The Truth Behind Shrinking Tax Refunds: Debunking Misconceptions About the 2017 Tax Cuts

In 2017, President Trump's administration introduced sweeping tax reforms, promising substantial tax cuts for the American people. However, many in the middle class experienced a reduction in their tax refunds, raising questions about the effectiveness of the policies. This article aims to provide clarity on the reasons behind these changes and dispel common misconceptions.

Understanding the Term 'Tax Cuts'

It is essential to understand that the term 'tax cuts' is often a euphemism for policies favoring the wealthy. These changes primarily benefit those with income from investments or high property values, while the middle class often faces increased tax burdens. For instance, those who could previously deduct their property taxes and state income taxes now see their tax obligations rise significantly.

Specific examples of those affected include couples like the author and her husband, whose tax refund decreased substantially due to changes in tax laws. They are now subject to higher rates on traditional wages and salaries, while investments enjoy lower tax rates. These disparities highlight the complex nature of tax policy and its varying impacts on different income groups.

Legislative Changes and the EITC, ACTC

The significant reduction in tax refunds in 2019 is often attributed to the Republican Tax Plan of 2017. However, a deeper analysis reveals that these reductions are due to specific legislative actions and timing considerations, rather than the overarching tax reform itself.

The Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) play a crucial role in this scenario. These refundable tax credits, which are especially beneficial to low-income families and those with young children, have historically led to large refunds. The 2017 Protecting Americans from Tax Hikes (PATH) Act mandated that the IRS withhold these refunds until mid-February, significantly impacting the reported refund amounts for the first part of the year.

Tax Refund Timing and Data Discrepancies

To better understand the impact of the PATH Act, let's examine the data on tax refunds for 2018 and 2019. The table below highlights the differences in average refund amounts during specific periods:

Period Ending 2018 Returns 2018 Average Refund 2019 Returns 2019 Average Refund 2/9/18 13,517,000 2,135 11,381,000 1,949 2/16/18 31,937,000 3,169 23,485,000 2,640 2/23/18 40,504,000 3,103 38,566,000 3,143

Notably, the 2018 reports include both EITC and ACTC returns, while the 2019 reports do not, due to the withholding requirements. This discrepancy explains the apparent reduction in average refunds seen in the first part of 2019 compared to 2018.

Consequences and Misconceptions

The ABC news article and similar reports mistakenly attribute the reduction in refunds to the 2017 tax law changes, leading to widespread misinformation. This misinformation has been amplified on social media platforms and has become a talking point for critics, including Kamala Harris, who claimed the tax cuts were a middle-class tax hike.

Unfortunately, these misconceptions ignore the legal requirements and timing differences that significantly impacted the reported refund amounts. The PATH Act's mandated withholding of certain tax credits until mid-February played a crucial role in the observed reduction in average refunds during the first part of 2019.

It is important for the public to be aware of these legislative details and to seek out comprehensive, accurate information when evaluating the impact of tax policies on refunds and overall tax obligations.