Tags: Tax | Refund | Delays | Spending

Experts: Tax Refund Delays to Crimp Consumer Spending

Monday, 18 Feb 2013 11:12 AM

By Glenn J. Kalinoski

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Consumer spending may be reduced at the outset of 2013 as a result of delayed tax refunds.

RBC economist Tom Porcelli said in a report by CNBC.com that the delay could cut 0.2 percent from consumer spending during the first quarter.

Tax refunds are running $26 billion behind where they were this time last year. Refunds are late because the “fiscal cliff” debate delayed the Internal Revenue Service's ability to prepare the necessary tables and accept returns until Jan. 30.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

Two additional factors have the potential to further inhibit spending, according to CNBC.com.

Tax law changes are likely to reduce the amount taxpayers will receive. Higher gas prices also have the potential to sharply limit consumer spending.

Economist Michael Englund of Action Economics forecast zero consumer spending growth during the first quarter as a result of these factors. He believes January retail data will suffer a downward revision with sales weakening during the last week of the month as workers examined their end-of-month paychecks and realized that the payroll tax cuts expired.

Englund, who characterized January as not the decisive month, added that consumers’ adjustment to the payroll tax increase will occur over several months. He believes that in February and March retail spending will be “deeply negative.”

Consumer confidence dropped last month to the lowest level in over a year as increased Social Security taxes left Americans with less take-home pay, according to an Associated Press report.

The Conference Board’s consumer confidence index fell 8.1 points from December to 58.6, the lowest since November 2011.

The index has fallen for three straight months since reaching a nearly five-year high of 73.1 in October 2012. It exceeds the post-recession low of 40.9 in October 2011, according to the Associated Press.

Conference Board economist Lynn Franco said the tax increase was the primary reason confidence plunged in January as consumers are less optimistic about the next six months.

Take-home pay will drop in 2013 by about $1,000 for a worker earning $50,000 annually.

"It may take a while for confidence to rebound and consumers to recover from their initial paycheck shock," Franco said.

Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.

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