A Lot Of Taxpayers Are Wired For Early Refunds

One reason consumer spending has been strengthening a bit lately may be that tax refunds have been front-loaded. Economist Louis Crandall of the Wall Street consultants R.H. Wrightson & Associates notes that this year's tax refunds through February were up 36% or some $4.1 billion over last year and $7 billion over the average dollar amount in the previous two years.

Rather than the result of a deliberate policy decision, says Crandall, the surge in early refunds essentially reflects an increase in electronic filing of returns. The Internal Revenue Service's nationwide electronic filing program is now in its third year, and volume has been picking up dramatically. Taxpayers are choosing to go the electronic route for two reasons: It takes only two weeks of processing before they receive their refunds, rather than four to eight weeks for an ordinary paper return, and the refunds can be wired directly into their bank accounts.

Of the $15.4 billion in refunds issued by the Treasury through Feb. 28, Crandall figures that as much as $9 billion will have been deposited directly into taxpayer bank accounts. That's 50% more than the $6 billion or so deposited during the same period last year.

While the pickup in refunds may have already affected spending a bit, the strongest impact should show up this month. That's because the biggest surge in electronic filing took place in the last half of February. Crandall notes that "if a mere 1% of the recent increase in refunds were put toward auto down payments, the new-car sales rate could jump by as much as a quarter of a million units on an annualized basis."

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE