Remember just before the end of 2017 when Donald Trump signed into law the Republican “Tax Cuts and Jobs Act?”
Trump claimed he and lawmakers “reached an agreement on tax legislation that will deliver more jobs, higher wages and massive tax relief for American families and for American companies.”
As that middle class begins filing 2018 taxes, though, many are facing a troubling reality–their refunds are much lower than anticipated.
Some who have seen substantial refunds in the past find themselves owing the Internal Revenue Service (IRS).
Reuters reports the 2018 tax season began slowly, demonstrating a significant decline in refunds and returns.
The average $1,865 refund so far this year is 8.4 percent less than the average refund in the same period last year.
The IRS received 16.04 million returns in the last week of January, a 12.4 percent decline from the same week last year.
13.1 million returns have been filed already, down 25.8 percent from the same time last year.
“[The law adds new challenges complicating] payroll withholding, so that not enough money was withheld by employers in many cases, meaning that people now owe more taxes. The new law also capped IRS deductions for paid state and local taxes, including real estate taxes, resulting in a nasty surprise for many filers. Several other deductions are no longer allowed.”
Edward Karl, vice president of taxation for the American Institute of CPAs, commented:
“There are going to be a lot of unhappy people over the next month.”
Many of those unhappy people are tweeting directly to the president.
“@realDonaldTrump @GOP I am a middle class nurse. Why is my #taxrefund 59% (literally 1000s of dollars) LOWER this year than anytime in the past seven years? Nothing in my situation has changed. I thought your “wonderful” #tax plan was supposed to help the middle class? #GOPlies“
“Last year I got a tax refund. This year, with unchanged salary, I owe $1300.
I’m middle class.
Yet the very wealthy got huge cuts. #ThanksRepublicans“
Let’s not forget about the 35-day partial government shutdown and the damage it did not only to the economy but to the IRS’s ability to handle the beginning of tax season as well.
According to internal IRS watchdog, the National Taxpayer Advocate, the shutdown decreased the number of IRS call center agents able to discuss returns with taxpayers.
Backlogs prevented IRS agents from sending tax forms to many businesses on time.
According to Reuters:
“The U.S. economy lost at least $6 billion during the partial shutdown of the federal government due to lost productivity from furloughed workers and economic activity lost to outside business, S&P Global Ratings said on Friday.”
According to Bloomberg, instead of the higher wages the GOP guaranteed, actual average hourly compensation fell in the first quarter after the tax law was passed.
An indication of how effective the tax breaks are is how much businesses are spending, because, of course, when corporations have more money, so do their workers. (At least that’s the way it’s supposed to work.)
But that is not the case.
Instead, stock buybacks appear to be soaring. Since the tax cuts passed, businesses have been using their additional capital to pay off shareholders–not employees–to the tune of more than $700 billion in the first two quarters.
What this means is investors can increase consumption; i.e., more resources transfer to the wealthy, who can invest the money in other companies with better growth potential.
Bloomberg reported earlier this month:
“On average, the banks saw their effective tax rates fall below 19 percent from the roughly 28 percent they paid in 2016. And while the breaks set off a gusher of payouts to shareholders, firms cut thousands of jobs and saw their lending growth slow…While banks vowed to use a portion of their savings to reward employees, help needy communities, and support small businesses, the magnitude of their break and how the money was divvied is likely to fuel debate over whether the law was an effective way to stoke the economy. The 23 firms boosted dividends and stock buybacks 23 percent, and they eliminated almost 4,300 jobs. A few have signaled plans to cut thousands more.”
The report adds:
“The biggest winners were shareholders. Tax savings contributed to a banner year for banks, with the six largest surpassing $120 billion in combined profits for the first time. Dividends and stock buybacks at the 23 lenders surged by an additional $28 billion from 2017—even more than their tax savings.”
Republicans love to tell American taxpayers cuts will “pay for themselves.”
Bloomberg states, however, sluggish growth rates make the cuts unlikely to do that.
In the 1980s, “supply-side” economists argued income tax cuts would stimulate enough of the economy to drive down deficits.
Most economists no longer believe that.
“The message is that Americans should stop waiting for across-the-board pay hikes coinciding with higher corporate profit; to cash in, workers will need to shift to higher-skilled jobs that command more income.”
The tax overhaul is also adding $1.5 trillion to the national debt over 10 years.
Lew said in a Bloomberg interview:
“I fear that the next shoe to drop is going to be an attack on the most vulnerable in our society. How are we going to pay for the deficit caused by the tax cut? You’re going to see proposals to cut health insurance from poor people, to take basic food support away from poor people, to attack Medicare and Social Security. One could not have made up a more cynical strategy.”
Instead of crippling cuts, Lew asserts the country needs investment in jobs training, education, and infrastructure.
“What we’ve seen is a tax cut that spends money we don’t have, to have very concentrated benefits for global corporations and the top 1 percent, and it’s leaving us broke so that we cannot deal with these fundamental problems.”
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