Macroeconomics Insight Center

A delay in the processing of tax refunds has likely dampen retail sales growth in the first two months of 2020. Cash Flow consumers are likely the most directly affected given they have limited savings to fall back on. Suppliers and retailers that operate in the discounter or mass/value channels may have experienced a dry spell early in the year.

(Cash Flow consumers are those just getting by with very little savings or for more on Kantar’s definition of Cash Flow consumers see this publication)

According to the IRS, taxpayers who claim the Earned Income Tax Credit or the Additional Child Tax Credit will have their refunds on hold until at least mid-February. The moratorium has been in effect since the PATH Act was passed in December 2015 to reduce fraud, but technology upgrades and perhaps more scrutiny have delayed refunds even more in the past couple of years.

Weekly filing season statistics indicate that the refunds aggregated since the start of 2020 were down almost 3.5% through February 21 relative to about the same time period last year. This represents only about $4 billion.

But there was a 41% shortfall in the week before, representing $25 billion less than the year-ago period. The effect on retail sales may have been pronounced in early February but is likely softening quickly in March.

If not only this year, the changes have diminished refunds for early filers in recent years. Prior to the act, refunds by mid-February totalled $100 billion in the 2015 filing season, almost a third of all refunds received by the end of the calendar year. Only $61 billion and $36 billion have been doled out by mid-February in 2019 and 2020, respectively. A stark change for earlier filers that need the cash immediately to pay down holiday bills and make ends meet.

The delay in refunds, whether compared to last year or especially five years ago, has likely forced some Cash Flow consumers to dramatically change their behaviour even if only for a few weeks. As Kantar outlined in its “First Commandment for Doing Right in a Recession”, Cash Flow consumers will cope with these financial shocks by seeking multiple-use products or foregoing prescription refills among other strategies.

See the complete First Commandment publication at this link or reach out if you have questions on how the tax season is impacting your business.

 

Doug Hermanson

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