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One part of that shock has so far gone little noticed: Tax refunds may get delayed until the second quarter, with more than $200 billion at risk. In the first quarter of this year, the Internal Revenue Service cut checks totaling $212.8 billion to 75.3 million taxpayers, with each check averaging $2,826. Similar figures apply to first quarter 2011.
The risk of a delay in sending out these huge sums is not based on mere speculation. Paul Cherecwich Jr., chairman of the IRS Oversight Board, warned in a Nov. 19 letter to the Senate Finance Committee that "more than 60 million taxpayers would have to wait until late March or later to file their returns and receive a refund."
If, as the IRS official warned, any substantial portion of those refund checks gets deferred to the second quarter, there could be a noticeable hit to consumer spending in the first quarter. Over the past four quarters, consumer spending in nominal dollars has increased by an average of $90 billion per quarter. If $100 billion in refund checks gets deferred, that alone could put consumption in negative territory.
Source: Barrons | GENE EPSTEIN