We have discussed the jobless recovery ad nauseum. Now comes more disconcerting economic news from Goldman Sachs economist, Edward McKelvey. Based on the IRS early data on tax refunds, the “idyllic picture described by last year’s tax-cut legislation, wherein fiscal stimulus boosts refunds 20%, helping to brighten the economy” does not look like it will come to pass:
The IRS is reporting refunds through Feb. 20 have risen only 7.6% from a year earlier, far below Goldman’s 20% plus estimates of the likely impact of last year’s cuts. McKelvey cites several possible explanations for the tepid pace of refund growth thus far. Those who stand to gain the most from the retroactive part of the tax-cut, namely higher-income taxpayers and those getting large dividend payments or capital gains, tend to file returns later. And, more of those taxpayers may realize the benefit of the cut not in bigger refunds, but in lower final payments.
Still, Goldman’s assumptions call for stimulus of $40 billion in the first half, compared with Treasury’s recent estimate of $50 billion in total stimulus. But the trend in tax refunds so far hasn’t been too encouraging. McKelvey writes that through Feb. 27, Treasury disbursed $70.2 billion in refunds, compared with $65.1 billion in the same period in 2003. The increase was less than half the extra $10.4 billion expected by this time in the filing season.
Though some have argued that the change in taxes on dividends has slowed the pace of filings, McKelvey cites IRS data that show filings have risen 2.6% this year from last . . .”
So Far, Tax Cuts Add Up to a Great Big Yawner
Edited by Robin Goldwyn Blumenthal