A reminder- plenty of us might be losing refunds due to the Tax Scam.

Right after finding out that the budget deficit neared $900 billion for Fiscal Year 2018, CBS news had this story noting that many more Americans may have to pay the IRS next year due to the GOP's Tax Scam.

The tax law passed late last year included slews of changes that will have wide impacts across the U.S. Among them is a likely jump in the numbers of Americans who'll owe taxes when they file 2018 returns. The Government Accountability Office (GAO) recently issued a report warning that more than 4.5 million taxpayers will come up short next April, unless they act now to adjust their withholding amounts.

This is because the tax law limited or even eliminated many itemized deductions claimed by millions of taxpayers -- nearly 28 million of them for 2017. The biggest contributors to this are the new limits on state and local tax deductions (the SALT deductions), a restriction on the amount you can deduct for home mortgage interest and the elimination of the deduction for job-related expenses.

Back in July, the Government Accountability Office had a breakdown of withholding changes due to GOP Tax Scam. This dealt with how much should be taken out of people's paychecks once the law took effect at the start of 2018.

Public Law 115-97—enacted in December 2017 and which we refer to in this report as the Tax Cuts and Jobs Act—made a number of changes that affect individual taxpayers beginning in 2018. For example, the Tax Cuts and Jobs Act made changes to deductions and credits, such as the state and local tax deduction [aka SALT] and the Child Tax Credit, which may affect tax liability and withholding for a large number of taxpayers.

Prior to the Tax Cuts and Jobs Act, the portion of any employees’ pay that was excluded from withholding—that is, the employee’s total withholding allowance—was determined by multiplying the number of withholding allowances an employee claimed on Form W-4 by the amount of the personal exemption for that year. The personal exemption amount increased over time because it was statutorily indexed to inflation. The Tax Cuts and Jobs Act set the personal exemption to zero for tax years beginning after December 31, 2017, and before January 1, 2026. The Tax Cuts and Jobs Act gives Treasury the authority to determine a new withholding allowance structure based on certain statutory factors.

The Tax Scam was jammed through so quickly and in such a slipshod way that there wasn’t enough time to adjust withholding tables for when the new year started in 2018. A further complication was that the Trump Administration and GOP Congress wanted individuals to see higher paychecks ASAP in the misguided belief that it would make the Scam more popular. So by mid-February, adjustments were made, based off of the lower tax rates (you may have noticed this at the time…although the increase in Americans’ spending habits in the 7 months since then has been small).

The Treasury Department rushed through a recommendation which largely decided to keep things “as-is” when it came to withholdings, even though the personal exemption had been removed. They looked at what would happen when people file their taxes next Spring, and how many more/less people would have to pay the IRS.

In late December 2017, Treasury officials submitted the results of their analysis and their recommendation for the withholding allowance value for 2018 to the Assistant Secretary for Tax Policy through a memo. The memo described their reasoning, assumptions, and analysis for recommending a 2018 withholding allowance value of $4,150, the same value as the 2018 personal exemption would have had under prior law. The Assistant Secretary of Tax Policy agreed to the recommended amount without changes. IRS then used the $4,150 withholding allowance value to update the withholding tables and the withholding calculator.

Treasury recommended the $4,150 value because there was “no higher or lower value that was clearly better” for achieving the goals it outlined. Treasury’s simulation showed that any of the withholding allowance values it analyzed would decrease the proportion of overwithheld taxpayers [who get a refund] and increase the proportion of underwithheld taxpayers [who have to pay] compared to prior law.

As you can see with this picture, while around ¾ of Americans would still get a tax refund, the number of people who have to cut a check to DC will likely go up.

3% doesn’t sound like a lot, but when 150 million Americans have taxes withheld, that translates to an additional 4.5 million people paying next year. In addition, while parents that were already taking the standard deduction are likely to see a bigger refund, many others who do itemize (i.e. most homeowners) either will see their refunds go down, or will owe the IRS more.

To see if you are susceptible to a big change come tax season, take a look at the IRS’s withholding calculator and find out what you might need to do for the last 3 months of 2018 to protect yourself.

What’s also not mentioned in the GAO publication is that while many people may still get a refund, the reasons why are likely to change. Because of the limits on SALT writeoffs to $10,000 per tax return, this means that the newly-expanded $24,000 standard deduction for married couples will often result in the smaller tax bill. And while it may mean lower taxes to pay in and less time needed to file taxes, it also means that it’s not worth it for many married couples to take advantage of tax breaks associated with home ownership such as property taxes and home mortgage interest.

That is something that will especially affect Wisconsinites because of a system that relies on relatively high property taxes as a means of funding local government. Wisconsin also has a relatively progressive tax system that uses more income tax versus sales tax at the state level, and now that won’t be able to be written off as much due to the SALT limitation.

I hit on this when the Tax Scam was being debated, and I noted that we were getting a lot less taken out of our paycheck than the combined $40-a-paycheck equivalent that we would save on taxes. Which was part of the reason I reduced my allowances and made a couple of other adjustments at the time, even if it cut my take-home pay by $19 a paycheck.

But I’m a dork who looks at this stuff, and adjusted accordingly. A lot of Americans aren’t, and it seems likely they are heading toward an unpleasant surprise in about 6 months when they realize they won’t be getting as much as they think they will, or even have to pay something back.

Combine that shock with the inevitable ending of the earnings bubble that has been blown higher by the corporate tax cuts and buyback boom, and you get a pretty good recipe for an economic slowdown in 2019.