When you compare a listing of states prepared by the Vegetarian Resource Group to a list of states by change in tax refunds there’s an interesting correlation. The largest drop in refunds this year occurred primarily in states reporting the highest percentage of vegans — unfair!
But, haven’t we heard that the wonderful people living in states like New York, California, and New Jersey — where state and local taxes are some of the highest — would see giant federal tax increases and reduced refunds? Isn’t that the correlation we should be concerned about? Wasn’t the outcry that the new limit on deducting state and local taxes would send these predominately Democratic states’ federal tax bills unfairly through the roof?
Let’s have a look. Yes, it’s true that in those high tax states the average refund was down on the order of about 6%. Not a big deal, but still, it is a reduction from last year. But what about the actual tax bills — the amount people in those states actually owed in taxes?
It turns out that folks in those states got the same reduction that everyone else got — about 25% — and that’s because the new tax law also did away with the alternative minimum tax. A lot of those people never could deduct their state and local taxes in the past because of the AMT, but now without it, they get the $10,000 deduction.
But what about the rest of the U.S.? Didn’t the media tell us that the new tax law favored red states and punished blue ones? How much did the average tax bill go down in those Republican fly-over states? H&R Block reports that the average tax bill for their clients — over 20 million middle class Americans — was down by about that same amount nationwide. Yes, the average American paid 25% less in taxes this past year regardless of what state they lived in.
It’s time to do away with all the smoke and mirrors and look at the real numbers — not the hyped media estimates we’ve heard ever since the new tax plan went in effect. And notice that since the final numbers have come in, the media has quickly moved on to President Trump’s tax returns and is now silent on how the tax plan actually affected the country.
In spite of all the early media outcries, taxes are down 25% on average and the average refund this year is hardly changed. Actually average refunds were up by about 1% nationwide this year. The new tax law sounds like a pretty decent deal for the average American — regardless of where they live!
Yes, some folks paid more taxes, but that’s true every year. And yes, some folks saw reduced refunds, but’s also true every year. Remember, the amount withheld from your paycheck isn’t your tax bill — it’s an estimated prepayment that you settle up on April 15. If it’s too much or too little, your estimate wasn’t accurate.
In a perfect world, the amount withheld would be exactly the amount of the actual taxes owed — the tax bill. People who have to write a check on April 15 have essentially received an interest free loan from the government for the year. And folks that get refunds have taken home smaller paychecks than they had to and let the government hold that extra cash — like a savings account — only without earning any interest.
The new tax law didn’t increase people’s taxes — it reduced them, and by a lot. It also didn’t affect their refunds — it actually increased them by a small amount. And finally, all arm waving over the supposed unfairness of the tax law to primarily Democratic high tax states (interesting correlation) turns out to be just nonsense. Now that the final numbers are out, it’s all over but the shouting — and even that has quieted down. But what about the Vegans?
Kevin Cochrane teaches economics and business at Colorado Mesa University in Grand Junction and is a visiting professor of economics at the University of International Relations in Beijing, China. He is a regular contributor to several national publications including the Washington Times, Washington Examiner, and American Thinker. He previously was the economic correspondent for both CBS and NBC TV affiliates in Southern California. For 27 years he formerly was a senior banking executive with a major NYSE listed bank holding company and the CEO of a national multi-bank operating company. To read more of his reports — Click Here Now.
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