The Associated Press reported recently that Democrats have seized on the fact that the average income tax refund is smaller this year “as proof that the Republican-written tax law hurts the middle class.”
Noting the smaller refund checks, House Speaker Nancy Pelosi wrote on her blog, “People have already taken to social media, using the hashtag #GOPTaxScam, to vent their anger. Many blame President Trump and the Republicans for shrinking refunds. Some on Twitter even said they wouldn’t vote for Trump again after seeing their refunds slashed.”
By this past weekend the hashtag #GOPTaxScam had shown up online 100,000 times.
In fact Democratic presidential candidate Kamala Harris, a U.S. senator from California, tweeted, “The average tax refund is down about $170 compared to last year. Let’s call the President’s tax cut what it is: a middle-class tax hike to line the pockets of already wealthy corporations and the 1%.”
The liberal website Huffington Post reported, “The average refund check paid out so far has been $1,865, down from $2,035 at the same point in 2018, according to IRS data. Low-income taxpayers often file early to pocket the money as soon as possible. Many taxpayers count on the refunds to make important payments, or spend the money on things like home repairs, a vacation or a car.”
The story noted in passing that the tax code changes meant that in some cases not enough money was withheld by employers. But nowhere did it note that in the vast majority of these cases the total tax bill for 2018 is less than the prior year. People just got to kept it with each paycheck and did not make interest-free loans to the federal government.
Democrats are seizing on something all right, but it is misdirection and bad math.
Though refunds are about 8 percent lower than a year ago, the Tax Policy Center reports income tax payments are being reduced $1,600 on average, thus increasing after-tax income by 2.2 percent. The center noted that about 65 percent of households will get tax cuts averaging $2,180, while about 6 percent will see a tax increase averaging $2,760.
Since people were paying less in taxes, less was withheld.
Nicole Kaeding, director of federal projects at the Tax Foundation, was quoted by National Public Radio as saying, “Don’t judge your taxes by your refund. That’s only one part of the conversation,” adding, “Ideally, you don’t actually want to receive a large refund. Because what you’ve done is given the federal government an interest-free loan. Instead, what would be better is to adjust your withholdings so you get more take-home pay in every paycheck.”
But never let the facts get in the way of a Democrat trying pick your pocket.
If the lame duck session of Congress does nothing else, it must pass an extension of the federal income tax deduction for state and local sales taxes.
Currently state and local income taxes are deductible but the sales tax deduction has expired. Seven states have no state income taxes to deduct, leaving the sales tax as the main comparable deduction. And time is running out.
In 2012 the average Nevada tax filer was able to deduct $332 from federal income taxes, according a Pew Charitable Trusts analysis of Internal Revenue Service data.
Without an extension, many Nevadans are basically facing a tax hike come April 15.
We don’t call on Congress to make the sales tax deduction permanent, but merely to fix it now in the name of fairness one more time, then in the Republican-controlled Congress in 2015 there should be real tax reform.
The residents of high tax states send less money to Washington per dollar earned than the residents of states with lower taxes. For example, Illinois recently raised its state income tax rate by 2 percentage-points, but since that was deductible from federal income tax, Illinois basically sent the bill to the other 49 states.
Instead of permanently keeping the sales tax deduction, our representatives would better serve their constituents by introducing a bill eliminating the deduction for all state and local taxes — yes, including property taxes — while lowering the federal income tax rate for everyone, including those who don’t qualify for itemized deductions.
Currently, tax filers can choose either the standard deduction or may itemize deductions for certain expenses, including some taxes. The American Jobs Creation Act of 2004 allowed taxpayers who itemize to deduct state and local sales taxes or state and local income taxes. The American Taxpayer Relief Act of 2012 ended the sales tax deduction at the end of 2013.
The Congressional Budget Office has stated, “The deduction for state and local taxes is effectively a federal subsidy to state and local governments; that means the federal government essentially pays a share of people’s state and local taxes. Therefore, the deduction indirectly finances spending by those governments at the expense of other uses of federal revenues.”
In other words, the CBO says, state and local tax deductions largely benefit wealthier taxpayers who can itemize and live in states with high local tax rates.
A quick fix to make sales taxes deductible should be a priority for Nevada’s Washington delegation.
Nevada’s Sen. Dean Heller is pushing a bill that would make permanent the federal income tax deductions for state and local sales taxes.
Currently the state and local incomes taxes are deductible but sales taxes have been added as deductibles a year at a time, making it difficult to plan ahead, as reported in this week’s newspaper column, available online at The Ely Times and the Elko Daily Free Press. Heller argued his bill would help level an uneven playing field by ensuring states like Nevada are afforded the same treatment in the federal tax code as states with an income tax. Nevada is one of nine states with no state income tax.
Dean Heller
The bill addresses a very real problem, but with an inadequate solution.
It is a fairness issue, but not one about the kind of local taxes allowed to be deducted, but rather the amount. The deduction of state and local taxes of any kind amounts to a subsidy for high-wage, high-tax states, which happen to be mostly Democrat-controlled.
Seven states claim 90 percent of the deductions for state and local taxes — income, sales, property, etc. They are New York, New Jersey, California, Pennsylvania, Maryland, Illinois and Massachusetts, according to the Tax Policy Center. Because there is no cap on these deductions most of the tax savings goes to the highest wage earners.
Using 2010 statistical data from the IRS, I found Californians who filed for state and local income tax deductions claimed deductions of $10,700 per return, and almost half of those returns reported earnings in excess of $100,000. Nevadans who filed for the state and local sales tax deduction claimed only $1,430 per return.
Instead of permanently keeping the sales tax deduction, Heller would better serve his constituents by introducing a bill eliminating the deduction for all state and local taxes while lowering the federal income tax rate a commensurate point or two for everyone, including those who don’t qualify for itemized deductions. That would be fair — perhaps, next to impossible to pass, but fair.
Read the entire column at the Ely or Elko websites.
Nevada’s junior senator, Dean Heller, this week introduced a bill that would make permanent the federal income tax deductions for state and local sales taxes, rather than having Congress renew the deductions practically every year.
Dean Heller
It addresses a very real problem, but with the wrong solution.
“Taxpayers in Nevada benefit greatly from this common sense tax relief. Making the state and local sales tax deduction permanent would help ease some of the stress many middle-class families in the Silver State are feeling every day. This bill would also help encourage economic growth by attracting new business, generating jobs, and promoting investment in local economies. The Senate should move swiftly to pass this legislation so Nevadans can benefit from this much-needed tax relief.”
The state and local sales tax deduction for Nevadans amounted to only $449 million, or less than half a billion dollars. (Wall Street Journal graphic)
Nevada is one of nine states with no state income tax, which has been deductible practically from the start of the federal income tax. The other states that would be affected by Heller’s bill are Texas, Florida, Tennessee, Washington, Wyoming, South Dakota, Alaska and New Hampshire.
Heller argued his bill would help level an uneven playing field by ensuring states like Nevada are afforded the same treatment in the federal tax code as states with an income tax.
Surely Nevadans should not be denied a chance to get our snouts in the deduction trough, you say. That’s only fair.
Actually, there is nothing fair about allowing a deduction from federal income tax for state and local taxes, because the level of taxation the various states heap on their citizens varies wildly. The deduction amounts to a subsidy for high-tax states, which, by the way, happen to be mostly Democrat-controlled.
In 2010, according to a Wall Street Journal analysis of IRS data, five liberal states — California, New York, New Jersey, Maryland and Massachusetts — accounted for half of all deductions allowed for state income taxes.
“The inequity is especially stark if we compare this to states without an income tax,” the Journal editorial continues. “The average state and local income-tax deduction claimed per tax return in 2010 was $4,109 in New York and $3,819 in Connecticut. But the average Texan claimed only about $100, and the average Florida deduction was a mere $219. No wonder New York Senator Chuck Schumer opposes tax reform.”
Using the same 2010 data from the IRS, I found Californians who filed for state and local income tax deductions claimed deductions of $10,700 per return, and almost half of those returns reported earnings in excess of $100,000. Nevadans who filed for the state and local sales tax deduction claimed only $1,430 per return. Calculated on a per capita basis, Californians claimed $2,116 in federal income tax deductions for each and every man, woman, child and illegal immigrant in the state when all state and local tax deductions are included, while Nevadans claimed only $166 each for sales tax deductions.
Heller should introduce a bill eliminating the deduction for all state and local taxes while lowering the income tax rate a commensurate point or two for everyone, including those who don’t qualify for itemized deductions. That would be fair. Perhaps, next to impossible to pass, but fair. It can be argued that the rest of the country is subsidizing that recent huge state income tax hike on “the rich” in California, because many there will simply deduct it from their federal income taxes, leaving those in other states to pick up the slack in federal spending eventually.
Allowing federal income taxpayers to deduct local taxes must be a terrible idea, because The New York Times is for it. The paper said in an editorial in December:
“The theory behind the deduction was that the amount paid to states in taxes is not really part of an individual’s disposable income, because it is obligatory and, therefore, should not be taxed twice. Over time, the deduction has become the equivalent of a subsidy from the federal government to states that believe in a strong and active government. That may infuriate conservatives in low-tax states like Texas, who hate subsidizing states with different views of government’s role, but it’s actually a good thing for the country.
“The deduction is Washington’s way of supporting states that support their most vulnerable citizens and neediest cities. The seven states that account for 90 percent of state and local tax deductions (including sales and property taxes) — New York, New Jersey, California, Pennsylvania, Maryland, Illinois and Massachusetts — generally do a better job of providing for the health and welfare of their citizens, and are more willing to pay for institutions that are good for society as a whole.”
What a bogus argument. It is, as they admitted, a subsidy. It also means the residents of certain states are carrying less than their fair share of the federal tax burden. Also in December a Wall Street Journal editorial explained the problem:
“The state and local tax loophole helps disperse and disguise the real cost of big government. As Mr. Obama likes to say, this is reverse Robin Hood.
“All of which helps to explain what appears to be the ebbing liberal support for a tax reform that reduces rates in return for fewer deductions. Democrats in Congress once supported that kind of reform. But these days they tend to represent states with ever-higher tax rates that prop up state and local governments dominated by public unions that demand ever-higher pay and benefits. The resulting state tax burden would be intolerable if much of it weren’t passed off on Uncle Sam.”
If you want a level playing field, Sen. Heller, file a bill eliminating the deductions for all state and local taxes — income, sales, property, etc. Federal taxes should burden individuals equally, not give a break to those who live in spendthrift states like California and New York.
This sales tax deduction bill provides little more than crumbs while other states are gorging on a five-course meal.
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