The Memo: Smaller tax refunds hold dangers for Trump, GOP

Early data from the IRS suggests taxpayers may get lower refunds this year — something which would pose problems for President Trump and the Republican Party, who had hoped to reap political benefit from the tax reform package passed in December of 2017.

An IRS report for the week ending Feb. 1 indicated that refunds were running 8.4 percent lower than last year, while the number of refunds in total had dropped by roughly one-quarter.

{mosads}The issue has significant political ramifications, given the number of Americans who have become accustomed to receiving a cash infusion after they submit their tax returns. 

A New York Times report last month noted that more than 100 million filers got money back last year, while the average refund was around $2,800.

If refunds are markedly lower this year, it could affect people’s view of Trump’s tax policies and the economy overall. There are indirect effects to consider as well — anecdotal evidence suggests that many American taxpayers have become accustomed to using a tax refund to make big-ticket purchases, such as down payments for cars. 

Some Democrats argue that refunds are even more fundamental.

“Americans rely on this money to pay for essentials like rent, food, and childcare,” House Ways and Means Committee Chairman Richard Neal (D-Mass.) said in an email to The Hill. “These reduced refunds are yet another negative impact of the GOP’s tax law, and further indication that middle-class taxpayers weren’t a priority for President Trump and congressional Republicans who wrote the disastrous legislation.”

 In one sign of the administration’s nervousness about the issue, the Treasury Department on Monday tweeted a warning against making too much of the initial IRS report.

“News reports on reduction in IRS filings & refunds are misleading,” the tweet stated. “Refunds are consistent with 2017 levels and down slightly from 2018 based on a small initial sample from only a few days of data.” 

Still, while the data is indeed based on early figures, there is no guarantee that the findings will come more into line with 2018 levels later in the tax season.

{mosads}Even some Republican strategists argue that the refunds issue could be politically potent if it makes voters question the overall intent of the tax reform package. 

“If you made the same amount of money this year as last year, and all your reductions are basically the same, and your refund is smaller after the so-called ‘middle class tax rebate’? You might think, ‘Gee, I was lied to,’ ” said GOP strategist Rick Tyler, who was the communications director for Sen. Ted Cruz (R-Texas) during the 2016 Republican presidential primaries.

The political battle around the tax reform package during the 2018 campaign cycle was intense. 

Republicans highlighted that the vast majority of taxpayers — around 80 percent — would receive a tax cut. 

Democrats noted that the lion’s share of the gains would accrue to more affluent Americans and that the corporate tax rate was slashed to 21 percent from 35 percent.

Polling on the overhaul has shown ambivalence on the part of the American public. 

A CNN–SSRS poll, conducted between Jan. 30 and Feb. 2, indicated that adults nationwide backed the reforms by a 48 percent to 40 percent margin. But the same poll suggested that people believe — by a much wider margin of 53-33 percent — that the package primarily benefits the wealthy, not the middle class.

The tax law will likely be a focal point of the 2020 presidential race. Most, if not all, Democratic presidential candidates will call for much of the law to be repealed or significantly reshaped.

Republican pollster David Winston says that his party still had a lot of work to do pushing the upside of the tax reform package. The possibility of reduced tax refunds make that work all the more urgent, he noted.

“The key thing is that the White House is going to have to drive this to make people realize how much less in taxes they paid, rather than the size of the refund — it’s two different things,” Winston said.

In a Senate floor speech last month, Finance Committee Chairman Chuck Grassley (R-Iowa) argued, “a smaller or larger refund than usual may not tell the whole story.”

Grassley added that if voters compared this year’s tax return to last year’s, “the vast majority of taxpayers will see that less of their hard-earned money is going to the government.”

Democrats, by contrast, believe the Republican tax plan was always too tilted toward the richest Americans, and this is the core of its political liability.

“The tax reform that Republicans rammed through has never been popular. You didn’t see a lot of Republicans running on it this past cycle. Even if they did, it clearly didn’t help because they lost the House,” said Democratic strategist Doug Thornell.

Referring to the tax refunds issue, Thornell added: “They raised expectations that folks would be seeing more money that they could take home and spend on things that they need for their families. That doesn’t appear to be the case. That’s going to be a real problem because Republicans sold this behemoth as a middle-class tax cut. It clearly isn’t.”

Joe Trippi, another Democratic strategist, added that he believed any political benefit the GOP might have received from the tax reform bill was already in decline. 

The party, he argued, had little else of legislative significance to show for its first two years in control of the White House and Congress — and would have little chance of adding to their slate now that Democrats are in the House majority. 

“What else do [Republicans] have? They don’t have a lot of accomplishments from when they were in charge of everything,” Trippi said. “This was the only substantive policy agenda that they pushed through, and it’s already fading away.”

Even so, many Republicans remain convinced that the tax reform package will play well in the end, despite the misgivings voiced by some in their party.

Matt Gorman, a former communications director of the National Republican Congressional Committee, insisted that the reduced tax refunds is “really not” a big issue.

“By and large, people are getting good-sized tax refunds and they are also going to be paying less in taxes,” he said.

Other, more nervous voices in his party will be hoping he is right.

The Memo is a reported column by Niall Stanage, primarily focused on Donald Trump’s presidency. Naomi Jagoda contributed.