When President Trump signed a large package of tax cuts into law in 2017, the Internal Revenue Service moved to make sure the savings showed up quickly in paychecks. Doing so probably lifted consumer spending last year, but it may have hurt Republicans politically, new polling suggests.
Administration officials, it appears, underestimated Americans’ love of tax refunds.
Nearly four in five people say they would rather overpay their federal income taxes and get a refund every spring — effectively making an interest-free loan to the government — than to underpay and owe money come tax season, according to a poll for The New York Times by the online research firm SurveyMonkey.
That preference appears to be influencing how Americans view Mr. Trump’s signature cuts: Among people who have already filed their tax returns, those who said they received a bigger refund this year are far more likely than others to approve of the law.
But many people are reporting that their tax refunds are smaller this tax season, or that they owe money. In addition to being more likely than other Americans to say they oppose the law, those people feel worse about the economy over all. They are also significantly more likely to disapprove of Mr. Trump’s performance in office.
The findings suggest that the administration’s decisions on withholding may have hurt the law politically.
“I was hopeful that the rhetoric for once was going to match expectations and it did not,” said Tony Mendes, a 61-year-old federal employee in Denver. “I got back less than I would have anticipated.”
Bigger paychecks for most — but smaller refunds for some
Independent analyses consistently show that the 2017 law gave most Americans a tax cut, and few families will end up paying more than under the previous rules.
Federal officials faced a choice about how to pass those savings on to taxpayers. One option would have been to make most people wait until they filed tax returns this spring, delivering a tax-season windfall but essentially delaying the cut by a year.
Instead, the I.R.S. chose to begin withholding less from workers’ paychecks early last year. That put more money in workers’ pockets right away, but made the effects of the tax cut harder to see, since the savings amounted to just a few dollars per pay period for many people.
Administration officials said this week that they stood by their decisions on how to update withholding tables. They said their goal was to make the tables as accurate as possible, and to encourage taxpayers to use a calculator on the I.R.S. website to estimate their liability or refund at the end of the year and decide whether to change how much was being withheld.
But for some people, the I.R.S. decision has resulted in a nasty shock come tax season. The new law made numerous changes to the tax code — eliminating and capping some deductions and credits while increasing others — and the revised withholding rules did not account for every situation. As a result, government auditors warned last year that the withholding changes would reduce refunds for several million Americans.
It is not yet clear how many Americans will end up paying more. As of last week, I.R.S. statistics showed that the average refund had not changed for those who had filed. But total filings were down, and the share of returns producing a refund had declined by 0.5 percentage points, or about 300,000 filers. (Experts caution against reading too much into tax statistics before the April filing deadline.)
“You can see people potentially being frustrated if the tax season isn’t playing out the way they expected,” said Michelle Meyer, chief United States economist for Bank of America Merrill Lynch. “Other people might be quite pleased. It is quite split how people are being impacted by the tax cut.”
Democrats have accused the Trump administration of political gamesmanship.
“The Treasury Department under-withheld taxes from millions of families’ paychecks to make the benefits of the tax law appear greater before the 2018 election, and the bill is now coming due,” Senator Ron Wyden of Oregon, the top Democrat on the Finance Committee, said in an emailed statement. “Families who depend on annual tax refunds to pay down debt, cover medical expenses and afford car repairs are discovering their refunds are smaller or they owe money.”
Smaller refunds could be hurting support
Among people who have already filed tax returns, 32 percent said their refunds had shrunk from a year ago, compared with 22 percent who said their refunds had grown, according to the Times survey. Another 11 percent said they owed money this year.
Tax refunds reflect the difference between what taxpayers had withheld during the year and what they actually owed. They reveal next to nothing about whether a given household got a tax cut under the 2017 law.
Still, it is not always easy for taxpayers to figure out how they are affected by policy changes, and many people may draw conclusions based on the size of their refunds.
Among survey respondents who said their refunds were smaller or that they owed money, just 35 percent believed they had gotten a tax cut as a result of the law. Among those whose refunds grew or stayed the same, on the other hand, 49 percent said they had gotten a tax cut.
Cause and effect is not always straightforward in public opinion surveys. It is possible that people who already approved of Mr. Trump and his policies are more likely to believe their refunds had grown, or are at least more likely to report that to pollsters. Surveys in recent years have revealed growing partisan splits on views of the economy and other issues.
Laura Wronski, a researcher for SurveyMonkey, noted that Republicans were more likely to say their refunds had gotten bigger.
“It’s just unlikely that it aligns that perfectly along partisan lines,” she said. “It’s more likely that people are going to stick to the side they’re on.”
Still, partisanship is not the whole story. Even among Republicans, those who said their refunds had shrunk were significantly less likely to believe they had received a tax cut.
Will this year’s spending be affected?
By adjusting workers’ paychecks right away, the I.R.S. may have helped pump up economic growth last year. People are more likely to spend small, incremental increases to their paychecks, economists said, whereas they often try to save larger lump sums. Consumer spending surged in the middle of last year, helping the economy to one of its best years of the past decade.
The uncertainty over tax refunds could now be dragging spending down. Low-income consumers, in particular, often rely on tax refunds to finance major purchases. Data from Bank of America showed a dip in spending among low-income households in February, which could reflect a delay in tax refunds.
“If you’re used to getting a nice refund and then you discover you owe, that’s a big shock,” Ms. Meyer said.
Low earners are not the only ones affected. Alan Abraham, who works in medical research in Pittsburgh, said he used his tax refund every year to buy season tickets to the Penguins. This year his refund was much smaller, and he has not decided whether to renew.
Mr. Abraham said he paid more under the new tax law because of its cap on the deduction for state and local taxes, which hit him particularly hard because he owns two homes.
A political independent who supports a flat tax, Mr. Abraham said he mistrusted politicians of both parties and did not vote in 2016. But he said the tax law had made him less likely to support Mr. Trump, whom he did not vote for in 2016, next year.
“At the beginning I was, like, ‘Well, let’s see how he does,’” Mr. Abraham said. “Based on the fact that my tax bill has gone up, I actually wouldn’t vote for him.”
The tax law has gotten more popular
Despite the skepticism of people like Mr. Abraham, the tax law has gained support in recent months. Half of the survey’s respondents said they approved of the law, up from 45 percent in September and the highest share since February 2018. (The Times has not asked about the tax law every month.)
There are signs that as more people file returns, they are discovering that they benefited from the law. Among those who had filed before completing the survey, 43 percent said they definitely or probably received a tax cut, compared with 35 percent of those who had not yet filed.
“It seems like people are realizing as they’re going through the process of doing their taxes that, ‘Oh, things did improve for me, and I wasn’t expecting that,’” Ms. Wronski, the SurveyMonkey researcher, said.
About the survey: The data in this article came from an online survey of 10,046 adults conducted by the polling firm SurveyMonkey from March 4 to March 10. The company selected respondents at random from the nearly three million people who take surveys on its platform each day. Responses were weighted to match the demographic profile of the population of the United States. The survey has a modeled error estimate (similar to a margin of error in a standard telephone poll) of plus or minus 1.5 percentage points, so differences of less than that amount are statistically insignificant.