I was bullish until January 29. On or around that date a computer glitch at the IRS caused electronic filing, payments and refund activity to be shut down.
This had a huge effect on overall Federal spending levels. January ended horribly--$266 billion for the month when a "normal" January should have been about $80 billion to $100 billion higher.
The flow of tax refund payments is huge in February. Biggest month of year. Well over $100 billion for the month and closer to $120 billion or, $130 billion. It pushes the overall month of February up to $460 billion or more. That's more than 10% of all government spending happens in February.
Supposedly the IRS computer glitch has been fixed, but those tax refunds are still lagging way behind.
Here's the problem: sentiment now is horrible and the economy is barely growing. One small cutback in government spending now, like the loss of a portion of those tax refunds, combined with the chilling effect of the stock market selloff, will throw the economy into recession.
We are at great risk for this now and also great risk for a further market selloff is those refunds don't get back up to where they need to be.
5 comments:
My business gets a jolt from tax refunds, because many people use their refund to buy something special. Who knew that just giving people money could be good for the economy?
Mike - I'm a tax professional in Mobile, Alabama. The IRS glitch was fixed within about 18 hours. The reason for the slowdown in refunds is due to new rules this year and new forms required before filing.
In order to cut down on identity theft leading to fraudulent returns, which was a huge problem last year, the IRS is requiring new identification protocols. In addition, the Obamacare rules for this year require more forms to be sent to taxpayers concerning their health insurance coverage. Since this is the first year that many companies have to do this, a lot of them are behind in getting the forms out.
Your analysis of government funding flows has been awesome. I was familiar with the Treasury Daily Report from earlier posts of yours a couple of years ago.
I would like to make a suggestion. When comparing the government dollar flows into the economy for the first 3 1/2 months of each year, you might get a more accurate result if you look at the period from Feb. 1 to April 15 as a unit. Every year there are a myriad of reasons for changes in the flow of refunds during this period. For instance, last year there was a problem with scammers using TurboTax to file fraudulent state tax returns. The IRS and the state departments of revenue slowed down the processing of returns to try to catch the frauds. Since some 30 million taxpayers use TurboTax this affected the flow of refunds. This year the IRS was out of service for awhile. My point is that most years the volatility of the flow of refunds over that 2 1/2 month period generally evens out by April 15th.
John,
Thanks so much for your insight. I will take it to heart. Much appreciated!
-Mike
thanks for the info JOhn.
Always love to hear people with some actual operational awareness to offset all the guessing that passes for analysis.
Mike and Auburn - You are most welcome.
Mike - Keep up the great work on this blog. Thank you for all the links and comments you send out on your RSS feed. It's hard, with limited time, for me to get to the important stuff in all of the alternative (non-MSM) web sites that you seem to monitor. These are the places where the truth can be found, or at least some balance to the constant propaganda and stenography of the MSM.
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