The ranking Democrats on the tax-writing House Ways and Means Committee and Senate Finance Committee are worried the Internal Revenue Service might succumb to political pressure by releasing withholding tables this year that cause employers to withhold too little in federal taxes from their employees’ paychecks to make it appear the tax cuts are larger than they really are, with the result that taxpayers will end up owing more money on their taxes next year.
Senate Finance Committee ranking member Ron Wyden, D-Ore., and House Ways and Means Committee ranking member Richard Neal, D-Mass., sent a letter Monday to Acting IRS Commissioner and Assistant Secretary for Tax Policy David Kautter. Wyden and Neal asked Kautter about any interactions between Trump officials and the IRS about development of the withholding tables, which are expected to be released soon. If a large amount of taxes is underwithheld by employers this year, they pointed out, millions of people will owe taxes next year instead of receiving a tax refund.
They pointed to Kautter’s status as both acting IRS commissioner and Assistant Treasury Secretary for Tax Policy, who helped develop the new tax law.
“Given that the IRS does not have an independent, nonpolitical commissioner, we are concerned that the Department of Treasury, which oversees the formulation of these tables, may unduly influence the new withholding tables for the 2018 tax year in a manner that will result in millions of taxpayers receiving larger after-tax paychecks this election year but ultimately owing federal income tax when they file in 2019,” they wrote. “Accordingly we oppose any attempts by the Administration to systematically underwithhold income taxes during the 2018 tax year, knowing that in 2019 taxpayers may find they owe taxes when they were expecting a refund.”
They pointed to the large number of changes to the tax code in the Tax Cuts and Jobs Act. For example, the law repeals the personal and dependent exemptions, repeals most itemized deductions, and caps the deduction for state and local taxes at $10,000.
“Taxpayers will confront a very different tax code in 2018, which will not result in all taxpayers receiving a tax cut,” they wrote. “We do not want the Administration to exacerbate their tax liabilities with tax tables that intentionally withhold too little federal income taxes. We recognize that Treasury will be under substantial pressure to make good on the promise by the President and various Administration officials that the new tax law will provide households with a $4,000 tax cut. The Office of Tax Policy at the Department of Treasury may push IRS to incorporate withholding formulas that take insufficient taxes out of workers’ paychecks. This will foster the appearance of a larger tax cut in 2018 that then disappears during the 2019 filing season when these same working families file their taxes and discover to their chagrin that they have been underwithheld and have to pay back the previous year’s phantom windfall.”
Wyden and Neal also sent a separate letter Monday to Government Accountability Office Comptroller General Gene Dodaro asking the GAO to serve as an independent arbiter to analyze the 2018 withholding tables and determine whether they will result in systematic underwithholding.
“To assure Congress and the American public that there is no political influence in the formulation of IRS withholding tax tables, we ask that GAO review the revised withholding tables and determine whether they provide adequate withholding to protect millions of taxpayers from being surprised during the 2019 filing season,” Wyden and Neal wrote.