Whenever a U.S. President cuts taxes, Americans get optimistic. At least, those with any financial understanding will realize that tax cuts are great. They stimulate the economy by giving people back more of their money. When they have money, they spend that money, which creates jobs.
So far, the economy is booming. Unemployment is down to historic lows. While this is great news, there’s another aspect to Trump’s tax cuts that are having unintended consequences. As we roll towards tax season, many people have already filed and received their refunds. In many instances, where people expected a refund, they received a bill showing they owe.
Trump’s Tax Cuts and Jobs Act made some cuts to the individual taxpayer rates. The largest cuts were for businesses. The corporate tax rate went down from 35% to 21% and it gave these businesses more deductions. While this has allowed businesses and the economy to thrive under Trump’s reign, that’s the extent of the benefits.
Tax Cuts Creating Lower Refunds
Judging by early returns, it appears as if the average refund is down 8% for 2019. This is the first year that the new tax code went into effect. Many people are dismayed to see their refunds are smaller than the previous year. In 2017, the average return was $2,035. So far in 2019, that number is down slightly to $1,865.
This new tax law, passed in 2017, brings the most sweeping changes to the economy in over 30 years. It brought about lower individual rates as well as a doubling of the standard deduction. While this is the case for most people, there were reductions in other popular deductions. This means that many Americans are losing crucial tax breaks they once relied upon.
After the government shutdown, it was unclear if the IRS would even be fully operational. It was said that refunds wouldn’t be pushed out in time. That gave a lot of Americans concern, as many rely on that tax refund for investment. Many people enjoy their refund to make major purchases, as down payments, or to pay off debt.
Many economists are saying these tax cuts might just harm the economy. If people receive less money back, or are even expected to owe, it cuts into spending. Many Americans turned to Twitter to vent their frustrations over this issue. Many of them are Trump supporters who are saying they were duped into believing the tax would help the middle class.
The Truth About the Numbers
While people are frustrated with a lower return, that doesn’t mean the tax cuts aren’t working to help stimulate the economy. Most of the bluster is politically motivated. In reality, most of these people saw a bump in their take-home pay. If you pay less in taxes, then, of course, you’re going to have a lower refund. That’s how it works.
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The reduced deductions do hurt, but overall, the tax cuts have had a positive impact on the U.S. economy. Currently, the Trump administration is mulling over even larger tax cuts aimed directly at the middle class. Of course, this would also result in getting less money back during tax season. Yet, we could all use that bump in take-home pay.
