Debunk This! by Matt Palumbo

Author:Matt Palumbo
Language: eng
Format: epub
Tags: N/A
Publisher: Post Hill Press
Published: 2019-06-13T00:00:00+00:00

Tax Refund Confusion

Are middle-class taxes going up under President Trump? During the 2019 tax season, there was no shortage of confusion.

The Democratic Coalition wrote on their official Twitter account; “Many people are seeing an increase in taxes due to the bill eliminating many of the deductions that were used by middle-class families in order to lower the amount of taxes they were required to pay” and linked to a Yahoo! News article.1 The article reported on the anecdotes of a few individuals who saw their taxes increase.

Another angle had to do with supposedly declining tax refunds. A widely read CNN article was misinterpreted as claiming that taxes up are in 2018. “The average refund is down about 8% under the first full year of the overhauled tax code, according to data released by the IRS. Refunds averaged $1,865 compared to $2,035 for tax year 2017,” reported Victoria Cavaliere.2

A large source of the confusion came from the fact that the percentage of income withheld from paychecks has decreased. Suppose for the sake of simplicity that someone earns $50,000 a year, pays 20 percent tax ($10,000 annually), and pays that tax in the form of $200 a week for a 50-week work-year. Since they pay exactly what’s owed, they would receive no refund. Now suppose the tax rate decreases to 18 percent (so $180 a week is owed), but because a smaller percentage of taxes are withheld, only $170 is actually paid. Thus, while that person had their taxes decrease by $100 overall, they would still end up owing $500 at the end of the year.

Or put more simply, people are receiving smaller refunds because they paid fewer taxes in the first place.

It’s doubtful that the average employee is paying attention to such a thing, so you can hardly fault some people for mistakenly believing their taxes went up (though you’d think they would notice the extra change in their pockets). Regardless, those economically inclined have known that smaller refunds were at least a possibility since July 2018 when the Government Accountability Office released a report stating that thirty million taxpayers would end up owing money in 2019 due to insufficient withholding, a significant increase over the year prior. The percentage of employers that over-withheld employees’ taxes decreased from 76 percent to 73 percent from 2018-2019, and the percentage that under-withheld tax increased from 18 percent to 21 percent. Both groups are likely to see an increase in their taxes owed.3 Bear in mind that the US has a labor force of over one hundred sixty million people, so each percentage point change is equal to 1.6 million workers (or 9.6 million overall who experienced a change).

As is documented in more detail elsewhere in this book, all individual tax brackets did decline under Trump, and the standard deduction was doubled. Under such a scenario, most will see their tax burden decrease.

Now we’re learning that the left’s confusion of how taxes work wasn’t even predicated on any (misunderstood) truth. While there was a

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