Refunds won’t supercharge economy: study

Written By Unknown on Minggu, 13 April 2014 | 18.18

It's a no-fun refund.

Looking for a nice little boost to the city's economy from madcap taxpayers strewing their refund cash left and right like drunken flower girls?

You're too late. By about a year.

Along the Potomac, the motto may still be "tax and spend," but around the East River, it's closer to "tax and tread water."

That's what the numbers point to in the Capital One Market Pulse Survey for New York City, a quarterly study that measures the area's economic outlook. 

Of the 54 percent of New Yorkers who expect to get a tax refund this year, about half plan to salt away the cash into savings or use it to pay down the debt they've amassed since their last refund.

"The scary thing is that people are starting to over-rely on charge cards again — and what is happening is that their tax refund is kind of becoming their home equity line of credit," said Greg Smith, senior vice president, business banking, for Capital One Bank. "But it's not their home equity, but a way of helping them make ends meet."

Tax lawyer Jonathan Bochese of the Tax Defense Network sees a similar trend among those receiving refunds.

"They ran up bills over the year. And some of those were to pay taxes," says Bochese.

Indeed, Smith warned that people are running up more charges late in the year and in the early part of the year in anticipation of their tax refund. Some 17 percent of the average refund, the survey said, is used to pay everyday expenses.

"That 17 percent for everyday expenses really concerns me," Smith adds. "What it tells me is that everyday income isn't what it used to be, and people need this refund money to live on.

Consumer debt, Smith notes, rose in the last quarter at the highest rate in the last six years. Indeed, the Federal Reserve reported that household debt is now at levels that it was before the market meltdown/recession of 2008.

"If people are going to spend their refund, I think the best thing would be to pay down their credit-card debts, which can carry 20 percent interest rates," says Raymond Mignone, a financial adviser in Queens.

Not many of us would disagree with that. The survey found that of those "spending" their refunds, half will be using the money to pay down debt. And among college-debt-loaded Millennials, that figure rises to 61 percent
Smith said that taxpayers should understand that a tax refund represents an interest-free loan they have extended to the government over the course of a year

Mignone advises those receiving a big refund (which he defines as 10 percent or more of the total taxes one pays in a year) should consider adjusting their withholding rates to take more money home (and, incidentally, keep that card debt from building too rapidly)


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