Remember: Tax Rebate Checks Are Coming Soon Anyway

January 21, 2008

With all the talk about passing legislation that will cause a stimulus for the economy and put a cash infusion into the economy, including possible tax rebate checks (which are actually more like prebates), there is one point that seems to have been overlooked: this spring, billions of dollars of tax rebate checks are already set to be sent out to people.

The president is quoted as wanting $100 billion of rebate checks to be sent out to taxpayers in order to provide a stimulus for the economy. But if one looks at IRS refund statistics from last year, one will see that over $140 billion in individual income tax refunds were sent out from January 2007 through March 2007. Plus, another $78 billion was sent out from April through June. Using 2005 statistics, one would estimate that the amount owed by taxpayers to the IRS in that time period last year was about 50 percent of this refund amount (typically around a 2 to 1 ratio), which would be about $109 billion. Therefore, from January through June last year, using this back-of-the-envelope calculation, one would estimate that on net $109 billion was sent from Treasury and put into the hands of taxpayers.

And for those who argue that putting money into the hands of low-income people is the best solution, be sure to look at this table from the IRS, which shows that taxpayers with incomes below $100,000 typically have the greatest refunds (on net) while those who are above $100,000 are much more likely to owe the IRS money come April 15th. These large refunds are mostly due to credits that are available only to those whose incomes are below $110,000 such as the Child Tax Credit and EITC.

Now it may be the case that those who are proposing a stimulus for this year have already taken the refunds that are set to be sent out this spring into account.

One final note on this issue, regarding demands on the resources of the IRS. While most people have little sympathy for the IRS, we must still recognize that there are constraints on its ability to administer various programs. If tax rebate checks were to be sent out this spring at the same time in which millions of other rebate checks are already being sent out, I would think that the administration and Congress should at least seek input from the Treasury regarding the feasibility of such timing.

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