NCPA - National Center for Policy Analysis

Why are Tax Refunds So High This Year?

March 29, 2002

Taxpayers have been receiving money back from the government at an unexpectedly high rate this tax season. According to economists at Goldman, Sachs & Co., tax refunds through March 8 were up 26 percent over 2001 levels.

The higher refunds stem from a combination of factors:

  • After lower tax rates took effect last July, some companies didn't adjust their withholdings on time -- meaning that their workers gave too much to Uncle Sam last year.
  • Because of last year's weak economy, bonuses and stock prices were lower -- so that those taxpayers who failed to adjust their withholding rates to reflect less income can look forward to a larger refund.
  • More people are filing tax returns electronically -- which speeds up refunds.
  • Goldman economists John M. Youngdahl estimates that the high levels of tax refunds will increase personal income by about $3 billion per month.

There are already signs that the higher refunds are boosting the economy.

Source: Laura Cohn, "Economic Trends: Uncle Sam -- Or Santa Claus?" Business Week, March 25, 2002.

For text

http://www.businessweek.com/magazine/content/02_12/c3775045.htm

 

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