ChrisWeigant.com

A Taxing Problem

[ Posted Tuesday, January 23rd, 2018 – 18:29 PST ]

Congressional Republicans are reportedly (and not too unsurprisingly) gearing up to run their midterm election campaign on their only significant legislative achievement to date, the tax cut bill. Democrats are also fighting for the battle of public perception over what the bill accomplished (and didn't), and the public is probably going to be rather malleable on the issue right up to the election (and beyond). Because the real effect of the tax code changes -- both good and bad -- won't be realized by most taxpayers for over a year.

Right now, Americans are getting important tax documents in their mailboxes. By the end of this month, everyone is supposed to have all the tax info they need to begin to fill out their 2017 returns. Some will do so quickly, although many will wait until the last minute in mid-April. Either way, nothing will have changed. The new tax laws don't take effect until the 2018 tax year. So while taxes will be on people's minds for the next few months, nothing much will have changed on their current tax forms from last year's returns.

Starting in February, though, everyone's paycheck will begin to be affected by the new tax law. However, the Internal Revenue Service has been struggling with all the momentous changes Congress passed, so the withholding tables may actually be wrong for millions of people. What everyone is supposed to do (but many won't) is to run their numbers through a quick calculation to see if enough taxes are being withheld, and if not, to adjust them with their company's payroll department so the withholding amount is correct. This presupposes a level of dedication that many taxpayers just don't have, though. So most will just trust that the payroll folks are getting their numbers right.

According to Republicans, this is going to give almost everyone some more money in their paychecks. This is what they'll be pointing to in the campaign all year long, in fact. But they will be fighting a public perception that the new tax law is heavily slanted in favor of the wealthiest taxpayers, and towards corporate America. I saw one recent estimate that a worker making $50,000 a year will only see $35 extra every two weeks. That's not a lot of money, all things considered. Will an extra 35 bucks dispel the notion that others are making out like bandits while workers just get crumbs? That is where the political battle may wind up being fought.

No matter what happens in the elections (no matter which side makes the better political case, in other words), though, the real effects of the new tax code won't be felt for months afterwards. Because this time next year (January, 2019) will be when the 2018 yearly tax documents start arriving. And it'll be the following few months when Americans really find out whether they're better off or worse off under the new tax code, when they sit down to do their 2018 taxes.

The changes the Republicans rammed through Congress are complex, to say the very least. Instead of making one big change whose effect every taxpayer could easily figure, they changed many moving parts at the same time, some of which will help and some of which will hurt. These all will have to be balanced out by each taxpayer before they learn whether they'll be better off under the new system or not. To give just the most obvious example, much attention was paid in the media to the fact that the standard deduction will be raised (just short of doubled, the GOP proudly proclaimed). But a lot less attention was paid to the fact that personal exemptions disappear at the same time. So a single taxpayer would not (as it has largely been portrayed) see a difference between a $6,300 standard deduction and a $12,000 one, instead they would see a combined writeoff increase only from $10,350 to $12,000. That's still a little bit better, to be sure, but it falls far short of the promise of "almost double."

Larger families will have an even more complicated formula to see if they come out ahead or not. A family of five (two parents, three kids) would, under the current tax system, rate a writeoff (standard deduction plus exemptions) of $32,850 (five exemptions, plus standard deduction for married filing jointly). This would drop to only $24,000 under the new system -- a loss of $8,850 in writeoffs. This is why the loss of the exemption is going to cause a lot of confusion later on, because it was never adequately discussed during the political debate over the tax bill. Perhaps countering this loss for the family of five, however, is the fact that the child tax credit goes up, from the current (up to) $1,000 per child to (up to) $1,600 per child. Will the $1,800 more in credits for the family effectively balance the loss of almost $9,000 in exemptions? Well, that depends on the family's income level. As I said, there are a lot of moving parts to deal with at once. And that's before even taking into account the radical changes on Schedule A, for those who do itemize deductions.

These are all the things that everyone is really supposed to figure out in advance next month, when their paychecks are adjusted, it is worth pointing out. But there are so many changes, it's going to be tough to accurately figure even for people who are comfortable filling their own tax forms out unassisted.

On top of all this is a pervasive and widespread misunderstanding of how the year-end "filling out your taxes" exercise really works. A large portion of the population lives under a rather strange misconception. They equate "taxes paid" to whether they have to cut a check to the government at the end of the year, or whether they receive a refund check from the government. You hear people say this sort of thing all the time: "I got $1,500 back in my tax refund -- I'm paying lower taxes!" Or the reverse: "I had to pay $1,500 when I did my taxes, the government must have raised them again." Neither is really true in a causal sense, even if they do (at times) randomly happen to be coincidentally correct. This is because the total amount of income taxes people pay has nothing to do with whether they estimated them correctly or not. That guy that got the $1,500 refund could have actually paid $3,000 more in total income tax that year, while he was overestimating what should be withheld from his paychecks. Likewise, the guy that had to pay with his return may have seen a big tax cut, but just didn't fill out his W-2 form correctly when he started his new job. Whether you owe money or not on your 1040 form really has nothing to do with what you pay in yearly taxes -- but there are many Americans who never really make this connection at all. If they get money back at the end of the year, it was a good year. If they have to pay, it was a bad year.

This is why the real effect of the new Republican tax code won't be fully felt until April of 2019 (or a month or two earlier, for those who don't dawdle). The I.R.S. doesn't really have withholding tables and worksheets ready yet that will accurately predict what will happen at the end of the year. So millions might begin to see more in their paychecks each week starting in February, only to realize at the end of the year that they got far too much back and thus owe some of it back on their tax return. Because there are so many moving parts, the opposite may also be true for millions. They may have gotten too little back in their paychecks, and will have a nice surprise at the end of the year in the form of a big tax refund check.

Either way, nobody's really going to know until next spring. This, of course, will leave a knowledge vacuum -- one that both sides are teeing up to exploit politically, before the November elections. Republicans will be touting to the skies the fact that people are getting more back in their paychecks, without ever admitting that at least some of them are going to get a rather rude surprise at the end of the year. Democrats will be making a subtler case, that no matter what crumbs you see in your paycheck, it's nothing like the feast the fatcats are enjoying. Their argument won't hinge so much on what happens at the end of the year, in other words, because it is one of perspective rather than absolute numbers.

As I said, either way the final realization isn't going to come until tax time in 2019. By that point, the new Congress will already be sworn in and the next congressional election will be over a year in the future. So even if people are outraged by the taxes they find they owe (outraged at the Republicans, one would assume), they won't have a political way of venting about it any time soon.

The only way for individuals to prepare for all of this is to actually sit down and figure their 2018 taxes, in advance, next month. By that time, there should be automated calculators or worksheets available to help accomplish this, although they may not be perfectly fine-tuned (the I.R.S. rules and regulations won't be finalized for a while, in other words, which may lead to changes in interpretation). So when you see that first paycheck that has a different number on it for "federal taxes withheld," take the time to find one of these calculators, enter in the numbers from your 2017 taxes (the ones you'll be doing in the next few months, in other words), and try to get your 2018 withholding as accurate as possible before the fact. Because no matter whether your total 2018 yearly income taxes go up or down, you'll want to be prepared for it ahead of time rather than facing an ugly surprise at this time next year.

-- Chris Weigant

 

Follow Chris on Twitter: @ChrisWeigant

 

37 Comments on “A Taxing Problem”

  1. [1] 
    C. R. Stucki wrote:

    This is scary!! I can't even understand Chris's explanation, never mind the actual law.

    But there's always ONE thing EVERY Weigantian knows for damn sure about the tax system, and that is that everybody who earns more money than we do has absolutely GOT TO BE somehow stealing some of our share of the national pie, and therefore needs to have HIS taxes raised!!

  2. [2] 
    Michale wrote:

    Ya'all can spin in any which way ya want, but the FACTS are clear..

    Middle Class Americans are seeing a HUGE benefit of President Trump's tax plan right now..

    And they couldn't be happier.

    And THAT will make 2018 a banner year for the GOP :D

  3. [3] 
    Michale wrote:

    Pennsylvania couple beat 4-year-old to death over spilled cereal, authorities say

    A Pennsylvania mother and her boyfriend were arrested Tuesday night, accused of beating their 4-year-old son to death because he spilled his cereal, authorities said.

    Lisa Smith, 19, and her boyfriend Keiff King, 26, of Willow Grove, face charges of attempted murder, aggravated assault and other crimes in connection with the death of their son, Tahjir, FOX 29 reported.

    After the child admitted spilling his breakfast, Smith and King disciplined Tahjir by punching him in the back of the head, before stripping him naked from the waist down and taking turns smacking his buttocks with a sandal, Philly.com reported, citing Smith’s statement to police.

    After Tahjir urinated on himself and became unresponsive from the beatings, King placed him in the shower and blasted him with cold and hot water, Smith told police.

    http://www.foxnews.com/us/2018/01/24/pennsylvania-couple-beat-4-year-old-to-death-over-spilled-cereal-authorities-say.html

    Dumbocrats.. :^/

  4. [4] 
    Michale wrote:

    Democrats will be making a subtler case, that no matter what crumbs you see in your paycheck, it's nothing like the feast the fatcats are enjoying.

    Nothing like Class Warfare, eh?? :D

  5. [5] 
    Michale wrote:

    Looks like the memo is going to be released..

    Dumbocrats are crapping their pants!!! :D

    Time to stock up on popcorn!! It's going to be a grand show to watch Odumbo, Clinton and Mueller go down in flames.. :D

    Hysteria from Weigantians in 3.... 2.... 1.... :D

  6. [6] 
    Don Harris wrote:

    So we won't know until after the election what the effects of the tax bill will be but both parties will campaigning on the effects of the tax bill.

    Does this means the winner of the debate and the 2018 elections will be the best liars?

    Of course the tax bill is complex and changes many moving parts at the same time instead of being something simple to understand. While the case could be made that complex issues require complex solutions, it is doubtful this is motivation for the complexity.

    The most likely reason is that the standard operating procedure is to make things as confusing and contradictory as possible because then people will give up on figuring it out for themselves and buy into whatever spin (lie) fits what they want to believe.

    And we keep on playing this Monkey in the Middle game while the Democrats and Republicans laugh at us running back and forth between them chasing the ball we will never catch.

    "The only way to win is not to play."
    Joshua
    -That movie with Matthew Broderick that I can't remember the name of at the moment

    It's time to change the game.

  7. [7] 
    C. R. Stucki wrote:

    Michale [3]

    Why on earth did you choose to share that PA story with us on a political blog? We get plenty of that stuff everyplace else, don't really need it here.

  8. [8] 
    Michale wrote:

    Why on earth did you choose to share that PA story with us on a political blog? We get plenty of that stuff everyplace else, don't really need it here.

    It's simply in response to prozac-girl's constant bigotry against Trump supporters..

    http://www.chrisweigant.com/2018/01/22/what-about-the-house/#comment-114634

    When she stops the bullshit, so will I....

    I would point out that you don't seem to have a problem with HER bullshit, but it's clear you do.. :D

  9. [9] 
    C. R. Stucki wrote:

    Michale [8]

    My (hopeless) Raison D'etr as the French say in participation in the land of Weigantia is to educate Dems/Libs out of their raging misconceptions/mis-comprehensions about how the real world actually functions.

    I kinda skip over most of the stuff that seems to be aggravating you, keeps life much simpler.

  10. [10] 
    Michale wrote:

    I kinda skip over most of the stuff that seems to be aggravating you, keeps life much simpler.

    Aggravating?? Au contraire' (My own participation in the French exercise :D)

    It's gratifying to see Hysterical NeverTrumpers act like complete and utter bigots. Act like the complete jerks and morons they accuse others of acting..

    It simply re-affirms that my comments about them are dead on ballz accurate...

    "It's an industry term"
    -Marisa Tomeii, MY COUSIN VINNY

    :D

  11. [11] 
    Michale wrote:

    My (hopeless) Raison D'etr as the French say in participation in the land of Weigantia is to educate Dems/Libs out of their raging misconceptions/mis-comprehensions about how the real world actually functions.

    But you are correct. You have set yourself up for a hopeless task..

    Many have tried to bring these hystericals to see reason and logic... They have all failed, given up and disappeared...

    The only reason I am still here???

    "I don't run out on a friend"
    -Sean Penn, TAPS

    :D

  12. [12] 
    Michale wrote:

    Voters Call for Special Prosecutor to Investigate FBI
    http://www.rasmussenreports.com/public_content/politics/general_politics/january_2018/voters_call_for_special_prosecutor_to_investigate_fbi

    Speaking of polls...

    I am sure ya'all will embrace THIS poll, just like you embrace polls that say what you want to hear...

    Right??? :D

  13. [13] 
    C. R. Stucki wrote:

    Michael

    OK, got you. Sometimes even I, Mr. Niceguy incarnate, sometimes wallow in the joys of Schadenfreude.

  14. [14] 
    Elizabeth Miller wrote:

    Michale,

    What government departments and/or services and/or programs will be cut or eliminated to pay for these tax cuts?

    Is the big and long-term picture here about shrinking government and what will be the impacts on the middle class as that process plays out over the decades?

  15. [15] 
    Elizabeth Miller wrote:

    Chris,

    Excellent column!

    Which applies equally well to Canadian taxpayers, especially those of us who file their own taxes and use the simple version of the return.

    We can have our employers deduct more or less taxes each pay period depending on our individual or family circumstances. Can Americans do that, too?

    The main takeaway for me: the wide disparity in how Trump's tax reform impacts the middle class versus the top percentiles and how that disparity plays out in terms of economic growth and how government functions.

    Maybe you could delve into all of this in another column ...

  16. [16] 
    Michale wrote:

    What government departments and/or services and/or programs will be cut or eliminated to pay for these tax cuts?

    Probably useless ones.. :D

    Is the big and long-term picture here about shrinking government and what will be the impacts on the middle class as that process plays out over the decades?

    The tax cuts expire in less than a decade....

  17. [17] 
    Michale wrote:

    OK, got you. Sometimes even I, Mr. Niceguy incarnate, sometimes wallow in the joys of Schadenfreude.

    Yep, it's nice to win.. :D

  18. [18] 
    Elizabeth Miller wrote:

    The tax cuts expire in less than a decade....

    Well, I wasn't talking about JUST these Trump cuts, you know ... I mean it's not like Trump was the first one to cut taxes and he won't be the last ...

  19. [19] 
    Michale wrote:

    Well, I wasn't talking about JUST these Trump cuts, you know ... I mean it's not like Trump was the first one to cut taxes and he won't be the last ...

    True, but you can't really assess the future decades from now if the cuts don't last the decade..

    Not that I could assess that anyways, being the admitted economic dullard that I am..

    But the simple fact is, NeverTrumpers tried to paint President Trump's tax cuts as bad for the American people and that is clearly, factually and demonstrably not the case...

  20. [20] 
    Michale wrote:

    JP Morgan's Jamie Dimon says Trump's tax cut will lead to economic boom this year
    Dimon says economic growth could hit 4 percent this year.
    In a CNBC interview at the World Economic Forum in Davos, Dimon also expressed strong support for the tax overhaul, predicting it will boost capital investment and job creation.

    Dimon says economic growth could hit 4 percent this year.

    In a CNBC interview at the World Economic Forum in Davos, Dimon also expressed strong support for the tax overhaul, predicting it will boost capital investment and job creation.
    https://www.cnbc.com/2018/01/24/jp-morgan-ceo-jamie-dimon-says-tax-cut-will-lead-to-higher-wages-inflation.html

    GOP is going to kick ass in the mid terms.. :D

  21. [21] 
    Michale wrote:

    HARMONY OF THE SEAS - Aboard the biggest cruise ship of the world from Royal Caribbean International
    https://youtu.be/RUDu7mMT4UI

    72 more hours!!! :D

  22. [22] 
    Elizabeth Miller wrote:

    That is definitely not my idea of cruising ... too many people. :)

  23. [23] 
    Paula wrote:

    https://www.motherjones.com/kevin-drum/2018/01/stormygate-continues-to-move-forward-inches-at-a-time/

    President-Unfaithful-Sh!thole's $130,000 payment to Ms. Daniels now under further scrutiny. Did he pay her off with campaign funds? Common Cause wants to know!

    Further:

    Huh. So…maybe the Trump Organization paid off Stormy, and then got reimbursed by the campaign? I would normally be skeptical on the grounds that no one could possibly be this stupid, but this is Trump we’re talking about.

    Then again, maybe the Russians paid off Stormy! I definitely think that’s plausible enough that Robert Mueller should subpeona Cohen for a brief chat under oath. Remember, kids, attorney-client privilege doesn’t cover conversations made with the intention of committing or covering up a crime or fraud.

    Yesterday was Blotus-Melania's 13th Anniversary. They spent it apart, with the 239-lb-NOT!-Sh!thole tweeting desperately about anything-other-than-investigations-into-him.

    Traitor Republicans (one really doesn't need to append "traitor" anymore since it's now baked in, but still…) meanwhile crank up conspiracy theories about the FBI. Feinstein and Schiff want to know how it was that Russian bots appear to be working hand-in-hand with GOP Traitors to spread these conspiracy theories in lockstep. The rightwing machine is now Putin's tool and all the little trumpies open their little mouths on demand and swallow whatever Putin shoves down their gullible-little-throats.

  24. [24] 
    Michale wrote:

    Yea, I am not a big crowd fan myself..

    Which is why we have the unlimited drink package. :D

    Plus, a boat that big?? It's easy to find some solitude.. Plus we're doing SCUBA in St Marteen and horseback riding in San Juan...

    And more drinking in Haiti :D

  25. [25] 
    Elizabeth Miller wrote:

    Well, try to have to fun.

  26. [26] 
    Elizabeth Miller wrote:

    Let's try that again.

    Well, try to have some fun, you know.

    And, good luck finding some solitude. :)

  27. [27] 
    neilm wrote:

    By the time November comes around the tax bill will already be a year old. Normally this would mean it is rather dusty news, but still somewhat relevant.

    However with the pace of news with 45 in the White House the chances are we will have had 6-8 crisis of some description before and probably during the elections (NFL kneeling, $130K bribes, more from Mueller, Sessions and/or Kelly getting fired, government shutdowns, DACA shenanigans, Mexico not paying for the wall, China imposing tariffs on soy beans, etc.).

    Also, after Russia have completed their World Cup in July they can become belligerent again without risking a boycott.

    I think the tax cut will only be important if the market spikes, crashes and the talking heads blame "sugar rush" tax bill. Otherwise it will be as important as "Repeal and Replace", or "paper-towel-gate".

  28. [28] 
    Michale wrote:

    Let's try that again.

    Well, try to have some fun, you know.

    I will, thank you.. :D

    And, good luck finding some solitude. :)

    Our first cruise, we had almost 30 people in our group..

    THAT was tough finding some alone time..

    This time it's only our immediate family, so we're good ta go.. :D

  29. [29] 
    neilm wrote:

    Enjoy your cruise Michale. I've never been on a cruise (too many kids growing up and I'm not a great sailor) - the Ro-Ro ferries from Dover to Calais were too much for me as a kid.

  30. [30] 
    ListenWhenYouHear wrote:

    Just saw a tweet from Don Jr. on the Republican’s memo stating that it shows just how tainted the FBI’s Russian investigation is...

    Since when does Don Jr. have security clearance to be privy to that memo?

  31. [31] 
    Paula wrote:

    [30] The junior-nazi doing his part to try to delegitimize the FBI in an effort to cover his and his father's gigantic asses.

  32. [32] 
    Elizabeth Miller wrote:

    Lovely.

  33. [33] 
    Kick wrote:

    Russ
    30

    Just saw a tweet from Don Jr. on the Republican’s memo stating that it shows just how tainted the FBI’s Russian investigation is...

    Since when does Don Jr. have security clearance to be privy to that memo?

    He doesn't... BUT... Poor Don Jr. wouldn't miss an opportunity to criticize the Russia investigation since he's a chip off the old block and has lied multiple times in testimony. Oops. :)

    He rocks in the treetop all day long
    Hoppin' and a-boppin' and a-singin' his song
    All the little birds on jailbird street
    Love to hear the robin go tweet, tweet, tweet.
    ~
    Rockin' Robin, Jimmie Thomas

  34. [34] 
    Chris Weigant wrote:

    Michale [3] -

    OK, I see I am going to have to start cracking down on completely unrelated tangents here in the comment threads. What does this possibly have to do with the price of tea in China, or the taxes addressed in the article?

    I need a new acronym. "Off Topic, Ignored" (OT;I) perhaps? Anyone else have suggestions??

    Let's keep these comment threads at least tangentally on-topic, folks, say what?

    Michale [5] -

    OT;I

    When the GOP releases a memo it wrote to itself, the public's going to yawn, sorry to burst your bubble...

    Don Harris [6] -

    Does this means the winner of the debate and the 2018 elections will be the best liars?

    Yes. Deal with it. Or maybe "most effective liars"? 'Twas ever thus...

    As for movie quotes, check out IMDB.com, it'll help...

    :-)

    C. R. Stucki [7] -

    Aha! Another county heard from! So you'll support my OT;I campaign?

    :-)

    LizM [15] -

    I've done US taxes, French taxes, and Irish taxes, but never Canadian taxes, I have to admit. Is there a hockey injuries surcharge? Just curious...

    Heh.

    As for how it works here, yes, individual taxpayers can adjust their withholdings, but they have to do so using arcane formulas that most people don't bother with.

    Most people just trust the standard withholding is correct. This usually (in the past) has led to most taxpayers getting at least something back at the end of the year (see that part about "if I got a refund, it was a good year" in the article).

    But with all the changes, the standard withholding charts have been thrown into chaos. So while it is entirely possible for all taxpayers to tell their payroll departments "take an extra #X dollars out each week," the probability is that most won't do so.

    So we end up with the problem described above. It'll be a total crapshoot for taxpayers in 2018 as to whether they'll owe money at the end of the year or not.

    This hit George H. W. Bush politically in a big way, as I recall (I was too lazy to look it up for the article), when he overestimated and people had to pay up at the end of the year.

    Michale -

    Good (ultra-liberal) friend of mine out here just left on a cruise to Hawaii. Seems like a popular thing to do, these days, just had to say that...

    neilm [27] -

    You may prove to be right, that's for sure...

    neilm [29] -

    Weren't there hovercraft available? My only crossing of the EC was on one, and it was pretty bitchin'....

    -CW

  35. [35] 
    Michale wrote:

    OK, I see I am going to have to start cracking down on completely unrelated tangents here in the comment threads. What does this possibly have to do with the price of tea in China, or the taxes addressed in the article?

    Of course.. But when others who are more politically acceptable do it??

    {{{cchhhiirrrrrppppp}}} {{{chhhirrrrrppppppp}}}

    'S ok.. I understand...

    When the GOP releases a memo it wrote to itself, the public's going to yawn, sorry to burst your bubble...

    And yet, the Dumbocrats are hysterically fighting tooth and nail to prevent the release of that GOP memo that the the head of the Intelligence Committee wrote...

    If it's such a big yawn, why are the Democrats hysterical about stopping it??

  36. [36] 
    Michale wrote:

    When the GOP releases a memo it wrote to itself, the public's going to yawn, sorry to burst your bubble...

    And yet, when asked about the Committee's investigation into the FBI and it's actions, yer Cave'er-Leader said

    "We're All Worried About It"
    -Chuck Schumer

    So, which is it??

    It's all a big yawn or Dumbocrats are all "worried about it"..???

  37. [37] 
    Michale wrote:

    I need a new acronym. "Off Topic, Ignored" (OT;I) perhaps? Anyone else have suggestions??

    You DO realize that if you have to create an acronym to indicate you are ignoring something, you aren't ACTUALLY ignoring it, eh?? :D

    I'm just sayin'... :D

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