Dan Bongino: Are middle-class taxes going up under President Donald Trump? This tax season there seems to be a lot of confusion.
I’ve been a loyal conservative, voting Republican since I could vote.
What a joke!
— Dennis Jordan (@DennisMJordan) February 4, 2019
Owing More Doesn’t Mean Paying More
A widely circulated CNN article is being misinterpreted to claim 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 on Friday. Refunds averaged $1,865 compared to $2,035 for tax year 2017,” reported Victoria Cavaliere.
A large source of the confusion seems to be coming 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% 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% (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 simpler: 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 mistakingly believing their taxes went up. However, those economically inclined have known this since July 2018 when the Government Accountability Office released a report stating that 30 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% to 73% from 2018-2019, and the percentage that underwithheld tax increased from 18% to 21%. Both groups are likely to see an increase in their taxes owed.