Tax return stats shows why many Americans felt SALTy

We are getting more complete bits of information on the effects of the GOP-approved new tax law, which is taken from the IRS filing season statistics through late May.

Barron's summarized those filings in the following story from last week.

The first tax-filing season under the new law jostled the upper-middle class, as people making between $100,000 and $250,000 became less likely to receive refunds and more likely to owe money with their returns, The Wall Street Journal reports.

In the aggregate, the tax-filing season looked the same as it did the year before, with 79% of taxpayers getting refunds averaging $2,879, down only slightly from 80% and $2,908. But those totals mask some significant variation by income, according to newly released IRS statistics from tax returns filed through May 23. These preliminary tallies provide the first hard data from the government about the actual refunds, deductions and taxes reported at different income levels in the new system….

The fresh data shows that while refund statistics barely budged for lower- and middle-income workers, real movement occurred toward the upper end of the income distribution. Average refunds for taxpayers making between $100,000 and $250,000 dropped 10%, while average refunds for those between $250,000 and $500,000 rose by 11%.

Overall, with 0.5% more returns filed through May 23, adjusted gross income rose 5%, reflecting the strong economy, wage growth and changes to what deductions are allowed. Tax liability dropped 6%.

Here are a few charts that I took from those IRS reports, and you can see the changes year-over-year for tax filers making between $40,000 and $500,000.

What'll be interesting going forward is to see how people adjusted their withholdings for 2019, and will adjust their spending habits if SALT continues to be limited and the standard deduction stays at the higher level it is at today. On the margins, that may make home ownership less worthwhile, since there is no tax break to be had with it for many more Americans, and it gives a disadvantage to Americans in (mostly blue) states that have sizable income and property taxes. 

  I think the one-sidedness of who was affected by those changes might play a signficant role going forward. One of the few areas that Donald Trump polls well in is the economy, as the economic growth of the Obama era has continued. But one of the reasons so many Congressional seats flipped from GOP to Dem in high-income suburbs in New York, New Jersey and California in 2018 was because the GOP's tax scam disproportionately hurt people in those states. 

In addition, Rust Belt and Midwestern states like Wisconsin, Iowa, Michigan, Ohio, Pennsylvania were susceptible to the SALT limitations, and haven't seen much (if any) benefit from either the GOP Tax Scam or the nation's economic growth of the last 2 years.

So good luck with Trump trying to sell his tax cut to any non-deplorable in the states he needs to win this time next year, especially when the economy is likely to be doing worse then than it was when the Tax Scam took effect in 2018.