The voices of Tax Policy Center's researchers and staff
President Trump says he wants to allow “certain” people and businesses to delay tax filing in an apparent effort to stabilize the economy in the wake of the growing coronavirus pandemic. However, the idea is a poorly designed treatment for a potentially serious economic disease.
White House economic advisor Larry Kudlow calls it a $200 billion bridge loan, implying that it would allow cash-strapped households and businesses to hang on to money rather than sending it to the IRS over the next month. But the idea is wrong-headed for at least six reasons:
It won’t help many taxpayers. It only would apply to “certain” unspecified taxpayers the administration has yet to define. But overall, of 153 million individual income tax returns filed in 2018, about 120 million, or 78 percent, got refunds. Barely 33 million, or 22 percent, had a balance due or (rarely) had exactly the correct amount withheld. Through the end of February this year, about 10 million of the 59 million already-filed returns came with a balance due, so they won’t be helped either.
It would mostly help those who need help the least. Only about 15 percent to 20 percent of low-income households and about one-quarter of middle-income taxpayers owe money when they file their returns. Many of these households--who are over-withheld, recipients of refundable credits, or both--owe no taxes. Rather, they get large refunds this time of year. A filing delay won’t help any of them.
By contrast, nearly two-thirds of households with incomes between $200,000 and $1 million file with a balance due. And nearly 80 percent of those with incomes in excess of $1 million have to send in a check with their Form 1040. Many claim a six-month extension, though they are supposed to make their final payment by April 15. Presumably, Trump would allow them to delay that payment closer to the extended filing date.
It could create new payment problems for those struggling with cash flow. The presumed intention of this scheme is to encourage people to spend the money they’d otherwise have to send to the IRS with their return. We don’t know how long the administration would delay the filing deadline but it likely would not be for more than a few months. If those who benefit from the delay spend the money now, where will they get the cash to make a final payment for 2019 taxes when the delay ends?
Who would be eligible? Trump says only "certain businesses and individuals" could delay filing. How will they be defined? Would the deferral be granted only to households and business owners with confirmed cases of COVID-19, the disease caused by coronavirus? Those who have been in contact with the sick? Would it apply to firms that can show they have lost some amount of business to the pandemic? And, by the way, why shouldn’t the IRS also grant dispensation to people with, say, flu or pneumonia? Does the IRS really want to make a clinical distinction between forms of viral respiratory diseases?
Any targeted filing extension could cause massive confusion. It may discourage people from filing their tax returns now, even if they are due refunds. If Americans know one thing, it is that their taxes are due on April 15. Changing that date will almost certainly add to the widespread coronavirus confusion that already plagues the nation. Changing it for only a small subset of filers will make matters vastly worse.
It won’t help the IRS. Not that this is a goal of the president, but extending the filing season might make sense if widespread staff illness made it difficult for the IRS to process returns. But that only would justify a decision to delay the filing deadline for everyone. Postponing filing for some would likely only add to the agency’s workload since it would need staff to answer taxpayer questions about the partial delay and monitor compliance.
It is hard to think of any real benefit to this plan, other than to fill out a press release that lists actions the White House is taking in response to the coronavirus outbreak. It would help only a small group of taxpayers, may inadvertently hurt others, and do little or nothing to stabilize the economy.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
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