes; families making $50,000-$75,000 will only see a 1.6 percent increase.
The Treasury spokesperson noted that under the new tax code, people would be getting real benefits during the tax season, as opposed to overpaying to the state, then waiting to receive refunds at the end of the year. Therefore, smaller tax refunds essentially mean that people withhold in accordance with their tax liability.