Tax Refund Stimulus?

Tax Day has come and gone and IRS commissioner Doug Shulman says refunds this year will total roughly $300 billion. About two-thirds of that amount had already gone out to early tax filers by the beginning of this month.

That’s a significant amount of money and it could boost the economy—if recipients spend it. In today’s economic environment, that’s a big if.

A recent AP-Gfk poll asked people what they planned to do with their tax refunds. The results are a little hard to interpret—respondents gave multiple answers—but only about two in five said they’d go out and buy things. More than half planned to pay off bills or pay down debt. About a third expected to save at least some of their refunds, and about three-quarters of those said they’d put money in plain old savings accounts.

Fed data show that the nation’s personal savings rate has turned up this year, exceeding 4 percent in two consecutive months for the first time in more than a decade. Americans have resumed saving just when the economy needs them to spend. Keynes’s paradox of thrift strikes again.

Polls can be wrong. People may decide to spend their refunds when the money actually arrives. And those who have paid down debt and credit card balances may spend more as the year goes on; we’ve seen that happen with stimulus payments earlier in this decade. But it doesn’t look like tax refunds will provide a big stimulus this year.