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A smaller refund does not mean that you didn’t get a tax cut

We are entering a traumatic time of year for millions of Americans. Tax season. It is the time of year when you have to dig out forms you put someplace you forgot, and pay a specialist a few couple of hundred dollars to find out how much of your money the government is going to take. If you’re ‘lucky’, you might find that the government took too much of your money and you are due a refund. A good chunk of this refund will be paid to the specialist in fees. It is essentially an interest free loan to the government with a brokerage fee which would be the envy of Wall Street.

This season looks to be a particularly traumatic. The IRS says the average refund so far this year is about 8% lower than a year ago. As this is the first tax season since the passage of the Tax Cuts and Jobs Act, some have been quick to draw a link between the Act and lower refunds. Presidential hopeful Kamala Harris tweeted

This is complete drivel, as Twitter was quick to point out

Changes in the size of your tax refund are not an inverse measure of the size of your tax burden. It is, instead, a measure of the amount of money you loaned interest free to the government because of inaccurate withholding. Simply put, changes to tax withholding throughout the year have made it more accurate this year. Consequently, you’ve been making fewer and smaller interest free loans to the government. That is a good thing.

As Nicole Kaeding and Erica York explain for the Tax Foundation, the Tax Cuts and Jobs Act lowered tax rates, doubled the standard deduction, doubled the child tax credit and expanded eligibility, and limited the alternative minimum tax. It also limited several deductions, such as for state and local taxes paid and mortgage interest. Approximately 80 percent of filers had their taxes cut by the Tax Cuts and Jobs Act, while only 5 percent saw their taxes increase. To see how your tax burden has been changed by the Act, those are the facts.

John Phelan is an economist at the Center of the American Experiment. 

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