As middle-class Mainers begin to file their 2018 state and federal taxes, some are complaining on social media about seeing small refunds or owing the IRS money for the first time. Meanwhile, while on average taxes declined for everyone last year, top income groups received the biggest benefits from the Republican’s 2017 tax overhaul.
Nationally, the average refund is down 8 percent compared to this time last year, shrinking from $2,035 in 2018 to $1,865, according to the IRS.
Mainers who are seeing smaller refunds or paying more than they have in the past are likely doing so because new withholding tables have resulting in having more withheld from their paychecks, meaning smaller refunds or even owed taxes. With refund checks being a source of income many Mainers depend on, those unexpected changes were met with confusion and frustration by some.
“So I’ve been been married, filing jointly for 13 years. I can tell you that the problem is the new tax code. I just did my taxes today and it’s the worst I’ve ever seen in 30 years of paying taxes,” wrote a Maine Twitter user. “My taxes owed are up a huge amount. I’ve talked and read about this, and a major explanation that I’ve come up with for what people are saying is that the withholding tables are a big culprit.”
While some Mainers are getting less back as a result of changes in withholdings, the GOP tax law also limits or eliminates dozens of itemized deductions, including for state and local taxes, mortgage interest, and other expenses they can no longer claim, which also likely affects a smaller portion of Mainers.
Perhaps anticipating that the GOP’s original plan to eliminate those deductions entirely would hit Maine’s middle-income taxpayers the hardest, Senator Susan Collins, who supported the tax breaks for corporations and the wealthy, pushed to include an amendment in the law allowing a $10,000-cap on state and property tax deductions. She still claimed at the time, however, that the tax overhaul would be an overall boon to the state’s middle-income taxpayers.
The wealthy are reaping the lion’s share of the rewards of the GOP’s tax overhaul. Bloomberg reports that the Joint Committee on Taxation estimates that the 2017 GOP tax overhaul “delivers taxpayers who earn $1 million or more a tax cut of $37 billion in the next year alone.”
The much smaller tax benefits that do exist for lower- and middle-class wage earners will phase out each year until 2026 — while the corporate tax cuts are permanent. The average tax rate dropped from to 12.1 percent in 2018 from 13.4 percent the pervious year. However, by 2027, when the average rate rises to 14.3 percent, almost 70 percent of middle-income families across the country will see a modest tax hike.
The 2017 tax overhaul was sold by Collins and Republican lawmakers as a net benefit to the middle class, who would keep more take-home pay having less withheld from their paychecks, while overall earning more as a result of the corporate tax rate being lowered from 35 to 21 percent (even as the average effective corporate tax rate was already much lower), arguing that bosses would pass on the tax benefit to workers through higher wages.
A Gallup poll conducted last fall found that nearly two-thirds of Americans reported seeing no change in their paychecks, indicating that many saw no consequential increases in take-home pay as a result of reduced federal income taxes.
President Donald Trump’s Council of Economic Advisers claimed that corporations would boost wages and families would get an average pay increase of $4,000 to $9,000. “I would expect to see an immediate jump in wage growth,” claimed council head Kevin Hassett before the law passed.
According to the Department of Labor, adjusted for inflation, hourly wages are up just 0.8 percent across the country since the law went into effect, while much of the tax benefit given to corporations has been spent on shareholders and record-setting stock buybacks. Fifty-six percent has gone to shareholders, while just 6 percent has gone to wages, according to Bloomberg.
The tax cuts, estimated to cost $1.9 trillion over 10 years, are largely tipped towards the wealthiest Americans and largest corporations. For the top one percent of households nationwide, the average annual tax savings is $51,140.
In Maine, the wealthiest one percent receives an average annual tax savings of $31,900.
Last fall, the Maine State Legislature voted to conform the state tax code with the 2017 federal tax law. This measure, led by state Republican lawmakers, will cost the state about $26.8 million in revenue in the next budget cycle.
Editor’s note: This article has been update to clarify that smaller refunds or even first-time tax bills are a function of changes to withholdings, not increased taxes.
(Photo: Maine protestors on tax day 2018. | Beacon staff)
Daily Updates