Do Plunging Tax Refunds And Declining Tax Withholdings Predict A Consumption Collapse And A Subpar Nonfarm Payroll Number?

Tyler Durden's picture

Almost a year ago, Zero Hedge looked at the trend in US tax refunds, and we found that last year the government was doing everything in its power to accelerate the remittance of refunds to taxpayers. Back then we said that "one of the primary reasons why consumers may have exhibited an abnormal
propensity to spend in January and most of February (at least according
to government, if not Gallup, data), is the much greater individual tax
refunding conducted by the Treasury/IRS this year compared to the prior
year." But if accelerated tax refunds was the story in 2010, in 2011, at least so far in the year, it is precisely the opposite. In fact, to date the IRS has refunded nearly $20 billion less compared to 2010, and about $14 billion less than in 2009. With consumers suddenly having far less cash, does this mean that February and March are set to be major disappointments from a retail sales perspective, and any other vertical having to do with consumer "strength"?

Using Daily Treasury Statement data, we compile the weekly data for the first 13 weeks heading into April 15 (the point by which most refunds have been issued), and find that both average weekly remittance and 2011 cumulative refund issuance is running at a nearly 20% lower run rate than 2010.

Below we chart the weekly data for 2009-2011...

And cumulative:

For anybody but the Koolaid master at Goldman Sachs (who we are confident will have a rebuttal to our thesis within 72 hours), this is certainly a troubling development.

On the other hand it may simply indicate that US taxpayers have maxed out on their withholding exemptions, and as a result are due far less from the IRS, as we suggested early in 2010.

BNY's Nicholas Colas has some additional perspectives on why a nearly 20% cumulative shortfall has developed between 2010 and 2011 refunds, as well as why tax withholding data indicates that the NFP estimate of +185,000 for this Friday may be woefully otpimistic. His observations below:

The logical question about this shortfall is simple: “Why?” There are a few potential answers that relate to both the timing of filing/refunds as well as the total amount that may eventually be refunded.

  • Incentives to file early have declined in 2011. The Homebuyer Tax Credit expired on June 30, 2010. According to the IRS’s data, some $3.6 billion of the +$200 billion in refunds last year were triggered by this incentive to purchase a first home. This credit was extended to all home purchases in 2010, but with only half a year of eligibility there are many fewer tax filers who have a strong incentive to get their paperwork in early and receive their $7,500.
  • Lower Refunds to Collect in 2011. The American Recovery and Reinvestment Act (ARRA) of 2009 lowered payroll taxes by $400/person or $800/couple for two years – 2009 and 2010. The program began in early/mid-2009, so only 2010 saw the entire effect of these lower withholding amounts. Keep in mind that these were not reductions in taxes – they were simply reductions in withholding, and result in lower refunds, everything else equal.

I think it is too early to know if tax refunds will prove substantially lower in 2011, although the early data presented here is not especially promising. In truth, neither explanation above is particularly robust. The homebuyer tax credit might be a $1-2 billion shortfall this year (half of its contribution in 2009). ARRA might be a total of $13-15 billion for this whole tax season ($100/worker incrementally lower withholding in 2010). The troublesome point is that in just the first seven weeks of 2011 we are already short the already-mentioned $21.7 billion to last year’s cadence – far more than the total of these two potential contributing factors. All that is left by way of explanation is that taxpayers just haven’t gotten around to filing as quickly as in past years. But the trend in recent years has been to faster filing, not slower.

We will keep monitoring this data through April 15th, but it seems clear that consumer spending patterns will face an incremental headwind on top of higher oil prices as we roll through March and early April.

In addition to tracking the refund data, the U.S. Treasury Daily Statement is also a useful dataset for estimating labor market trends. That’s because the Treasury gives us a very granular look at personal income tax and withholding data. The majority of Americans work “on the books,” so their employers are responsible for submitting the funds required to satisfy each workers tax withholding and other payments to the government such as Medicare/Medicaid, Social Security and Unemployment Insurance.

The attached chart shows the trends through February 22 and is a useful reality check as we think about what next Friday’s Jobs Report might bring:

  • February personal tax/withholding receipts are down 0.5% year on year, adjusted for 2 percentage points of reduced withholding in 2011 for lower Social Security payments. Unadjusted, those receipts are down 4%.
  • This is the first negative comparison since June 2010. The data is choppy, to be sure, reflective of the sluggish labor market recovery we’ve seen over the past few months.

It therefore seems that current consensus estimates of 185,000 private sector jobs added in January is very optimistic. Yes, that number is based on a survey of just a few thousand households, but the disparity between the tax/withholding data is quite wide. Consider that the Labor Department currently estimates that there were 129,281,000 people in the workforce last January, and 130,229,000 in December 2010 (seasonally adjusted). If there were really another 180,000  people employed in February, wouldn’t tax receipts rise year over year? The math says they should. Also keep in mind that last month’s lackluster 36,000 jobs added came with a modest increase in tax/withholding receipts. Why should we expect job growth to increase in February to +180K if the actual tax/withholding amounts collected are lower than year-ago levels.

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Ray1968's picture

I got my Federal and State refunds and 100% went into silver Eagles and Canadian maples. I know of at least 3 other folks that have done the same.

No consumer bounce except for the PM dealers.

Michael's picture

The consumption collapse tsunami will occur this year as millions of state and local public employees are laid off and have their pay reduced. Inflation will be a great contributer as well.


I'm no longer engaging in controversial ethnic conversations as I am now the junk king, with 43+ junks on my two sentence post in a previous thread with over 400 comments.

I hope everyone got that out of their system as pent up frustration does build when people are muzzled.

Yes the comment counts on threads will be going down, but I hope you can now channel your focus on the goal with more sophistication.

Audit Fort Knox!

Show us our Gold!

BetTheHouse's picture

Just made it 44+.  Look out Michael!  There's a Jew behind you! Boo!

Michael's picture

When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the Powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

Miss anthrope's picture

Michael, there's so many here who are still plugged into the matrix.... those are the junkers.... worry about them pretty much the same as you would those people in high school........ they matter not NOW. !!

lunaticfringe's picture

Michael...I gotta junk ya just for whining about it...

Michael's picture

You have got to be kidding me, 7 junks already.

There was not one unpleasant sentence in that post.

John Law Lives's picture

Michael, fear not the junk. I posted on another thread in defense of muni bonds as an investment class and I was junked to death.  Some people just want to be doom and gloomers (i.e. some people love being miserable).

mynhair's picture

I woulda junked you for fun, but I see no 7.  Looks like 10.

Congrats!  Yer a better Lib magnet than me!

lincolnsteffens's picture

Michael I junked you too. Not because of your recent comment but because you want to blame all evil in the world on one of the most historically brutalized and until recently mild and defenceless worshipers of a religion that is the precurser to Christianity.  Not only have most of your posts contained your twisted prejudice but since many of your arguments are based on your hatred, who would take you seriously. The Spanish Inquisition descended on all heathens and any ordinary person that could read or was found with a book. Even most of the poorest Jews could read and were by default suspect of witch craft and casting spells.

Why would any one observing your bile spill in plain sight bother to read much if anything you said. Believe what you want but don't try to connect the dots here using malicious logic. Take it to Iran, Saudi Arabia, or Pakistan where they teach that crap because you will fit right in until they figure out you are not a Muslim. Then you can have the privilege of feeling just like Jew before the mob tortures and beheads you as an infidel.


Michael's picture

My purpose was not to demonize any group, just point out certain group traits that use the system to enrich themselves with the use on nepotism and brainwashing as a major weapons, and to a greater extent, free your and others minds to freely speak of such things without fear of reprisal.

All is good on this issue as my job is done with it. The seeds have been planted.

BetTheHouse's picture

Keep kidding yourself, racist.  From your silly racist rants, the only seeds I suspect you've ever planted is in your sister. 

Chump's picture

Right, you don't want to demonize one specific group, you just want to point out a bunch of Jewy traits that Jews use on everyone.  Like Jewish brainwashing and Jewy nepotism.

The saddest part is that you probably believe your own stupid bullshit.

Mike2756's picture

True, quite a few guys a work were complaining about the lack of refunds or having to owe.

Iguanadon's picture

Probably the biggest factor is the fact that the IRS delayed processing returns until Feb 14 due to the late action by Congress to extend the tax cuts.  Therefore they've only had 2 weeks of processing itemized returns.


I'm rather surpised the writer of this article didn't even mention that.

unclebigs's picture

Yes exactly.  This article is misleading.

Iguanadon's picture

I'm a regular reader of ZH, but I'm also careful to think beyond what is written in the articles/stories to be sure that the complete picture is being represented.  This is one of those times when not all of the pertinent information is mentioned.

Tyler Durden's picture

Whatever the reason for the delay (and we will see if it picks up soon - for now every single week is tracking subpar so there is no temporal catalyst to the upside), it is undisputed that so far there has been a $20 billion shortfall which will trickle down into February and March consumption (and thus GDP) data. Furthermore, please explain how tax withholdings (which are declining) are impacted by a return processing delay?

Iguanadon's picture

I was only commenting on the tax refund portion of the article in order to provide added key information.  I do not know enough about the tax withholdings decline to be able to add to the analysis.


I'll be interested to see the weekly IRS refund numbers the next 4-6 weeks.


mynhair's picture

What delay?  I haven't filed yet.  Maybe snow?

snowball777's picture

Competition for ink. (stop blamin' me!)

OldPhart's picture

Personally, I was active in managing my withholdings through out the year, with a goal of minimizing refunds. 

I live in California and I expect the State, one of these years, to renege on refunds. 

Since I was managing my state tax I also manipulated my Federal. 

In fact, by keeping on top of it I was able to take part in my own little tax deductions at all during the months of January and October...the periods typically used for budget baselines.

Subsequently, my Federal refund dropped to a mere couple hundred dollars and I owe the State $40.

I encourage all to join the withholding protest during January and October.

lincolnsteffens's picture

Crossed my mind too but if my experience with local info. is accurate tax revs. have got to be down. I know I paid no Soc. Sec. or withholding for the last three years and it aint cause I'm a tax cheat.

Chump's picture

Heh, sometimes I wish I made enough money to make cheating worthwhile...

bugs_'s picture

Also we didn't get the 1040 form in the mail this year - so there will be some delay as people get around to printing out their forms or going down to the library.


Sean7k's picture

Fortunately, they are just making up the numbers now- so, I can see 190m or more. Heck, soon they will just tell us there isn't any unemployment and protest when we don't believe it. I mean, if the government says the numbers are true and the media says the numbers are true, are not the numbers true?

They wouldn't lie would they? They know we won't seriously challenge the numbers by "researching" and as for believing our own eyes? Well, that wouldn't be "scientific", it doesn't allow for "adjustments" or "birth/death models". 

Americans will believe whatever they're told, just as long as it doesn't get in the way of their lifestyles. That is how we've been educated- to accept authority without question. Why would we want to fix something, if it isn't broken? 

Now, all you good ZH's, sell your gold and silver and BTFD. Obama is showing his real birth certificate on 60 minutes tonight and the Oscars are on for those that don't care for all that highbrow investigation stuff...

gwar5's picture

I wondered how a depressed economy would produce enough tax revenue to pay for all that spending. That's a double whammy to the budget. Music to Bernanke's printing presses.

dehdhed's picture

there are too many delays implemented at the state and federal levels so this data doesn't surprise me at all.

the most recent blue bar was greater than 2010 and 2009 and i expect the remaining unplotted months will show the same

if it is a shortfall this year i don't see how a 20 billion decline in tax refunds affects a multi trillion consumption figure to justify the question if a 'collapse' is imminent.   if anything just one more reason for QE3.

and i can't even begin to understand how tax data relating to a prior year can be used to suggest what the next payroll figure should look like

Tyler Durden's picture

"It therefore seems that current consensus estimates of 185,000 private sector jobs added in January is very optimistic. Yes,
that number is based on a survey of just a few thousand households, but
the disparity between the tax/withholding data is quite wide. Consider
that the Labor Department currently estimates that there were
129,281,000 people in the workforce last January, and 130,229,000 in
December 2010 (seasonally adjusted). If there were really another
180,000  people employed in February, wouldn’t tax receipts rise year
over year?
The math says they should. Also keep in mind that
last month’s lackluster 36,000 jobs added came with a modest increase in
tax/withholding receipts. Why should we expect job growth to increase
in February to +180K if the actual tax/withholding amounts collected are
lower than year-ago levels."

dehdhed's picture

more jobs don't neccessarily mean more income perhaps.  lower quality jobs even if more of them don't always equate to more tax receipts i suppose.

Mike2756's picture

My thought, what kind of jobs are being created? Add to that, the states union busting. Revs have nowhere to go but down.

RKDS's picture

I guess the upside, if you can call it that, of union busting is that the government will have more money to waste on handouts to the rich who'll create imaginary/Chinese jobs and handouts to the poor who'll prop up the all-important beer and cable market segments.

dehdhed's picture

i wouldn't have a clue if the next payroll number is up or down.  but i wouldn't know where to begin to assume one way or another based on the intentional slowed rate of refunding that's been going on.

in illinois they've intentionally delayed refunds and since state and federal filings are usually done in tandem, it would make sense to me that the refunds to date are diminished so far.

UninterestedObserver's picture

? WTF who cares if the jobs are shoveling shit for $5 an hour if there was an uptick of 190k jobs then numbers shouldn't be going down

lunaticfringe's picture

Not if the new jobs added were making a lot less. With labor pools enormous the old 18 bucks an hr. is now 12.

Miss anthrope's picture


 All over the country cities are helping to balance budgets by requiring unpaid furloughs for non-essential personnel (Dallas, Chicago, Houston)


Also, plenty of stores cutting hours of operation here... just anecdotal, but I believe this may be representative of how people are technically keeping their jobs but their pay is actually DECREASING


Everyman's picture

Unh, YES?  How can it not?  THis is what the MSM and all the phd's miss, there is no revenue growth in taxes because we have a total net increase in UE, and they don't pay income taxes!

PulauHantu29's picture

There will be no "consumption bounce" for the simple reason there are no more consumers.

To think "consumers" will lead us ouit of this recession is as delusional as thinking China will lead us out. Wen Jiabo is tightening as fast as posisble there as house prices soar 8% per month in large cities---out of control.

More analysts see a "hard landing" in China.

This is one reason Wen is telling his people "buy gold" is protection from deflation as well as inflation.


jtmo3's picture

"Do Plunging Tax Refunds And Declining Tax Withholdings Predict A Consumption Collapse And A Subpar Nonfarm Payroll Number?"


Did you really just ask that question? No really? With the bureau of lying shits forging numbers faster than ben print, you ask that? Come on.

Crispy's picture

What is this "tax refund" you speak of?

Cpl Hicks's picture

It's called "Earned Income Tax Credit"- read as welfare payments transferred to the IRS for disbursement. Here's how it works- Married with 3 dependents and an income of $23,000 (which doesn't include the money Jose earns under the table)? Your tax bill is $2,500, but with the EITC you'll get $6,600!

I've done a bit of tax prep the past 3 years. It's a real eye opener.

disabledvet's picture

"You will pry these few remaining greenbacks from my cold, dead fingers."  More to point "let us pray we are doing what we are doing for all the wrong reasons this time."

Caveman93's picture

Refund? I never let them hold my cash and wait for a refund. I'll pay a few hundred instead and invest my cash buying silver (when it was cheaper). Maybe more have discovered it's not wise to lend your cash for no interest to the government. Just a thought.

lawton's picture

I thought I read somewhere that like 70% of the new jobs created since the collapse have been jobs that pay 15 dollars or less an hour.

wesa's picture

The evidence seems to be overwhelming that most of the new jobs are lower paying than the old jobs.  This is in line with the "underemployment" numbers and underscores the futility of looking at raw unemployemnt data and trying to draw realistic consumption conclusions from it.  This tax refund data is simply a confirmation of this dilemma.  There is not going to be a way to put a positive spin on the lower consumption numbers that will eventually follow.

Mr. E's picture

Crazy talk.

Tax reciepts are running 5%-6% higher than last year after the 2% cut and Census hiring is taken into account.  Tax refunds might be lower, but actual collections are skyrocketing.  

ColonelCooper's picture

I would love to see your source for that info.

MachoMan's picture

You might think about rephrasing...  or else he'll think you're hitting on him.

Mr. E's picture

Go to  Get a subscription.  

Tax reciepts are up YoY even on a raw number basis. Take into account the tax cut, and it is a huge difference.

voltaic's picture

Also, there are potentially millions more 99ers, 93ers, 73ers, and 60ers that are ending unemployment benefits during 2011 That has to take a chunk of change out of consumption and Congress doesn't appear to be in a giving mood when it comes to the long-erm jobless. 25.5 million unemployed/underemplyed and 3.1 million supposed job openings spell more trouble ahead on the spending and human fronts.