Thread by @billsweet

It's a smart guy/gal think to observe that income tax refunds are a "tax-free loan to the government," and while true, I feel this understates the importance of tax refunds to the American family & the effect they have on consumer behavior

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Per Chase (via @ritholtz), roughly 80% of US households receive a tax refund, at an average of $3,600 ($2,600 median) - this represents about six weeks of average earnings

jpmorganchase.com/corporate/inst…

Thus the tax refund is likely the single largest cash inflow most families experience each year (basically three weeks of paychecks in one)

On average, Americans bank accounts are largest on the day their tax refunds is deposited.

The tax refund has a disproportionate effect not only on in-flows but expenditures and savings as well - outflows in the week AFTER the tax refund are 160% (3x) higher than every other week

Spending on durable goods is 100% higher the week following a tax refund than all other weeks for American families. Paying down debt increases by 80% following the refund.

this all makes sense if you've ever worked with any actual humans in personal finance - people, generally, spend every dollar that comes in the door and structure their lives to do so - it is very difficult to get the average American to slow or stop lifestyle creep

Take a look at auto sales data - notice the cyclical nature of auto purchases. While not completely predictive, since 1976, vehicle sales in April is 11% higher than the average of all other months - because that's when people have money for a down payment.

This is why messing with tax refunds - potentially decreasing refunds during tax reform even if the savings is spread throughout the year - upsets so many Americans who count on refunds for savings, to pay down debt, or to make that one-time purchase

irs.gov/newsroom/filin…

It would be better if everyone managed their withholding more effectively and didn't treat their tax refund as a forced savings device - but for many it's the most effective option - and to me that's okay

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