A period of consumer spending, retail sales and housing weakness may be imminent, after federal tax refunds tumbled by 78% in the early part of February compared to 2016, the result of a new law which requires the IRS to delay the printing of checks to households claiming specific tax credits. The reason for the slowdown is that in late 2015 Congress passed a law forcing the IRS to hold back refund checks related to the earned-income tax credit and the child tax credit until at least Feb. 15. The delay would reportedly give the IRS more time to match tax returns with income data on W-2s filed by employers. Allegedly, such payments had become a tempting target for identity thieves and unscrupulous tax preparers, who falsify tax returns to get thousands of dollars.
The IRS has told affected taxpayers that they shouldn’t expect to receive their refunds until Feb. 27 because of weekends, holidays and bank delays.
While the Joint Committee on Taxation projected the law would increase federal revenue by $779 million over a decade, it may result in a period of stagnant spending until the calendar effects are wrinkled out and US households get the money they are owed. According to a WSJ analysis, refunds paid through Feb. 3 were only $13.2 billion, down almost 80% from $58.6 billion through Feb. 5, 2016. Additionally, the average refund also declined, to $1,994 from $3,385.
This post was published at Zero Hedge on Feb 12, 2017.
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