Treasury Secretary Steven Mnuchin faces an uphill battle convincing Americans that smaller tax refunds don’t necessarily mean they paid more taxes for the whole year.
The number of tax refunds issued so far this year -- in the first tax filings since the 2017 tax overhaul was enacted -- fell nearly 16 percent to 11.4 million, compared with 13.5 million at the same point in the filing season last year, according to Treasury data published on Thursday. Even among those who did get refunds, the average amount dropped to $1,949, compared with $2,135 in 2018.
The data, which reflects only the first two weeks of the filing season, has irritated taxpayers who discovered that their refund was smaller than last year’s because the new law altered available deductions and credits and revised withholding tables. The IRS has waived some penalties for those who didn’t have enough withheld out of their paycheck during the year.
“Most people are seeing the benefits of the tax cut in larger paychecks throughout the year, instead of tax refunds that are the result of people overpaying the government,” the Treasury said in a statement Thursday. “Smaller refunds mean that people are withholding appropriately based on their tax liability, which is positive news for taxpayers.”
Worse off are the taxpayers who count on a refund every year to pay debts or spend on extras and found they owed the government instead.
The confusion adds to the public relations battle about the tax law that Republicans have been fighting since President Donald Trump signed it into law in late 2017. Despite the law cutting individual tax rates and paychecks that were a little higher because of changes to withholding rules, the law has persistently polled below 50 percent.
Democrats, including 2020 presidential candidates such as Senator Kamala Harris of California, are arguing that the law benefits only the wealthy, though critics were quick to attack her argument because a change in tax refunds does not mean tax liabilities have changed.
The Treasury Department has started working aggressively to persuade Americans that they really are better off, tweeting on Monday that news reports on lower refunds is misleading and based on only “a few days of data,” and releasing a statement Thursday explaining the smaller refund checks.
The General Accountability Office estimated that 21 percent of taxpayers would owe money at filing time under the new law, versus 18 percent under the previous law, because changes in the way withholding is calculated.
Refund checks are often pumped immediately back into the economy, while slightly higher paychecks don’t give the feeling of a windfall, economists say.