Tax withholding and refunds

I keep seeing it over and over again. Despite claims that the Republicans' tax reform will save most Americans money, most Americans have seen smaller refunds. In some cases, citizens who are used to refunds actually had to pay.


Talk about liberal spin. Most evidence backs the Republicans on this one. Most Americans have indeed seen a reduction in their taxes. The misunderstandings are primarily due to changes in the formula for withholding.

Let me address a simple question before continuing. What is a tax refund? For each paycheck, the government takes some of your money. This is your tax withholding. When your taxes are due, the government uses this money to pay your taxes. In many cases, the government takes more than you owe. In these cases, the government will return the money beyond what you owe. This returned money is your refund.

Imagine for a moment that you had a friend who asked you for money. Now imagine that you agree to give him ten dollars each month. At the end of the year, he will pay you back $100.

Now imagine boosting these amounts. If you give this friend $100 each month, he will return $1,000. Is the larger payout a better deal? Of course not. You would be going from a loss of $20 to a loss of $200.

This isn't an entirely fair example. Most of us do not view the government the same way that we view a friend. Additionally, that money is gradually being removed from paychecks. Most people never notice the money that they are handing over to the government.

There are some people who have become too reliant on tax refunds. They view their refund as an opportunity to pay for certain large expenses. If people manage their personal funds well, the reduction in taxes will consistently prove more beneficial than larger tax refunds. If people really want the sudden boost, they should save for it themselves. They can even earn interest on their money this way. Alternatively, they could pay down such things as credit card debt.

The truth is that having to pay once a year is a better deal than a refund. You can make that money work for you instead of having the government holding it. All benefits associated with refunds can be replicated through responsible financial practices. The only issue is that some people might struggle to ensure they save enough when their taxes are due.

The Democrats need to stop their spin. We shouldn't let diminishing tax returns convince us that we are better off with higher taxes. The refunds might be more visible than the changes to the withholdings, but it's clear that their narrative regarding tax reform is deceptive. It's been so deceptive that some studies show that most Americans think that their taxes increased despite the evidence to the contrary.