Even among those who did getrefunds, Treasury data shows the average amount dropped to$1,949, compared with $2,135 in 2018. (Photo: Bloomberg)

Treasury Secretary Steven Mnuchin faces an uphill battleconvincing Americans that smaller tax refunds don't necessarilymean they paid more taxes for the whole year.

The number of tax refunds issued so far this year — the firsttax filings since the 2017 tax law was enacted — fell nearly 16percent to 11.4 million, compared with 13.5 million at the samepoint in the tax filing season last year, according to Treasurydata published on Thursday. Even among those who did get refunds,the average amount dropped to $1,949, compared with $2,135 in2018.

The data, which reflects the first two weeks of the filingseason, has irritated taxpayers who discovered that their refund issmaller than last year's because the new law altered availabledeductions and credits and revised withholding tables.

Worse off are the taxpayers who count on a refund every year topay debts or spend on extras and found they owed the governmentinstead.

The confusion adds to the public relations battle about the taxlaw that Republicans have been fighting since President DonaldTrump signed it into law in late 2017. Despite the law cuttingindividual tax rates and paychecks that were a little higherbecause of changes to withholding rules, the law has persistentlypolled below 50 percent.

Democrats, including 2020 presidential candidates such asSenator Kamala Harris, are arguing that the law benefits only thewealthy. More than half the tax law's benefits in 2018 went tohouseholds with the top 10 percent of annual income, according toan analysis by the Urban-Brookings Tax Policy Institute.

So the Treasury Department has started working furiously topersuade taxpayers that they really are better off.

“Most people are seeing the benefits of the tax cut in largerpaychecks throughout the year, instead of tax refunds that are theresult of people overpaying the government,” the Treasury said in astatement Thursday. “Smaller refunds mean that people arewithholding appropriately based on their tax liability, which ispositive news for taxpayers.”

The General Accountability Office estimated that 21 percent oftaxpayers would owe money at filing time under the new law, versus18 percent under the prior law, because changes in the waywithholding is calculated.

Refund checks are often pumped immediately back into theeconomy, while slightly higher paychecks don't give the feeling ofa windfall, economists say.

“People tend to approach their taxes by over-paying throughoutthe year so that they can generate some extra cash in the form of arefund,” said Gregory Daco, chief U.S. economist at OxfordEconomics. “Those who get less will probably cut back on spendingbecause they're not going to have that discretionary money to spend— people react differently to lump-sum payments than to paymentsthroughout the year.”

The data showing that refunds are down only covers the first fewweeks of the filing season. But the initial decline puts theTreasury Department on the political defense.

The uncertainty about refunds — and the smaller checks — couldalso pile on to weak consumer spending as taxpayers grow morecautious. U.S. retail sales unexpectedly fell in December, markingthe worst drop in nine years, according to Commerce Departmentdata.

It's not yet clear exactly how many taxpayers will get a tax cutthis year.

The Urban-Brookings Tax Policy Center projects about 80 percentof people will get a tax reduction. The Treasury Department has notyet begun tracking how liabilities compare to last year, accordingto a department official.

The IRS has been off to a slow start this filing season after a35-day government shutdown left the agency with a fraction of itsstaff just before the filing season launched Jan. 28.

Taxpayers, too, have been slower to file this year. The IRS hasreceived about 7 percent fewer returns at this point in the filingseason compared with a year ago.

The IRS is urging taxpayers who unexpectedly owe money to paywhat they can if they can't cover the whole liability at once. Theagency has payment plan options for people in that situation. TheIRS has also waived some penalties for those who didn't have enoughwithheld out of their paycheck during the year.

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