Wyden to Treasury: Don’t penalize taxpayers for administration’s mistakes on withholding

Wyden Asks, Did Treasury Scheme to Inflate Paychecks and Risk Exposing Americans to Surprise Tax Penalties?

As Prepared for Delivery

M. President, the first tax filing season under Trump’s tax law is upon us, and it looks like a whole lot of chickens are coming home to roost. Republicans jammed their bill through the Congress at record speed. Pile-driver legislating. The bill was signed into law with a whopping nine days to go before the 2018 tax year was set to begin. And after all that hurry, there were bound to be serious problems.

There’s a big one a lot of Americans are reportedly waking up to, now that filing season has arrived. That big refund they’ve gotten used to — that’s a goner now that Trump’s tax changes are the law of the land, and many might OWE the government money.

Here’s what this is all about. Most Americans have their taxes withheld from every paycheck, and the Treasury redoes the math on withholding every year. Obviously the math gets more complicated when the Congress passes legislation like the Trump tax law, which essentially triggers a tax policy earthquake. The outcome of these decisions about how much to take out of everybody’s paychecks is clearly going to have a big impact.

Here’s where it looks like things went wrong — where it looks like the Trump team decided on scoring short-term political wins instead of protecting people from financial harm. 2018 was an election year. The Trump Treasury Department had a shiny new tax law on its hands, and there’s no question they wanted people to like it.

It sure looks like the Trump administration decided to put politics first, lowball the estimates of how much tax should be withheld from everybody’s paychecks, and lure people into the false sense of security that they’d gotten a big tax cut, courtesy of Donald Trump.

The prospect of the Trump administration buying people off with their own money — that’s what you’re talking about here. It’s as if the Trump administration figured, when the other shoe drops and people are hit with penalties for underpayment, it’ll be springtime 2019 and the election will be behind us.

It could cause a lot of pain this spring when people who typically get a big refund suddenly learn they OWE the government a check. Americans want their taxes to be simple, painless and routine. You can understand why people would count on getting a refund when they’ve gotten roughly the same amount back for years and years — whether it’s a few hundred or a few thousand dollars. I’ve talked to people about this all over the state of Oregon. That’s THEIR money. That’s a refund on taxes taken out of THEIR paychecks. I’m talking about middle-class families who use their refunds to pay the bills. To help cover tuition for their kid. To put a down payment on that new car they badly need.

And here’s the truth — the Trump administration DID NOT need to put anybody in this situation. They had the option to delay these withholding changes by a year to make sure nobody took a hit. And while they were making this decision in January 2018 — just DAYS after the law was enacted — Democrats were sounding the alarms on what a danger this posed.

Chairman Neal of the House Ways and Means Committee and I wrote to the Government Accountability Office. We asked, what kind of impact was this rush-job going to have on working Americans who have their income taxes withheld from every paycheck?

Seven months later, GAO gave us an answer. According to their analysis, after the Trump tax law was enacted, nearly 30 MILLION Americans would find that they’d underpaid their taxes in 2018. That’s millions more than before the new tax law — WAY out of line with numbers you typically see. Those are the people who are in line for a shock when they file their tax returns this year.

Now here’s what Treasury is going to say. They’ll claim they chose the withholding figures that would do the least amount of harm. But that just doesn’t pass the smell test — not when they chose numbers that underwithheld taxes at far higher rates than usual. You’re potentially talking about millions and millions of Americans — way more than is normal — finding out that the government’s been goosing their paychecks with tax trickery, and now they’re getting hit with a big tax bill.

The Treasury will say they updated the official IRS withholding calculator and sent out new withholding forms for employers. But none of that was released until February 28th — TWO MONTHS into the new tax year. 

And furthermore, let’s be realistic about the prospect of Americans flocking to the IRS withholding calculator. The taxpayers potentially affected by this underwithholding issue are parents with jobs to do and kids to look after. How can you expect those people to spend a whole lot of time doing tax math at the beginning of 2018 in order to head off a problem they don’t know anything about, and that MIGHT show up in filing season more than a year later? People have lives to live. They’re not spending the first weeks of the new year crunching the numbers on tax withholding.

That’s why I wrote to IRS Commissioner Rettig last month about this issue. I encouraged him to waive penalties for 2018. It’s the first year of a new tax law that was jammed through Congress and enacted way too fast. Hardworking families should not suffer the harmful consequences of political gamesmanship on taxes.

Instead of replying and working with me to find a solution, Commissioner Rettig went ahead and said the best IRS could do is adjust the threshold where penalties kick in. Instead of penalizing those who paid less than 90 percent of what they owed in 2018, now they’re penalizing those who paid less than 85 percent. That was one small step in the right direction. But in my judgement, the IRS should do more, and keep it simple.

Here’s my bottom line. Nobody should be penalized for the Trump administration’s mistakes on tax withholding.

Change the penalty thresholds. Extend safe harbors. Whatever needs to happen. Down at the Treasury there are a lot of people with expensive degrees hanging on their office walls. They ought to put some of that brain power to work helping protect middle class families.

Again, the bottom line is, nobody should be penalized for the Trump administration’s mistakes on tax withholding. After Republicans and this administration teamed up on a two-trillion dollar tax giveaway that overwhelmingly benefits corporations and the wealthy and powerful, protecting families from tax penalties is the least the government can do.

Otherwise, it looks like a lot of middle class families are going to be justifiably outraged. And I wouldn’t blame them. With that, I yield the floor.