Tax Refunds Likely to Boost Consumer Spending

Refunds higher this year, thanks to lower household incomes

April 14, 2009

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The economy is getting a one-time stimulus from the Internal Revenue Services, which reports that individual federal tax refunds are way up this year. That's likely to boost consumer spending for at least a few weeks, as cash-short consumers get some extra walking-around money.

The IRS says that individual refunds are up about 15 percent this year, from $183 billion last year to $210 billion this year.

A bigger refund is good news to any taxpayer but it often comes at a heavy price. With millions of Americans out of work and others bringing in less money thanks to wage cuts and reduced hours, a bigger refund is more like getting a consolation prize than winning the lottery.

However, on the brighter side, President Obama's stimulus bill does cut withholding for many middle-income workers through 2010, increasing household disposable income by 1% to 2% in most cases.

Economists expect the tax-refund spending spurt to be brief and predict it will ast only until next month. That's because most taxpayers who have a refund coming file early, meaning that much of the money is already working its way through the economy.

Consumer spending is expected to sink again this summer and most economists think it won't be until 2010 that the $787 billion Obama stimulus begins to have a significant effect on the U.S. economy.

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