By Editorial Board
April 2, 2019
Earlier this year the national media reported, almost with an implied glee, that taxpayers weren’t seeing the benefits they thought they would reap when President Donald Trump enacted the GOP-backed tax reform package in December 2017.
“Millions of Americans could be stunned as their tax refunds shrink,” a Washington Post headline announced on Feb. 10. Two days later, The New York Times chimed in, “Smaller Tax Refunds Surprise Those Expecting More Relief.” On Valentine’s Day, National Public Radio offered a headline saying, “Anger, Confusion Over Dwindling Refunds. Is Trump’s Tax Plan To Blame?”
The implication, since IRS data showed that the average refund in 2019 was down somewhat compared to the same point last year, was that the tax cuts were a failure. But as we see so often in Trump era, mining the truth requires digging a little deeper.
A few weeks after those headlines, conservative media outlets noted the tide had turned, based on the IRS’s weekly update on tax refund data. During much of March the average refund was on par with or slightly exceeded the figure from a year ago — which refuted the narrative the national media spUn a few weeks earlier. To its credit, The Washington Post revisited the issue a month after that first headline and noted the refund amount was up year over year. But as far as we could find, neither the Times nor other national media have followed suit.
The IRS has suggested in a statement that the fluctuation is normal, and the amount will continue to vary as returns keep coming in. The agency’s data, for example, now indicates the tide has gone back out. For the week of March 22, the most recent posted on the IRS website, the typical refund was $2,915, compared to $2,925 a year ago. So far in 2019, the average refund has varied between $1,865 and $3,143.
But suffice to say the tax cuts are far from the gloom and doom predicted by Trump’s critics when they were adopted.
For instance, the average annual tax refund during President Barack Obama’s eight years in office, according to the IRS, was $2,852. Last year, it was $2,899. For the first eight weeks of this return-processing season, the average refund is just $2,693. But it clocks in at $2,955 over the past six reporting periods, as the IRS rebounds from the government shutdown, which has led the agency to process 1.7 million fewer returns this year relative to this point in the 2018 tax season. And historical data indicates that by each April 1 only about 60 percent of returns have been processed. Thus, we won’t know the cumulative effect of the tax cuts until November or December, when the IRS accounts for all refund data and publishes the yearly totals.
Still, speaking of the cumulative effect, consider the factors at work if the average refund documented in recent weeks holds steady and lands within the ballpark of last year’s figure.
During Trump’s two years, the number of people in the workforce and the number of returns processed by the IRS have hit new peaks. In February, the Bureau of Labor Statistics reported that average hourly earnings for all workers was up 1.9 percent compared to 2018, which was the highest jump since November 2015. Meanwhile, most workers failed to adjust their W-4 withholding status when the IRS adjusted its withholding rates in accord with the tax reform law. Consequently, most workers kept more money in their paychecks, thus shrinking their refunds.
To recap, looking across the economy we see more Americans working than ever, a robust rise in earnings relative to the recent past, and more money in paychecks with the anticipation of little drop off in the average tax refund. Meanwhile, an analysis prepared by the congressional Joint Committee on Taxation last week estimated that 94% of workers will less in taxes this year.
Remember: letting Americans keep more of their own hard-earned money is a good thing, and that’s what Trump’s tax cuts are providing — so far.