Economist Richard F. Hokenson of Donaldson, Lufkin & Jenrette Securities Corp. claims that it's the Internal Revenue Service, not the Federal Reserve, that deserves much of the credit (or blame) for the current slowdown in consumer spending. He points to an unprecedented delay in the mailing of tax refunds to individuals.
In a normal year, close to 90% of annual tax refunds, which hit $87 billion last year, is disbursed from February through May. For this fiscal year, the IRS projects that refunds will be up 9.4%. Yet through Feb. 25, cumulative refunds were running 23% behind fiscal 1994 and about $6.13 billion below what Hokenson says should be expected.
On an annualized basis, Hokenson figures that's a big piece of change. The main reason for the shortfall is that the IRS is reviewing as many as 7 million returns to crack down on fraud and verify the validity of claims for the earned-income tax credit. But eventually the refunds will start to flow, and when they do, Hokenson expects consumer demand to rebound.