Stories of Americans being shocked by the paltry size of their federal tax refunds this year—or shocked to learn they won’t be getting a refund, and instead owe the IRS additional thousands—continue to stack up. The prevailing response is, as can be expected, anger. The Washington Post reports, for example, that “John Prugh of Ewing Township, N.J., was irate when he completed his 2018 tax return this month and discovered his refund would be $3,000 less than what he received last year. Prugh considers himself ‘solidly middle class.’”
There are two things going on here, and it’s important to separate them out. Yes, a great many people are getting smaller refunds this year, and that’s an intentional product of the Republican tax bill. In the rush to implement the bill mid-year so that elected Republicans could brag about their supposed generosity, IRS withholding rates were changed after the old withholding guidelines had already gone out to employers. The new rates were lower, and whether that was an attempt to be more “accurate” in calculating true tax rates or a bit of a dodge in order to goose paychecks by significantly more than the new Republican law actually provided for remains the subject of some debate. But it’s done, and the net result is that millions of Americans are going to get noticeably lower tax refunds—because they’ve already gotten their “refund” spread out through the last year.
Got that? Those taxpayers aren’t actually losing any money. They’re just losing the lottery-style payout of a refund caused by their employers holding back too much of their paychecks throughout the rest of the year. The fiscally ideal tax refund would, for each taxpayer, be very close to zero. You don’t want to hand over extra money to the government in the form of an interest-free loan, after all—better to keep it in your own pocket.
The psychological effects of losing those expected refunds, however, are at this point quite famous. Americans resent not getting that lottery-style payment each year; many Americans budget with the expectation they will be getting between a few hundred and a few thousand dollars back as a lump-sum payment, something that they can then use as “forced savings” to go out and do home repairs, car repairs, or other pricy one-offs. Losing it unexpectedly makes them steamed.
That’s part one. But part two, and what Mr. Prugh up there and millions of other Americans are now facing as cold reality, is that many Americans indeed are going to owe a lot more in taxes this year. That’s not an accident; that’s what the Republican tax bill was designed to do. As part of their deficit-busting tax giveaway to the very wealthy, Republicans raised taxes on an estimated 5 percent of the country.