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Tax-Refunds Won't Save Us From Disposable Income Drop This Year
Tax refunds, which can be an important source of cash flow for consumers early in the year, have totaled $20bn less year-to-date than refunds in 2012. Goldman Sachs notes that this is the equivalent of nearly 1% of disposable income over that period, and some consumer-oriented businesses have attributed lackluster sales in late January and early February to lower refund payments. Balancing the possibility of a small amount of additional catch-up with the possibility that some of the decline versus 2012 is fundamentally driven by the effects of tax law changes or other factors, the upshot is that Goldman believes the cumulative gap of around $20bn looks likely to persist. Since the current rate of change in tax refunds looks similar to last year's, this should not weigh further on consumer cash flow. However, it also implies that we should not expect the consumer to receive much of a tailwind from delayed tax refunds in March or April. It does make one wonder a little if this marginal cash-flow is the reason for the extremely unusual cyclical strength and weakness we have seen in macro data for the last few years.
Via Goldman Sachs,
- Over the first nine weeks of the year, tax refunds have totaled $20bn less than in the same period in 2012. Some of this was clearly due to delays in the tax filing season caused by enactment of tax legislation at the start of the year.
- However, while the decline in tax refunds versus 2012 has partly reversed, most of the catch-up due to the late start to the tax filing season appears to have taken place, and refunds have begun to taper off as they typically do in early March. Balancing the possibility of some additional catch-up with the likelihood that some of the gap is fundamental in nature and could thus widen as the remaining refunds are paid, the gap looks likely to persist at around the current level.
- The upshot is that while weak tax refunds have stabilized and therefore should not weigh further on consumer cashflow, now that refunds have caught up to prior year patterns we would not expect them to provide a tailwind to consumers in March or April, either.
Part of this weakness clearly relates to the delayed start to the tax filing season, which was caused by the enactment of legislation to avert most of the "fiscal cliff" at the start of the year. The result was that taxpayers were unable to file tax returns until the last days of January, which in turn delayed the flow of tax refunds. By the time the Internal Revenue Service (IRS) began to pay refunds at the start of February, cumulative payments were about $12bn behind where they were in 2010, 2011, or 2012. The gap widened a bit further in early February versus the prior year, but has since narrowed and at this point stands at around $20bn (Exhibit 1).
There may be a small amount of additional catch-up left to occur. Some taxpayers with certain types of credits could not file until mid-February and an even smaller group could not file until this week. However, the number of returns that were delayed was probably fairly small. For example, one of the more common items that caused delays was an education credit the IRS says is typically claimed on around 5% of returns received by mid-February, when the IRS started accepting it. So while there might be a small amount of catching up left to do, resolving these additional delays will probably only narrow the gap slightly.
There are other reasons to believe total refunds will remain lower than in 2012. The first is that refunds actually fell versus the prior year in 2011 and 2012 as well, by $7bn and $9bn, respectively. It isn't clear why refunds declined in those years, but a factor affecting the tax filing season now underway may be the realization of capital gains ahead of the year-end increase in tax rates. The Joint Tax Committee estimated in 2012 that activity ahead of the year-end increase in capital gains and dividend tax rates would increase tax revenues by $21bn in 2013, and it is likely that some of this is showing up as a reduction in tax refunds. (Non-withheld tax payments were also up sharply in January, when estimated tax payments were due for Q4 2012, when it is likely that some of this tax-driven selling may have taken place.)
Refund data over the last few days also indicate that payments are beginning to decline. As shown in Exhibit 2, refunds begin to taper off around this time each year, and over the last few days refund payments have followed a very similar path to last year's. This could obviously still change, and a small change in the path of refunds can have a large cumulative effect. For example, if refunds over the next several weeks followed the path in 2011 (a slightly less front-loaded year than 2012), the cumulative gap with 2012 would be reduced to $10bn by the end of May. That said, for now there are few indications that refunds will stay higher for longer than they did last year.
Finally, it is worth noting that at this point in the tax filing season, only about half of tax refunds have typically been paid. In normal years when refunds are growing over the prior year, the gain in dollar terms over the prior year by the end of the tax filing season tends to be around twice as large as the gain half-way through. The relationship is inconsistent when there is a shortfall in refunds versus the prior year (there are only a few examples of this and no particular pattern) but it does raise the risk that with around half of refunds yet to be paid, the gap could widen a bit further.
Balancing the possibility of a small amount of additional catch-up with the possibility that some of the decline versus 2012 is fundamentally driven by the effects of tax law changes or other factors, the upshot is that the cumulative gap of around $20bn looks likely to persist. Since the current rate of change in tax refunds looks similar to last year's, this should not weigh further on consumer cash flow. However, it also implies that we should not expect the consumer to receive much of a tailwind from delayed tax refunds in March or April.
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I figure -- WTF
I told the IRS to send my refund to goldman. They're gonna get it anyhow, and it saves me a bit of paper work.
I gave to non-profits. Someone is gonna take the money, so why not give it to people in need?
God is listening. Bless you
No sarc
This made me smile, thanks.
Even though my reply was meant for xibalba on giving money to charity, Bless you too.
Yep, but often seeing others being blessed is better than being blessed myself. I'll take all the free blessings I can get as well though.
"It does make one wonder a little if this marginal cash-flow is the reason for the extremely unusual cyclical strength and weakness we have seen in macro data for the last few years.'
It's the only thing that used to save the first Q.
Now? Not so much..
Too bad "Non Profit" today means the board of directors all take $300k a year to make sure there is no money left over for a profit. What is the average charity's actual payment to the needy? $.10 of every dollar?
You are better off walking into a Target and throwing dollar bills in the air. Since Target has more middle class shoppers you have a better chance of helping someone who needs it.
We're all smart money people here. Giving 101 is knowing their distributions and reviewing annual reports. http://www.charitynavigator.org/
Joe Kennedy and his wife made $1.2 million at their non profit. They get people to donate money and they get free oil from Chavez in Venezuela and then give it away for free. An investigation a few years ago uncovered the fact that they don't do any kind of need based checks on who they give the oil to for heating assistance. They just pocket the money for "managing" the distribution of oil to their family and friends and make the donaters feel good. Of course with the passing of Chavez, things might get a little interesting.
And for those bleeding hearts out there it is $1.2 million and they only give out oil for 2 months so that is $600k per month or $20k per day.
For the Kennedys, charity begins at home - and usually stays there.
Remember folks, if you do not give to charity, the government will take your money and do it for you. The big difference is between what we see as charity and what the government sees as 'charity'.
I make 32K/year. My dad makes 80K/yr.
We got the same refund (and I got the same refund amount as I did, last year).
Gas is up. Food is up. Raises most get (at around 2-2.5%) don't keep up with this. AND I have $200-$300 less, thanks to the payroll cut being rolled back.
Yes, Virginia........we have less disposable income this year. And it's a trend I expect to continue for 90% of us.
Until the bankers GET. IT. ALL.
I don't get a refund. I maximize deductions so I get to keep my money every month. A refund isn't extra money, it is the amount of extra cash the government stole from you over what you actually owed.
Of course in many cases in the new America, the refund is extra cash since most of America doesn't actually pay any tax and gets earned income tax creidts and child credits, even though they never actually earned the money in the first place. Your punishment for getting a good job is to make less after all is said and done than the welfare queen on crack.
I LOVE OUR SYSTEM!!!!
Keep poppin out dem babies for cash
You get some credits at the low end that actually pay, even if you manage your deductions.
I stopped getting refunds years ago.
Why? Cause wifey refused to pay attention.
I would say, well we get $1k back but we actually paid in $15k.
Now I get to say, well we owe $1k and we already paid them $13k. And wifey responds, "bastards!"
Mine went to paying down the last of my debt. All of it.
Mine, too. And part of me feels like an enormous sucker for doing it.
You look around and all you see are people mooching off the system, from fucking JPM down to the welfare lady buying a bunch of steaks in front of you at the grocery checkout. Makes me sick. There's no way it's sustainable, none of it. This will be what brings everything down, and yet I almost feel like I'm a fool for not taking advantage of it when I have the opportunity.
In my opinion, a country can't survive very long once it starts punishing responsibility and incentivizing bad behavior. We've been at this for a long time now, much longer than I would have thought possible, and it seems to have accelerated almost out of control in the past few years. I think we passed the tipping point a while ago and have been doing the Wile E. Coyote thing longer than most people care to admit. It'll be painful once we hit the ground.
Right, except it's not just the EBT/Rent-for-Free/Utilities-for-Free/Medicaid/medicare folks that are mooching; it's grand theft at the corporate / union / special intereset level, too. If you're a middle class citizen your nothing more than a blood donor to all the leeches.
The game is to play the top and the bottom against the middle until there is no more middle. Then the plutocrats will rule over everyone else, throwing crumbs to us to keep us in line. Feudalism for the 21st century.
I know what you mean... I know a guy, married with kids, who receives around $8k back every year. The guy is on every handout imaginable: EBT, Sec. 8, TANF, you name it. The guy eats filet mignon every Friday. It's disgusting...
What if we could design an economy that really didn't need significant input from the bottom 80%? What if we could just suck it up and support them until they all died off?
http://www.reuters.com/article/2013/03/07/us-usa-economy-debt-idUSBRE926...
Is it really "spending" if you are basically just buying stuff with credit, not actual cash?
Yeah. I'm depositing mine into savings. Gotta save it to cover all the "non"-inflation we're having.
savings that hopefully includes boating accidents and not a bank account.
What refund?
When you cash out your 401K or IRA to pay bills you pay income tax on it.
you'l get infinite pleasure when the govt takes the 401k from people that did not cash them out and "invests" that $ for them-annnnnnd-it's gone
When Joe minimum wage gets his nice $5 grand income tax credit, what do you think he does with it?
I remember when I worked retail and the 30 year old guy I worked with refused raises three times. I said why would you refuse a raise? He told me that if he made more money he'd lose more than his raise in benefits.
He went on to tell me all about income tax credits, energy credits, phone credits, subsidized housing, free bus passes, food stamps, and even subsidized cable TV because he takes one class a year through a local community college and the class went through the TV (replaced by the internet now). The college course was free because he got a learning grant from the government.
He said, "Man I make what fourteen grand here. I bet I pull in an extra fifty grand in shit I don't have to pay for. That's why I don't take the raise. Shit, I'm only working because they passed that welfare to work shit. This job is better than working at KFC."
That was my first lesson in real America 101 at the age of 16.
I could tell a similar story.
It used to bother me, but now I don't blame them.
They would be much worse off if they didn't work the system; and they'd be watching other people do better, and the rich getting tax breaks, hiding money overseas, getting bailouts, getting out of jail free or never going to jail (Corzine), watching that tax money they pay more of go to Syria and Egypt for who knows what, etc., etc., etc.
Forgive me if I don't give a shit if 20 million people lose every welfare benefit and die. I am far worse off because of everything they get. Being punished every day for wanting to have mild success is no way to live.
I'd also love to see Corzine, Blankfein, Dimon, Bernanke, and every other welfare recipient on the other end hang too.
The reason why the wealthy can cheat the system is because they know by manipulating the poor, they can keep them voting for politicians that will allow the rich to keep their tax breaks, subsidies, etc.
You can't beat them now, but what if because of some freak moral and ethical values, you refuse to join them?
Lot of opportunity in Asia for mildly ambitious folk, I hear.
20 million is a little low when just food stamps now accounts for 14 million.
Now add in all those that are here illegally collecting benifits but because they are not americans they are excluded from the totals.
So closer to 50 million! or 20% of the population until they push through imagration reform then it will be near 100 million and grow exponentialy as the bring in the rest of the family and a few neighbors!
I agree with you.
However; maintaining your work ethic and dutifully being responsible and paying taxes only allows the theft and skullduggery to continue.
If you really want to end the system you have to break it's back rather than being a mule carrying it's load.
We've baked a pretty cake for ourselves, huh?
It's an enormous Ikea shit cake. I'm so proud of my country.
"Refund"
Misnomer #1
People slathering over their "refund" from Uncle Sam, and wringing their hands about their "credit score".
It's not a "refund" it's a "ration", or the little bit of grog and stale biscuit you get for manning the rigging on the U.S.S.A. Slaver II.
"The only winning move is not to play." WarGames
My credit score is 818 and I was refused a car loan. The salesman laughed and said, "This is insane, I've never seen this before. You have almost no debt, a steady job for seven years, plenty of income and you're putting 20% down on the car. Maybe they think something is wrong with you wanting to buy a $15k used car."
Right now I feel like going on a credit rampage and sending fuck you letters to all the banks.
you should test the salesman's theory by going in to "buy" one of these:
http://www.zerohedge.com/news/2013-03-07/chart-day-plunging-gasoline-dem...
bet you'll get the loan.
then how is this happening? something about what you are saying in no way matches up with reality. you were declined on some loss leading .08% loan maybe but if you want to borrow for a car you cna
"Other forms of consumer credit, including auto and student loans, climbed at a 6.6 percent pace, the most in five years. "
I'm willing to bet - I don't know this for sure, but - you got denied because you represent poor profit potential to either the lender or the dealer. They want to kick you down to a subprime funding source so they can charge you more interest or fees.
The only thing sleazier than Wall Street is the car industry. Well, maybe construction, too.
20% of $15k is $3000 - for a little more you can find good used cars, high on age but relatively low on miles, that get good MPGs.
Why add more to your "almost no debt"?
I wonder if refunds are correlated to work force participation rate..... hmmmm
Expect Retailgeddon!
Who cares about disposable income...Pretty soon there will be lots more Home equity income
Net worth for households and non-profit groups increased by $1.17 trillion from October through December, or 1.8 percent from the previous three months, to $66.1 trillion, the Federal Reservesaid today from Washington in its flow of funds report. It was the highest since the fourth quarter of 2007.
http://www.bloomberg.com/news/2013-03-07/household-worth-in-u-s-rose-by-...
and for all those nuts that say no one can borrow anymore, eat it
As household wealth improves, Americans are gaining confidence to borrow. Today’s flow of funds report showed household debt increased at a 2.4 percent annual rate from October to December, the biggest advance in almost five years. Mortgage borrowing fell at a 0.8 percent pace, the smallest decrease since the first three months of 2009, the last time it rose. Other forms of consumer credit, including auto and student loans, climbed at a 6.6 percent pace, the most in five years.
Keep this up another 3 years and no one will have any money to spend by April 15.
You mean I might have gotten raped alittle less? Gee, thanks!
Just shortened the length of the dick.
Bad news is they tripled the girth.
Increased government taxes, tolls and fees have taken any refund.
The government has to make you think their doing you a favor by taking more and more and redistributing it to those that want more free handouts.
"The government has to make you think their doing you a favor by taking more and more and redistributing it to those that want more free handouts."
Obamanomics at it's finest!