In "Out of Touch with Reality," I highlighted a post at The Economist's Free Exchange blog, which featured remarks by economist Mark Zandi suggesting that the February rebound in retail sales was less than it seems.
In fact, as Mr. Zandi notes in an Investor's Business Daily report, "Extra Stimulus Aid Fuels Sales, But Fiscal Flood Cresting Early," factors that helped direct wads of cash into consumers' hands are poised to disappear [red italics mine]:
In gauging the economic recovery's trajectory, you shouldn't forget that this is not a normal tax season.
People who don't pay income tax are getting an extra $30 billion in refundable tax credits thanks to the Recovery Act, the Joint Committee on Taxation has estimated. Based on the timing of tax refunds in past years, well over half of that has likely been paid out already.
Mark Zandi, chief economist at Moody's Economy.com, said the extra serving of tax-season cash to modest-income families "helps explain the somewhat surprising strength in retail" in February.
But this tax-season windfall is more than just another gush of short-lived economic fuel. It also signals that government stimulus is peaking, meaning it won't raise GDP levels any further .
Most discussions of the timing of stimulus cite Congressional Budget Office projections that the Recovery Act will have its maximum impact on GDP in Q2. But that includes an estimated $82 billion in relief from the alternative minimum tax, which is really just an extension of current policy.
Excluding AMT relief, Zandi figures peak stimulus hits this month or next.
No doubt some observers will insist that the money people received from the Treasury Department after their returns were filed was duly earned, and hence, reflects the underlying strength of the economy. But that is not necessarily the case. As the New York Post reports in "Happy Returns," many of today's "taxpayers" are anything but:
US broke, but 36% of filers owe zero tax
It's just over a month until tax day -- April 15 -- typically one of the most dreaded days on the calendar for Americans.
But that red-letter day is of diminishing significance to an increasing percentage of Americans every year, even as Uncle Sam runs up record amounts of red ink. The implications of this divergence are extremely important to the future of the spending debate and to the health of our economy.
How so? Well, as the Tax Foundation pointed out this week in stark detail, the number of Americans who pay absolutely no federal income tax hit a record high of 51.6 million filers in 2008 and is rising by the day. That means over 36 percent of all those who filed tax returns had no income tax obligation to Washington, more than double the amount just 25 years ago.
The reasons for the increase in non-payers cuts across party lines. Although Americans have long embraced a progressive tax code that keeps the truly poor off the tax rolls, over the past two decades a grab-bag of targeted tax credits and incentives have eliminated the tax burden for millions of middle-class filers and their families.
Indeed, the percentage of non-payers accelerated during the presidency of George W. Bush -- even as the president was roundly criticized for his tax cuts for "the rich," the number of Americans who paid no federal income tax swelled by 22 million from 2000 to 2008, from about one-quarter of the working population to more than one-third.
The trend has likely continued to speed up in 2009 and 2010, as the Obama administration targets even more tax credits at low- and middle-income workers.
Indeed, many economists have credited the recent pop in retail sales to consumers spending their real or anticipated tax "refunds." As the Tax Foundation notes, "more and more tax filers are seeing the IRS as a source of income, not something to which taxes are paid."
Regardless, the following three (admittedly anecdotal) reports lend further weight to the notion that the recent burst of spending is more likely a seasonal blip than a sign that the economy is on the mend:
"Free Spending" (Montgomery Advertiser)
Rather than saving, many consumers putting this year's tax refund toward big ticket items
People who have received their tax refunds want to spend the money, according to a national survey, and local retailers say sales of some big-ticket items are up because of it.
According to the National Retail Federation, more people will spend at least some of their tax refunds on a big item -- electronics, recreational toys or vacations -- than in the past couple of years. Many, possibly most, will sock away at least some of the money or use it to pay down debt.
Enough are expected to splurge that retailers say it could provide a seasonal boost to sales.
Terry Adams of Adams Motorsports said what was a trickle of customers during late winter the past two years has turned to a steady stream. Many of them say they are coming to spend tax refunds.
"Last year was so horrible," he said. "We are doing better than we did last year, but we are not where we were three years ago."
Still, he estimated his sales this month and in February are up as much as 40 percent over 2009. At least some of those customers volunteer the money they are spending comes from tax refunds.
"We hear that a lot," Adams said.
Many of the customers spending refunds are younger, and often male. The most popular item is a motorcycle.
According to the Internal Revenue Service, the average refund paid through Feb. 26 was $3,149. That is up about 10 percent compared to the same period in 2009, and it makes for a nice chunk of spending money.
"It is more than a good down payment on a bike," Adams said.
"Appliance Rebate, Tax Refunds Entice Shoppers" (St. Peter Herald)
Linda Orth of Don’s Appliance was seeing more sweet than sour in a federal program designed to give folks a $200 rebate on clothes washers, dish washers, refrigerators and freezers.
“It has given us a boost,” said Orth, secretary/treasurer and one of the owners of the store. “We’ve had a lot of inquiries, but people are frustrated because they can’t get at it.”
The U.S. Department of Commerce web site and telephone number (1-877-230-9119) were jammed up all day Monday when the program began.
People using the phone number and web site were to be told what to do to get their one-per-customer rebates before the end of March.
But they couldn’t get through.
“People said they tried from 5 a.m. to midnight,” Orth commented. “It really was a struggle to get on.”
Orth heard people were having more success getting on the phone and web by Tuesday afternoon.
The program works like Cash for Clunkers in that the government is offering the financial incentive to get old, inefficient machines out of the way so new, cleaner operating units can take over.
An older model washer would use 44 gallons of water for a load, compared to 15 gallons by a new washer.
And there’s still a huge national push to spark the economy.
Orth said the pickup in customer traffic on the first two days of March was a welcome sight.
“We’re happy to have the business,” Orth said. “Highway 169 was torn up for so long. This is a nice change of pace.”
The timing of the rebates coincides with federal tax refunds, which also helps business, Orth said.
"Economy Taking the Fun Out of Tax Refunds" (Indianapolis Star)
In tough economy, most will go toward debts and bills or be saved
Before Amy Ingram ever saw her tax refund, she already had plans for 85 percent of it.
"Always bills. There are always bills," said Ingram, a mother of two who teaches at Mount Vernon High School in Fortville. "That's where most of mine goes."At a time when consumer confidence has plummeted and unemployment still hovers at 10 percent nationally, even a nice, big tax refund isn't going to get most Americans to splurge.
But that won't stop retailers -- especially those selling big-ticket items -- from trying. Kittle's Furniture is running special offers all tax season. J.D. Byrider is having tax day events that let people use their estimated tax refund to buy a used car, even before the refund comes in. And hhgregg is boasting doorbuster deals in its weekly ads.
Whether the promotions will actually prompt consumers to buy is a question mark. Nearly 70 percent of Americans say they will either put their refund into a savings account or use it on everyday expenses, up from 65.6 percent in 2009, according to the National Retail Federation.
About the same number of people this year, 22.5 percent, will make a major purchase or go on vacation, compared with 22.1 percent last year.
"I'm hearing more of 'I need this to live on; I need this to pay bills,' " said Greg Carney, tax manager at Liberty Tax Service in Noblesville. "I'm not hearing about big purchases or vacations."
actually only two groups benefit by an increase
in sales: first the big retail boxes,two: the
Chinese wholesalers Closer to reality would be:
GEAB N°42 - Contents
- Published on February 16, 2010 -
Second half of 2010: Sudden intensification of the global systemic crisis – Strengthening of five fundamental negative trends
Our team anticipates, in this 42nd issue of the GEAB, a sudden intensification of the crisis in the second half of 2010, caused by a double effect of a catching up of events which were temporarily « frozen » in the second half of 2009 and the impossibility of maintaining the palliative remedies of past years…
Posted by: roger | March 14, 2010 at 05:37 PM
Considering I have to pay high State taxes. I will get a Negative Refund this year and I make No money because I lost my job.
Posted by: NowWhat | March 15, 2010 at 09:20 AM
The refund is going straight to living expenses. If there is any left over, it will cover the thousands we will have to pay out of pocket to get braces for one of the kids. We have insurance, it just doesn't pay for anything.
I really need a vacation. Trust me. But if we get one at all this year, it will be camping in a national park for $5 a night. Of course, vacations like that are hardly a vacation for mom. . . . .cooking and cleaning and looking after the kids, just in a different locale and without indoor plumbing. I don't suppose my children will be thanking me for this later.
Posted by: Small Town Gal | March 15, 2010 at 11:16 AM