Tax Refunds Were Lower in 2018. So What?
Just a heads up that this is going to be another media rant. But not the typical kind in which I take issue with the media spending less time on reporting facts than on speculating about them. This time it’s about taxpayers getting $6 billion less in refunds from their 2018 tax returns than they did in 2017 before the Republican tax revisions. Since the media has chosen to turn this somewhat irrelevant fact into a headline news item, I thought I’d offer some feedback.
Getting a refund in April when filing your taxes means you provided an interest-free loan to the federal government during the previous year. Unless you’re ultra-patriotic, I see no need to support the government in this way. You’re already required to pay either 90% of the tax that you end up owing or as much as 110% of the previous year’s taxes through salary withholding and/or estimated tax payments. And if you fail to pay enough in advance, you will be charged interest on the underpaid amount. Why provide them with more than you need to? The ideal situation would be to owe nothing and get nothing back when you file your taxes every spring.
For those who have difficulty in managing budgets, I can understand the value of getting a tax refund. Perhaps you like to use the money for an annual spring family event or for some other purpose that gives you satisfaction or pleasure. But you can accomplish the same thing by instead saving the extra money you’ve been giving to the government in low risk short term fixed income mutual funds, money market funds, or even CDs. That way your money would actually grow a bit over the year (or quite a bit if interest rates should climb).
I cannot fathom why the media chose to widely report such an arcane fact. Is it because they wanted to make it sound like the 2017 Tax Cuts & Jobs Act didn’t benefit people as much as the politicians said it would? Is it because they see this as a significant issue? But now I’m the one that’s speculating. I do appreciate when the media focuses on facts without concomitant speculation on their meaning, which is certainly the case here. It would be helpful though if they were to report on facts that are more pertinent or newsworthy.
End of rant.