The Tax Thread

crimsonaudio said:

What's hard to understand? This is literally what you quoted:

"I can't help but laugh at the people who, out of one side of the mouth, complain about the reduced size of this year's tax refund.

Then, out of the other side of the mouth, rail against the budget deficit."

Is it difficult to understand his meaning? Seems clear to me.

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Thanks, CA.

I think there's a massive lack of understanding the very basics of how governments are funded and the individual taxpayer's role in that.

I also suspect that a whole lot of people erroneously equate paying taxes (i.e., the amount that you fork over to the government) with the size of a refund. As in, if their refund went down, they feel that they paid more tax, never mind whether the amount owed stayed the same or went down or up.

The deal is, the withholding rates went down. That's because the idea was to get the extra money from the tax reduction into the hands of the taxpayers immediately, as opposed to making them wait until April or May.

Now comes April. If your income stayed the same, and your tax rate stayed the same, you received your "refund" throughout the year in the form of decreased withholding. Mathematically, the plug figure, IOW your refund, has to go down.

A lot of the surprise is from people whose withholding went down, and who lost some SALT tax deductions, especially state income tax and local property taxes in state where either or both of those are high. So they get whipsawed with lower withholdings and lower deductions. It is a mathematical certainty that that combination will result in either (1) a lower refund, or (2) sometimes a shortfall....as in, you have to write a check to the IRS.

In other words, they didn't understand the impact of smaller withholding in combination with reduced deductions on their return.

Bottom Line: you need to look at how much tax you paid, not the size of your refund. And then adjust your withholding to avoid any nasty April surprises.

2003TIDE said:

Tax refunds are overpayments to the government. Not overpayments from the government. They have zero to do with the deficit. His original statement read like he was saying it was some type of entitlement.


The follow up statement is much more clear.

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We’re kinda saying the same thing.

You’re right that refunds are settling up on an overpayment. But if the refund goes down, the overpayment was reduced, and that means the IRS has to fork over less to the taxpayer.

But maybe I wasn’t clear in that I don’t think a refund is an entitlement at all. I do think that a lot of the taxpaying public does, especially if they’ve gotten used to getting one over the years. That’s why you’re hearing all the wailing and gnashing of teeth right now.

CrimsonNagus said:

This is exactly what Trump and the GOP counted on when pushing their plan. If they had been honest upfront, “you will get a smaller refund”, and really explained it, I doubt the GOP base would have supported the plan. People, in my experience, would rather have a little more taken out of each check just so they can see a larger refund each year.

They counted on people not understanding to rally support.

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I'm not being snarky, but people with this mindset need to invest in a good tax accountant. Because people who truly understand the productive things they can do (on a personal level) by keeping more money in their paycheck each month. Almost always want to adjust their withholdings to where they're not getting big refunds. Accountants can help the taxpayer adjust their withholdings according to their life changes DURING the year to ensure they're not hit with a big tax bill come April. While allowing the taxpayer to use that money for other things and not having to lockup the money for an entire year.

2003TIDE said:

I think a lot of people are bad with money and treat it as kind of a savings account where they get one big withdrawal a year. IMO this is going to be bad for the economy in the end. Especially for the automotive industry. Tax time was big business for them.



I'm not sure this is a good thing. The theory was it is easier to over collect and refund than under collect and collect more later. I'm not sure that is wrong. I guess a few years of collections with this method will tell if this works better.

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You got that first sentence right.

Interesting point about the impact on the auto industry (or any industry that revolves around long-lives assets that are often purchased with debt). I hadn’t considered that effect. Guess we’ll see.

CrimsonNagus said:

This is exactly what Trump and the GOP counted on when pushing their plan. If they had been honest upfront, “you will get a smaller refund”, and really explained it, I doubt the GOP base would have supported the plan. People, in my experience, would rather have a little more taken out of each check just so they can see a larger refund each year.

They counted on people not understanding to rally support.

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I don’t think it was intentional. I think they didn’t count on how the general public thinks.

The classical economic theory they acted on is that you should prefer money today over money in the future.

As in, you should prefer $100 a month for 12 months over a lump sum of $1,200, paid to you a year from now.

That’s the foundational idea underlying the concept of interest, time value of money, compounded returns over time, and the financing of retirement, whether funded by the government or the individual.

What you’re saying is that Trump intentionally over-estimated the public’s ability to manage its money. Because the plan is the theoretical best way, I think you’re right on the over-estimation, but not the intent.

Full disclosure, I like a nice refund myself, understanding full well that it’s giving the government an interest-free loan. I know it’s not the economically optimal way to do things, but Mrs. Basket Case and I use it for fun trips.

I’m also fortunate in that she’s a tax lawyer, and understood the implications of the new law from the beginning. We gained some, we lost some, the net effect of which was roughly a wash. So we made an adjustment to the scheduled withholding, and have what we expected — a nice, if slightly smaller, refund.

I know that not everybody has a live-in SME, but spend a couple hundred on one, and avoid the pain.

It’s the difference between controlling your own destiny, and letting one’s own lack of expertise deliver a surprise dope-slap on April 15.

4Q Basket Case said:

I don’t think it was intentional. I think they didn’t count on how the general public thinks.

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Yah, it's kinda funny (and sad) that people get upset that they aren't forced to save their money by the government taking it from them. They literally had more in each and every check yet they likely just spent it along the way because, hey, more money!

It never ceases to amaze me how little discipline most people have which translates into how crappy they are wrt handling money.

crimsonaudio said:

Yah, it's kinda funny (and sad) that people get upset that they aren't forced to save their money by the government taking it from them. They literally had more in each and every check yet they likely just spent it along the way because, hey, more money!

It never ceases to amaze me how little discipline most people have which translates into how crappy they are wrt handling money.

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Full banjeaux for that.

DzynKingRTR said:

I made some money this year and we cannot have that. I am sure my money will go to some useless government project that will never start or we don't need or just some lazy person who doesn't feel like working.

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I don't remember. Were you a big fan of the "Republican Tax Cut?"

And, as I indicated, let's have this thread about the technical aspects of taxes, not that they exist at all or what they're spent on. Please keep that in your spending rant thread...