UsedCarNews.com
Feburary 4, 2019
Tax Uncertainty Remains After Shutdown
POWER FAILURE: Uncertainty in Washington. D.C., clouds the outlook for this year’s tax season. Even before the government shutdown, Cox Automotive analysts predicted that tax refunds might be smaller than dealers and their customers are expecting, setting off a chain reaction of events that could hurt credit performance.
By Ted Craig
The federal government is open for business again, but there is plenty of uncertainty about what to expect from Washington next. One of the biggest unknowns is how this year’s tax season will play out. On paper, tax season should be fairly normal. The Trump Administration was using permanent indefinite appropriations to pay for processing tax returns despite the shutdown. However, the union that represents the IRS workers threatened a walkout on Jan. 23, just days before
the official filing period was set to start. This was one of the key moves that led to a temporary agreement to re-open the government. Refunds should start going out close to on schedule. The bigger issue than when refunds arrive is how big will they be. Cox Automotive chief economist Jonathan Smoke is warning that many consumers failed to adjust their withholdings and will get back less than expected. Cox Automotive conducted an analysis of its own payroll records and found that there was no statistical difference in the percentage
of employees changing their withholdings in 2018 compared to the percentage of employees who did so in 2017. The company’s findings are likely representative of the country, Smoke said, as the company has close to 30,000 employees across the U.S. Smoke said the problems could go beyond slower sales during tax season. One way that many consumers use their tax refunds is to catch up with bills, including their auto finance payments. If they fail to do so because of smaller refunds, they could damage their credit.
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Another issue is the vehicles financed last year. Some consumers might have looked better on their applications last year because of the incorrect withholdings, Smoke said. Finally, there is the issue of what happens when consumers do adjust their witholdings this year. “There will be a tax increase without a tax increase,” Smoke said. Not all analysts are as pessimistic as those at Cox Automotive. In fact, many expect an upside surprise. For example, a study by Credit Karma Tax finds consumers could owe $430 billion less in federal taxes this year. Continued on page 3
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