Refund Delay Might Cause Recession

Congress it seems is bent on debating simultaneously the debate over the fiscal cliff, which has a remedy of a short-term widening of the national deficit along with the fiscal crisis, which has a remedy that is long-term narrowing of the country’s deficit.

The difficulties of trying to reach an agreement for both problems simultaneously have made it more likely that fiscal cliff and tax shock will take place on January 1. One integral part of that has thus far gone practically unnoticed.

Tax refunds might be delayed until the April, which would mean over $200 billion would be at risk. In this year’s first quarter, the Internal Revenue Service paid out checks worth a total of $212.8 billion for a total of 75 million taxpayers. Each check was for an average of $2,826, with similar figures applying for the first three months of 2011 as well.

The risk of delaying the release of the checks is not just speculation. Back in November, the IRS Oversight Board chairman Paul Cherecwich Jr. warned that over 60 million taxpayers might have to go without their refund checks until the latter part of March or even later.

If that is the case, and a substantial amount of those checks is deferred until the second quarter, consumer spending could take a big hit during the first three months of 2012.

There may be a bounce back for the second quarter, when refund checks are finally sent out, but it might not be sufficient enough to help offset the effect that takes place during the first quarter.

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