Tax time is here. Bloomington-Normal residents are sitting down to do their taxes or lugging their W-2s and other documents to their accountants, as the April 15 filing deadline looms.
Taxpayers will notice some changes for this year’s filing period—the first that will reflect a full year of impact from the tax cuts passed by Congress in 2017. GLT has tracked the impact of those cuts on six taxpayers from central Illinois. We introduced you to them last spring, soon after the tax cuts passed. Now, almost a year later, GLT checked back in to see how they’re doing.
Some who’ve already filed their taxes are discovering an unpleasant surprise: Their refunds are smaller than expected. In fact, as of Feb. 1, the average refund is down by about 8 percent from the same time last year, according to the IRS.
The reasons for these smaller refunds vary. For most people, it's because each paycheck has grown slightly, thanks to reduced withholding. On balance, they are likely to come out ahead.
For Andy and Marie Streenz of Bloomington, their refund—earmarked for home-improvement projects or vacations—actually grew by a few hundred dollars compared with last year. Their accountant told them it’s because the new law kicked them into a different tax bracket.
“It turned out pretty OK,” said Andy, a locksmith. “That’s the way we got cornered this time. Who knows? Next year it might not even be remotely that way.”
Interviews with the Streenz family and four other central Illinois taxpayers reveal mixed results stemming from the Republican tax cuts. While there have been some benefits, most told GLT that the small increases in take-home pay were negligible. Almost all said the tax law’s impact on the deficit—and a possible strangling of social safety net programs—outweigh any short-term gains.
The past year has brought several changes for Dillon Maher, 23, of Normal. He got promoted at his job at Illinois State University. He moved into a nicer apartment—his first on his own since graduating from ISU. He started graduate school, and he’s saving to buy a house.
Maher said his monthly paycheck went up around $80 as a result of the tax cuts. After consulting with his financial advisor, he decided to put that money into a Roth IRA for his retirement.
“It’s definitely good for my financial future, for saving a little bit more,” Maher said. “But at the end of the day, $80 a month is not going to break my budget now or 40 or 50 years from now.”
Of all the taxpayers that GLT has followed over the past year, Cindy and Kevin Gann’s lives have changed the most.
The Ganns moved with their kids, ages 9 and 7, from Bloomington to Atlanta, Ga., in January, because of Cindy’s job at State Farm. They say the new tax law hasn’t impacted their take-home pay at all.
Kevin is a software developer who works for a San Francisco startup that’s primarily venture capital (VC)-funded.
“I can’t say that we’re growing gangbusters over what we did before,” Kevin said. “It hasn’t changed my wage in a year.”
The tax cuts didn’t happen in a vacuum, and several taxpayers told GLT that other economic forces are having a much bigger impact on their lives.
After the death of her husband, Mary Kay Kosur from El Paso went back to school at Heartland Community College to become a nurse. She’s now employed full-time, earning employed-supported health insurance. That’s cut her out-of-pocket insurance costs by about $600 a month.
But that’s partially offset by losses in farm income. She and her sister inherited farmland, and ongoing U.S. trade disputes have pummeled commodity prices. Kosur estimates her farm income was down 20 percent in 2018, and she relies on that income for about a quarter of her household budget.
Kosur said she received a “little bit” of money from the billions in assistance that the Trump administration provided to U.S. farmers suffering from China’s tariffs on ag products.
“But that’s just a temporary (thing) and a small amount. If this goes on too long, other countries will find other markets and it’ll be 10 years before we get prices back up,” she said. “That’s happened in the past.”
In general, 2018 was an unusually bumpy year for markets. The U.S. economy enjoyed healthy growth and low unemployment in 2018, but the stock market suffered its worst performance since 2008, the height of the Great Recession.
The Streenz family, with two young kids, experienced that firsthand.
“Both of our 401(k) investment plans practically tanked,” said Andy Streenz. “They had a major loss by the end of the year.” Marie said her 401(k) and Roth IRA both lost 25 percent of their value.
Andy and Marie Streenz are also concerned about the larger impact of the tax cuts on the federal budget. It’s estimated to cost over $1.8 trillion for the 2018-2028 period, including interest, according to the Committee for a Responsible Federal Budget, which advocates deficit reduction. The government is seeing falling tax receipts, at a time of relatively strong economic growth.
Nearing 60, Kosur now works full-time at an assisted living facility. She worries that a growing deficit may lead lawmakers to eventually cut Social Security benefits to make ends meet.
“A lot of the people I work with, that’s the only income they have,” Kosur said. “If it gets cut, some of them will suffer a great deal. What can you do with a person in their 80s who’s worked hard at a minimum wage all their life, and is just trying to make their last years better?”
The true impact of the tax cuts on the larger economy is still playing out. It will take years to measure their effectiveness.
For Maher, the 23-year-old ISU staffer, it’s a mixed bag.
“I still definitely think it was written to help people in a different income bracket than me. It’s had moderate effects for me and my friends, but none of our lives are dramatically changed as new professionals just entering the workforce,” Maher said. “And then you hear reports of the economic effect of the tax break on the wealthiest of the wealthy, or on businesses that slowed in 2019 compared to 2018. And I just wonder if that was the best use of money at the federal level.”
NPR’s Daniella Cheslow contributed to this report.
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