Yahoo Finance Tax refunds to be 26% bigger in 2019, Morgan Stanley says
Taxes will be lower for most people this year because of the GOP’s tax bill passed last December. But taxpayers have yet to reap the gains.
According to a research note from Morgan Stanley, Americans have been overwithholding significantly, and the bank forecasts that refunds in 2019 will be about 26% greater than 2018.
In dollars, this is $62 billion more than last year’s $235 billion in refunds that were issued this year, as of April.
Most Americans withhold too much on their payroll taxes, and Morgan Stanley said that people usually react slowly and conservatively to tweaks in the system. Instead of changing their withholding in the first year under the new tax rules, they wait.
Part of that could be due to the fact that corporations, individuals, and accountants must wait for the IRS to issue rulemaking and guidance that sheds light on exactly how taxpayers should behave, but also because people like surprise money more than a surprise tax bill.
All the extra money in Americans’ pockets will likely boost savings accounts and the sales of big-ticket items next February and March, Morgan Stanley says.
In 2018, according to survey numbers cited by Morgan Stanley, 65% of consumers planned to save their refunds, 35% said they’d pay down debt, and just 5% said they’d make a major purchase (respondents could select more than one answer).
All of the refunds will require the money to come from somewhere, and the tax cuts combined with the high national debt, there may be a question of whether the millions of refund checks can fit under the debt ceiling. In March 2017, T-bill issuing had to be cut to handle the refunds. Morgan Stanley’s analysis, however, says that the Treasury’s cash balance should be “more than enough” to cover the elevated refunds.
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Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, retail, personal finance, and more. Follow him on Twitter @ewolffmann.
