Smaller tax refunds put GOP on defensive

The Trump administration and key GOP lawmakers are playing defense after early data showed Americans are getting smaller tax refunds in the first filing season under the GOP tax law. 

The average refund size through Feb. 8 was 8.7 percent smaller than the same period last year, according to IRS figures. Democrats have seized on the numbers, arguing they prove that the 2017 tax-code overhaul by Republicans was a “scam” designed to help the wealthy at the expense of the middle class.

Republicans have pushed back, emphasizing that most people are seeing a reduction in their total tax liability and that smaller refunds are preferable because they mean taxpayers were paying a more accurate amount throughout the year via their paychecks.

{mosads}“Critics of the tax cuts are squealing that lower refunds means that taxpayers are paying more in taxes. That argument is pure hogwash,” Senate Finance Committee Chairman Chuck Grassley (R-Iowa) said in a statement Friday, as part of a Q&A document published by his office. 

“Policymakers ought to know that is intellectually dishonest,” Grassley added. “What’s really happening is they are trying every which way to Sunday to sabotage the Tax Cuts and Jobs Act.” 

A senior Treasury Department official earlier in the week warned against reading too much into the preliminary statistics but also acknowledged that the administration expects refund amounts and the number of taxpayers receiving money back from the government to decline this year.

The refund statistics have the potential to be the latest political setback for the GOP around the 2017 law. 

Republicans hoped the tax law would help them in the 2018 midterm elections, as people started receiving more take-home pay due to the IRS updating withholding guidance to reflect the law’s lower rates and larger standard deduction.

But the GOP ended up losing its majority in the House, and polls found that many people never noticed the increase in their paychecks.

{mossecondads}Christina Taylor, head of tax operations at Credit Karma Tax, said that for many people, refunds are their “biggest paycheck and they look forward to it.”

Most of the law’s changes took effect in 2018, meaning this is the first time people are filing taxes after implementation.

The Treasury official on Thursday said the administration expects about 80 percent of people to pay less in taxes for 2018, while 15 percent will see their tax liability stay about the same.

But taxpayers can receive a cut in their total taxes and still see smaller refunds, or owe the IRS money. People receive refunds when they have too much money withheld from their paycheck throughout the year.

Democrats, including declared and potential 2020 presidential candidates, are railing against the early data on tax refunds.

Sen. Sherrod Brown (D-Ohio), who is considering a presidential run, said as he introduced a bill to expand the earned income tax credit that “more and more Americans are filing their tax returns and getting their tax refunds, and they realize that the president’s tax law was a bit of a sham.”

Sen. Kamala Harris (D-Calif.), who has already announced her candidacy, tweeted in light of the refund data, “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%.” She earned criticism from fact-checkers for her tweet, since most taxpayers are getting a tax cut rather than an increase.

Republicans are defending their tax overhaul by explaining that people are often still getting a tax cut even if their refund is smaller.

After the first batch of weekly IRS refund data came out, Treasury responded on Twitter by calling reports about the statistics “misleading.” When the second batch of data was released on Thursday, Treasury issued a statement saying it’s a good thing if people have smaller refunds because it means that their tax withholding throughout the year is more accurate.

“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,” a Treasury spokesperson said. “Smaller refunds mean that people are withholding appropriately based on their tax liability, which is positive news for taxpayers.”

Top Republican tax-writers have also been pushing back against other jabs at the 2017 law.

Rep. Kevin Brady (R-Texas), ranking member on the House Ways and Means Committee who was chairman when the tax bill moved through Congress, said on Fox Business Network that “if you’re living paycheck-to-paycheck like most families, you want that tax relief every month, you don’t want it a year later — which is what refunds represent.”

GOP strategists said it’s crucial for Republicans to get their message across because Democrats plan to make attacks on the tax law part of their path to defeating President Trump in 2020, arguing that the economy is problematic for the middle class.

“I think the Republicans need to be on guard to push back at every turn,” said GOP strategist Ford O’Connell.

Another Republican strategist, Ron Bonjean, said, “It’s important to define what’s happening before Democrats confuse the issue and upset middle-class Americans when they’re actually better off.”

Some analysts predict the refunds could end up being the same size or even bigger than they were last year.

Morgan Stanley said in a report Friday that it’s too early to draw conclusions about refunds this year and said that Treasury data through Feb. 14 show the total dollar amount of refunds issued is slightly higher than it was at the same point last year.

Ryan Ellis, a conservative tax lobbyist who also helps people file taxes as an enrolled agent, said taxpayers who might receive bigger refunds this year — such as those who will benefit from the child tax credit expansion and new deduction for pass-through businesses — often haven’t filed their taxes or received their refunds at this point.

He said Republicans shouldn’t be conceding that refund amounts will be down for the whole year.

“Everybody’s jumping the gun here,” Ellis said.