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Defying the Odds

Defying the Odds
New book about the 2016 election.

Tuesday, February 19, 2019

No Refund for You, or The Revenge of Behavioral Economics

In Defying the Odds, we discuss the tax issue in the 2016 campaign.  Our forthcoming update will explain why the Trump tax cut backfired on Republicans in 2018.

The IRS reported Thursday that the average tax refund as of the second week of filing season was $1,949, down 8.7 percent from the year earlier. The total number of refunds is down 16 percent.
Experts caution it is too early to draw conclusions about a tax season that ends in April. Plus, the number of returns — 27 million as of Feb. 8 — is down 10 percent from a year ago, due in part to the partial government shutdown. The picture will become much clearer as more filings are processed, refunds are issued and the IRS gets back up to full speed.
All the same, the initial results have surprised early filers and worried those who haven't yet tackled their taxes.
Part of the problem centers around how employees and employers adjusted (or didn't adjust) withholdings from paychecks to account for the law's changes. The government issued updated withholding guidelines to help employers determine how much to set aside from an employee's paycheck to cover taxes. Withhold too much and you get a refund at tax time; too little and you owe.
It is at best, an estimate. But it's an estimate that grew drastically more difficult to make under the new law.
The Government Accountability Office estimated in a report last summer that about 30 million workers had too little withheld from their paychecks, which made their take home pay bigger but increased their tax liability. That's about 3 million more workers than normal.
David Dayen at The Intercept:
In theory, people should be happy about a lower refund: that means they didn’t give the government an interest-free loan throughout the year. But normal humans don’t think that way, and the lack of a refund would feel like a loss, tax experts agreed. “Ask people how much they paid in taxes, nobody knows. Ask them how much they got in their refund, people know,” said Howard Gleckman, a senior fellow with the Urban-Brookings Tax Policy Center. “Everyone focuses on size of the refund, and it does affect perception.”