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Democratic presidential candidate Kamala Harris, a U.S. senator from California, recently tweeted criticism of the Republican-backed tax law. The impact of the law, which was signed by President Donald Trump in December 2017, is beginning to become clearer as Americans begin filing their returns. The law is in effect for the first time for the 2018 tax year, so people will be seeing the impact now.
On Feb. 11, Harris tweeted, "The average tax refund is down about $170 compared to last year. Let’s call the President’s tax cut what it is: a middle-class tax hike to line the pockets of already wealthy corporations and the 1%."
The accuracy of her tweet, we found, is something of a mixed bag.
Harris said, "The average tax refund is down about $170 compared to last year."
Recent statistics from the Internal Revenue Service suggest that refunds are down, although it’s worth looking at the $170 figure somewhat cautiously.
The IRS reported that of the 16 million tax filings made through Feb. 1, the average refund fell from $2,035 in the 2017 tax year to $1,865 in the 2018 tax year. That’s a decline of $170, as Harris said; that works out to an 8 percent decrease in refund size from the previous year.
However, it’s important to note that this is based on a small sampling of tax returns.
In 2017, the IRS processed more than 154 million returns, making the pre-Feb. 1 batch less than 5 percent of the total expected for this year. The government shutdown in January also slowed down the processing of early returns, so this is even a smaller sample than in a typical, non-shutdown year.
Moreover, the early returns may not be representative of the ultimate patterns for refunds.
"We just don’t know yet" what the pattern will be said Mark Mazur, director of the Urban Institute-Brookings Institution Tax Policy Center. "I caution against running with the 8 percent drop" as what the typical refund will look like once all returns are in.
Harris said, "Let’s call the President’s tax cut what it is: a middle-class tax hike to line the pockets of already wealthy corporations and the 1%."
There’s something to this assertion, but the tweet leaves out some important caveats.
Democrats have consistently painted the tax bill as heavily tilted toward the rich. For instance, the Democratic National Committee said the GOP "passed a tax bill that gave 80 percent of its benefits to the top 1 percent."
The DNC pointed to an analysis of the final version of the tax bill by the Tax Policy Center. The analysis found that by 2027, the tax bill would deliver 82.8 percent of its benefits to the top 1 percent of the income spectrum.
However, in earlier years, the distribution of benefits would look very different. For instance, in 2018, the bill would deliver 20.5 percent of the benefits to the top 1 percent — vastly less than the 83 percent figure the DNC touted. And as late as 2025, the center projected, 25.3 percent of the benefits would flow to the top 1 percent.
The main reason: By 2027, a number of key tax provisions that benefit middle-income taxpayers will have expired unless Congress extends them.
Meanwhile, the Tax Policy Center also projected that the middle class would be more likely to benefit than not.
The middle 60 percent of the income distribution would be much more likely to get a cut than an increase in 2018, with roughly 90 percent of those households getting a tax cut that year, compared to well under 10 percent who would see an increase. (By 2027, many more taxpayers in that group would see increases than decreases.)
By placing the two assertions together, Harris implies that smaller refunds are evidence that the changes in the law aren't helping middle-income taxpayers.
But in reality, there's no direct connection between refunds and tax burdens. Even beyond the concerns about how reliable the early refund statistics are, there’s an important difference between refunds and tax burdens.
Refunds materialize when a taxpayer has too much tax withheld from their biweekly paycheck. When that happens, the IRS sends the taxpayer a check for the overage after processing their return.
It’s entirely possible to get a smaller refund even as your tax burden falls -- you would have gotten a modest amount more per week, eating into your end-of-year refund. It’s also possible to get a bigger refund as your tax burden climbs. It all depends on how much was withheld in taxes on a biweekly basis.
Harris’ campaign said that "the tweet makes a couple assertions with a limited number of characters."
No -- it's totally understandable to be spooked by a smaller-than-normal refund, and it's an experience that tax wonks and ordinary people view very differently.
To tax experts, any taxpayer’s goal should be to get as close as possible to zero refunded and zero owed. Anything different, in this view, amounts to a no-interest loan from the taxpayer to the government.
"People, if you want to know whether the (tax law) was good for you or not, stop obsessing about the size of your refund and pay attention to your total income tax bill," the Tax Policy Center senior fellow Howard Gleckman implored in a recent blog post.
But this runs counter to how many Americans budget for the year. "For those that rely upon refunds, the ‘you’re giving the government an interest-free loan’ argument is correct, but it’s not any solace for people who use that as a savings method," said John Buhl, a spokesman for the Tax Foundation.
Small weekly changes made over a long stretch of time tend to make less of an impression than one big annual payment, especially if you’re used to relying on it to make ends meet. The Harris campaign noted that Gallup polling released in October 2018 found that about two-thirds of respondents said they haven't noticed an increase in their take-home pay since passage of the tax law.
"If I ask 100 people, ‘What was your tax liability last year?’ about 99 percent won’t know, and the other one will be a tax expert," said Mazur of the Tax Policy Center. "But everyone knows what their refund amount was. It might be their biggest financial transaction all year."
Vanessa S. Williamson, a senior fellow at the Brookings Institution who has studied this question, agreed.
"Obviously, legislators should not encourage additional confusion between a taxpayer’s refund and his or her net tax contribution," she said. Still, she added, the downside risk of owing taxes at the end of the year is big enough to justify higher withholding during the year, especially for those who don’t have large reserves of savings.
"It makes sense for these Americans to want to be absolutely confident that they will see some extra money come in during tax season, and to be absolutely sure they will not have to scramble to cover an unexpected bill from the IRS," Williamson said.
Harris said, "The average tax refund is down about $170 compared to last year. Let’s call the President’s tax cut what it is: a middle-class tax hike to line the pockets of already wealthy corporations and the 1%."
Average tax refunds are down by $170 so far this year, though that’s a preliminary number that may or may not hold up. And the wealthy do gain disproportionately from the tax changes passed in 2017, but this glosses over the projections saying that most households will see tax cuts for the first eight years or so.
However, stating these two assertions in quick succession suggests that the smaller tax refunds are evidence of the tax bill’s negative impact on middle-income taxpayers, and that’s not the case. It’s entirely possible to get back a smaller refund even as you’re paying less in total taxes for the year, as a big majority of taxpayers are in 2018.
We rate the statement Mostly False.
Kamala Harris, tweet. Feb. 11, 2019
Internal Revenue Service, filing season statistics, ending Feb. 1, 2019
Internal Revenue Service, filing season statistics, ending Nov. 23, 2018
Urban Institute-Brookings Institution Tax Policy Center, "Distributional Analysis of the Conference Agreement for the Tax Cuts and Jobs Act," Dec. 18, 2017
Howard Gleckman, "It’s About Your Total Tax Liability, Not Your Refund," Feb. 12, 2019
PolitiFact, "House tax plan: Permanent tax cuts for the rich, eventually tax hikes for all middle-class families?" Dec. 15, 2017
PolitiFact, "DNC offers one-sided view on who gets tax bill's benefits," Jan. 16, 2018
PolitiFact, "Does 70 percent of tax bill's relief go to those making less than $200,000?" Nov. 30, 2017
Washington Post Fact Checker, "Kamala Harris leaps to unwarranted conclusions in tax tweet," Feb. 13, 2019
The Hill, "Nearly two-thirds say they've seen no increase in take-home pay from GOP tax cuts: Gallup," Oct. 10, 2018
Interview with Mark Mazur, director of the Urban Institute-Brookings Institution Tax Policy Center, Feb. 13, 2019
Email interview with Vanessa S. Williamson, senior fellow at the Brookings Institution, Feb. 13, 2019
Email interview with John Buhl, spokesman for the Tax Foundation, Feb. 13, 2019
Email interview with Ian Sams, spokesman for Kamala Harris, Feb. 13, 2019
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