Sort of: They’re slower to file taxes this year. Taxpayers are taking their time given the 2017 tax overhaul. They worry about getting smaller tax refunds and see no need to rush out and file their returns before the due date . Geoff Harlow, of the Illinois CPA Society, said that preparers are spending time explaining to some itemizing taxpayers why they may now be better off taking the standard deduction. “To some extent, we’re psychologists,” he said.
Fret less: The IRS has again lowered the underpayment penalty threshold in response to taxpayer outcry. If taxpayers paid at least 80 percent of what they owe the government through withholding and estimated taxes, they will be able to avoid penalties for paying too little, the agency announced Friday. In January, the IRS lowered that payment threshold to 85 percent, down from the usual 90 percent. Said IRS Commissioner Chuck Rettig: “We heard the concerns from taxpayers and others in the tax community, and we made this adjustment in an effort to be responsive to a unique scenario this year.”
Taxpayers really love their tax refunds, and that does not bode well for the President’s approval rating. The New York Times considers the implications of its latest poll conducted by SurveyMonkey. Nearly four in five surveyed would prefer overpayment of federal income taxes and a spring tax refund to underpayment and owing taxes in April. Those who owe taxes this year are more likely than other Americans to say they oppose the 2017 tax law and feel worse about the economy over all. Notes the Times, they are also significantly more likely to disapprove of Mr. Trump’s performance in office.
Speaking of itemized deductions, is the tax law having an impact on charitable giving? Last year, TPC estimated that 21 million taxpayers would stop taking the charitable deduction under the TCJA. The Fundraising Effectiveness Project’s most recent report finds that gifts under $1,000 dropped by about 4 percent in 2018. Larger gifts rose by 3 percent.
“Let me tell you about the very rich. They are different from you and me.” TPC’s Philip Stallworth reviews new TPC analysis of sources of income among US households. While most US households earn at least 60 percent of their income from wages, salaries, or other forms of labor compensation, for the top 0.1 percent, capital income accounts for more than half of their income. Yet current law taxes most forms of capital income at a significantly lower rate than ordinary income. Stallworth notes a potential problem with a proposed 70 percent top tax rate on ordinary income. “Unless Congress also significantly increases tax rates on capital income, a large part of the wealthiest Americans’ income would be unaffected.”
How might Congress fix the TCJA? Now that Democrats have taken control of the House of Representatives, some lawmakers are looking for ways to rewrite the 2017 Tax Cuts and Jobs Act. There are opportunities to improve the law, but there are also pitfalls that could make it worse. In a series of three blogs, the Tax Policy Center’s Robert McClelland looks at some potential reforms. The first considers the Alternative Minimum Tax. The second considers returning the estate tax exemption to pre-TCJA levels. And the third considers restoration of the personal exemption.
Save the morning of April 10 for some Fiscal Therapy. TPC hosts a discussion on America’s debt and how the nation can better invest in the future. TPC’s Bill Gale will present an overview of his new book, Fiscal Therapy: Curing America's Debt Addiction and Investing in the Future, as part of the 4th annual Lubick Symposium. The morning session begins with a keynote address by Doug Elmendorf, Dean of Harvard’s Kennedy School and former CBO director. Panelists will consider entitlement spending, investment in human and physical capital, policies that can boost economic mobility and reduce inequality, and tax policies. Register here to attend the session or watch the webcast live here.
For the latest tax news, subscribe to the Tax Policy Center’s Daily Deduction. Sign up here to have it delivered to your inbox weekdays at 8:00 am (Mondays only when Congress is in recess). We welcome tips on new research or other news. Email Renu Zaretsky at [email protected].
