80% of Americans Got a Tax Cut, But Don't Know It
IN THIS ISSUE:
1. 80% of Americans Got a Tax Cut, But Less Than 20% Know It
2. Many Americans Outraged Over Smaller Income Tax Refunds
3. Rasmussen: Tax Filers Are Slower to Pay This Year
80% of Americans Got a Tax Cut, But Less Than 20% Know It
With the run-up to the 2020 elections already underway, President Donald Trump’s tax cuts have triggered the biggest partisan rift in two decades and could play a big part in whether or not he is re-elected.
According to the latest analysis by the nonpartisan Tax Policy Center, eight in 10 Americans (80%) received tax cuts in 2018 under the new law. Yet several recent polls show that a similar percentage of Americans, over 80%, don’t think they got a tax cut at all.
That’s right: The latest NBCNews/WallStreetJournal poll on this topic found that only 17% of people believe their taxes went down last year. In contrast, 28% believe they pay more, 27% believe they paid about the same and the final 28% are still unsure. Wow!
Among Republicans polled, only one-third (33%) believed they got a tax cut last year. This is a big reason why the tax cuts provided so little tailwind for the GOP in the 2018 midterm elections when Democrats were able to take control of the House of Representatives.
Even among Trump’s core of supporters, only 36% believe they got a tax cut last year; another 36% said their taxes stayed the same; and 6% believe they’re paying more. Unbelievable.
But wait, it gets even worse: Another recent poll, this one by Pew Research, shows the tax cuts remain unpopular politically, meaning that many Americans didn’t want President Trump’s tax cuts in the first place. Pew found that just 36% of Americans approved the tax cuts, while 49% disapproved. Double Wow!!
In all my years of following politics, I’ve never seen a poll where more Americans (in this case almost half) opposed tax cuts and only just over one-third were in favor.
If you recall, the mainstream media went apoplectic over Trump’s tax cuts, emphasizing over and over that they were nothing more than “tax cuts for the rich.” As the polls discussed above indicate, the public bought it hook, line and sinker.
Based on the Pew poll above and a recent MarketWatch article, the tax code may play into the 2020 election by triggering the biggest partisan rift in two decades.
About 64% of Republicans say the new tax system is very or moderately fair, compared to 32% of Democrats — the lowest level ever recorded. Men, older voters and those lacking a college degree are more likely to favor the Trump tax cuts, but women, younger voters and the college-educated are more likely to be opposed.
Another big factor in the unhappiness over the tax cuts is the slashing of the corporate tax rate from 35% to 21%. Among Democrats, 79% say businesses earn too much profit and opposed the corporate tax cut, compared to only 38% of Republicans who agree.
It wasn’t always that way. Before Trump was elected, partisans on the left and right had a similarly jaundiced view of the US tax code. Gaps between the two parties emerged now and then, but they were never as wide as they are now.
Meanwhile, a throng of Democratic hopefuls running for the White House are pushing for higher taxes, particularly on the rich. Two recent polls regarding the Tax Cuts and Jobs Act law, which President Trump championed, show why Republicans didn’t campaign on the new tax cuts heading into the 2018 midterm elections — because they’re unpopular.
Conclusion: If the Democrats win the White House, look out for much higher taxes!
And quite possibly much lower financial markets as well.
Many Americans Angry Over Smaller Income Tax Refunds
Also weighing on peoples’ minds are the smaller tax refunds this year. According to the IRS, tax refunds through March were down by more than $6 billion from the same time last year. What most people don’t seem to understand is that their refunds are smaller because they received more take-home pay in each check due to Trump’s tax cuts.
The biggest surprise about the recent fallout over lower tax refunds is that anybody in Washington is surprised. It’s no secret that Americans love their tax refunds. Psychologists and economists have been documenting this phenomenon for decades.
For some, a refund helps them save for a major purchase like a car. For others, the refund feels like a windfall that they might spend on a vacation. Still others prefer overpaying their taxes because they dread the uncertainty of a tax bill.
The tax reform bill, the Tax Cuts & Jobs Act, cut taxes for most individuals, so why are some refunds shrinking? The reason is the Treasury changed the withholding tables last year. For many, this meant less withholding and slightly bigger paychecks.
But the increased pay may have been too small for people to notice. Refunds, on the other hand, always get noticed.
After the new withholding tables came out, the IRS warned taxpayers that they should check their withholding elections and fill out a new Form W-4, if they wanted to avoid a surprise tax bill. It appears the segment of the public that is stunned by their reduced tax refunds didn’t bother to do so.
But this was also predictable. Another well-documented behavioral phenomenon is that people tend to stick to defaults. Taxpayers essentially had two options after Treasury changed the withholding tables.
One option was to work through a complicated IRS withholding calculator and fill out a new tax form. The other option was to do nothing and hope for the best. Obviously, a lot of taxpayers went for the second option. Others probably didn’t even consider their tax withholding until they filed their tax returns this year.
Given what we know about human behavior and preferences for refunds, there was an easier and less politically costly way to implement the tax law changes. The Treasury should have simply left the withholding tables untouched, and urged taxpayers to adjust their withholding if they wanted to reap the benefits of tax reform sooner. This would have been a win-win.
Those who were paying attention to the new tax law, and who wanted bigger paychecks immediately, could have made changes to their withholding. Those who did not want to bother would simply receive a larger than usual refund. This would have come as a surprise for some, but a pleasant one.
The approach Treasury took instead, which was to urge people to change their withholding to restore their old refund amounts, was a miscalculation. It assumed people pay attention to their taxes before they file their tax return, which for many just isn’t the case.
I hope this helps to understand the lower tax refunds this year.
Rasmussen: Tax Filers Are Slower to Pay This Year
Rasmussen reports that taxpayers are slower to pay this year. According to its latest survey over the weekend, 73% of American adults had already filed their tax returns, and another 12% said they would file by yesterday (April 15). Rasmussen says this year’s 85% overall total is down from similar survey results over the last three years.
Despite the lure of bigger deductions from changes in federal tax law this year, Americans have filed at a slower pace from the start. Over forty percent (41%) had filed by the end of February, but that was down from a high of 45% in 2016. Sixty percent (60%) had filed by mid-March.
Over seventy percent (71%) filed their taxes electronically this year, while 18% still did it by mail. Eleven percent were undecided.
Here’s another interesting fact that Rasmussen uncovered. Based on its latest phone survey, Rasmussen found that 57% of Americans believe they are overtaxed. That’s despite the Trump tax cuts which lowered income taxes for 80% of American families, as discussed above.
Put differently, 57% of Americans believe they are paying more than their fair share in taxes. Only 26% say they are paying about the right amount of income taxes. Another 17% said they are not sure on this question.
Finally, there’s another interesting tidbit from the latest Rasmussen survey. Nearly half of Americans (49%) believe that someone who earns twice as much as they do pays less than twice as much in taxes. This is because the media has told them repeatedly that Trump’s tax cuts only benefit the rich.
Never mind that the top 3% of US income earners pay over half (51%) of all income taxes paid, according to the IRS. The top 1% pays over 37% of all income taxes paid. The media never tells us this, of course.
I could go on and on with this discussion, but I’ll leave it there for today.
Gary D. Halbert
Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc. Gary D. Halbert is the president and CEO of Halbert Wealth Management, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.