Will 143 million households notice that their taxes have been cut?

Trump and the GOP face some formidable headwinds …

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First, let’s deal with the numbers …

According to a recent Monmouth University poll,  50% of the public believes the federal taxes they pay will go up under the GOP’s tax plan; 25%think their taxes will stay the same, and just 14%say their taxes will go down.

Say, what?

The good news – according MarketWatchMarketWatch and the non-partisan Tax Policy Center   — is that about 143 million “tax units” (think: households) will pay lower taxes next year and only about 8.5 million will pay higher taxes. That’s a 94% / 6% split.

Note: The Joint Committee on Taxation, which is Congress’s independent number cruncher, came up with similar numbers. They found the average tax rate would fall to 19% from 20.7%. The tax rate for those with an adjusted gross income between $50,000 to $75,000 would see their tax rate fall to 13.5% from 14.8%.

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For the most popular bracket — the $50,000 to $75,000 range – the average tax cut will be $870.

Technical note: The Tax Policy Center slots folks based on “expanded cash income” that includes cash income plus tax-exempt employee and employer contributions to health insurance and other fringe benefits, employer contributions to tax-preferred retirement accounts, income earned within retirement accounts, and food stamps.

The big question is whether the tax cut beneficiaries will notice the difference and applaud the tax cut.

My conclusion: The GOP is facing some perceptual headwinds…

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Here are a couple of behavioral econ factors to consider…

1) Will the “paycheck effect” be noticed?

February paychecks will reflect new withholding tables.

For the $50k to $75k folks that means $67 per month; $33.50 bi-weekly; $16.75 weekly.

Do those numbers represent a statistically significant change?

I’m betting the under on that …

Marketing rule: For impact, aggregate to a big number – e.g. send folks a check for $870.  That might catch their attention.

Note: The converse holds true, too.  If you want to minimize impact, take a big number and “bit size” it- e.g. only pennies a day.

Compounding the GOP’s communication problem: lots of paycheck rates bounce around around at the beginning of the year – most noticeably, health insurance premiums.

Those changes may bury the tax change.

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2) Will the “refund effect” dwarf the “taxes paid effect”?

My bet: The vast majority of Americans are clueless re: how much they pay in in Federal income taxes.

But, they can probably tell you how big their tax refund check was last year (or the amount of the check that they wrote to pay up to the Feds).

People wrongly think that a big refund means that they’re paying low taxes.

Nope, that just means that they’ve given the Feds an interest-free loan for most of the year.

Nonetheless, a big refund signals low taxes.

Think about that for a moment.

2017 taxes will get “settled” in the 1st quarter of 2018.

If folks get meager refund checks in 2018, they’ll assume that they got screwed by the GOP tax plan … even though the refunds (or payments) are the result of the pre-change tax rates.

Then, fast forward …

The first end-of-year tax settlements (refunds or payments) won’t happen until 2019 – long after the 2018 elections.

So, even if refunds go up under the GOP plan (say, because withholding rates are set to the high side) … and refunds are a wrongfully used as proxy for taxes paid … folks won’t have their ah-ha moment until it’s too late to help the GOP in the 2018 elections.

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Bottom line: As  Prof. John Gruber – an ObamaCare architect – infamously said:

“We’re counting on the stupidity of the American people.”

That gives the Trump-haters a distinct advantage …

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#HomaFiles

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One Response to “Will 143 million households notice that their taxes have been cut?”

  1. Al Says:

    Another bet to consider… Will those households paying for increasingly extortionately expensive healthcare insurance and healthcare treatment in 2018, 2019, and 2020 notice that their premiums and healthcare expenses have increased?

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