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Tax Refunds Add to the Economy?   March 31st, 2011
You can't fix stupid, especially when it comes to the media and economics       

 
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So there's good news today from the geniuses at the Associated Press. Tax refunds are going to add $300 billion to the economy. Yep!

Title: Tax refunds average $3,000, add $300B to economy

Here's a potential boost for the economy: The Internal Revenue Service expects to issue up to $300 billion in tax refunds this year.

IRS Commissioner Doug Shulman told Congress on Thursday the average federal tax refund is about $3,000 this year. The Internal Revenue Service has received a little more than 75 million returns so far, with about 65 million qualifying for refunds.


There's all kinds of great nuggets of wisdom in this brilliantly insightful piece from the Associated Press. Just a few problems though...

First, the last time I checked the government doesn't have $300 billion in cash to refund. Which means, really, it has to borrow billions from China (or the Federal Reserve has to print it) to refund to taxpayers.

Second, for the government to refund it and "add" it to the economy, it either has to tax or borrow it out of the economy to start with. So nothing has been "added" to the economy here.

Third, the statistics above suggest that 86% of taxpayers gave a $3000 interest-free loan to the government. Wouldn't it have been great if those taxpayers had had that $300 billion to save, spend, or invest for the last year instead of giving it to the government just to get it back, without interest?

Finally, the Federal Government typically takes in so much money in April from those of us that owe taxes that it has historically run surpluses during the month of April. That means that even as it sends out refunds for $300 billion, it's most likely taking in far more than that in tax payments. So the net impact on the economy is, well, taxing.

These are the same economic experts in the media that parrot the line that we're actually in a recovery.

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