IRS Tax Refund Delay to Weigh on Consumer Spending

IRS Tax Refund Delay to Weigh on Consumer Spending

IRS Tax Refund Delay to Weigh on Consumer Spending

Legislation aimed at preventing fraud is delaying US federal tax refunds and is likely to hurt consumer spending by as much as $21-B this month.

The provision in the Protecting Americans from Tax Hikes Act passed by Congress near the end of Y 2015 will postpone funds remitted to between 25 and 30-M US households via 2 federal tax credits until the week of 27 February.

“Just 2 weeks into the tax filing season, tax return statistics from the IRS and US Treasury are already showing a meaningful slowdown. Because a significant portion of households spend their income almost immediately, due to credit constraints or other factors, the refund delay could result in a pothole in consumer spending in February.”

The analysts estimates that February’s tax refunds could be cut in half relative to Y 2016. The hit to personal-consumption expenditure this month could reach nearly 2%, while cautioning that any weakness would be short-lived and reversed after households eventually receive the refunds associated with the Earned Income Tax Credit and Additional Child Tax Credit.

Evidence of the lag is  likely to be visible in February and March consumer-spending data as well as potentially in some companies’ Q-1 earnings reports, he added, though not in the monthly personal-income figures compiled by the Bureau of Economic Analysis.

Stay tuned…

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