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Tax Refunds: Why they are important to the local economy

Posted by Wayne Housley | Feb 07, 2018 | 0 Comments

The coming of the tax man is not always a pleasant experience. It often feels as if he comes to take your hard earned money and leaves pretty much nothing in return.

It's not all doom and gloom. This time of year brings some promise for many in the form of a tax return promise of a little extra cash. Tax refunds can be viewed as a little thank you present from the Internal Revenue Service. According to official Stats, about 77 percent of Americans received tax refunds in 2016 with the average amount of $2,798 per person. That is obviously something to smile about.

Apart from being your own special little windfall, what does this cash do for your local economy? How does it affect life in your small corner of the United States? Please read on to discover.

Tax refunds increase your spending power

Every extra dollar does your pocket good. It means you can go out and buy that appliance you have been shopping for such as a big screen television or updated washing machine.

This is a definite effect on the local economy. Spending power is a big deal in economic terms. For context, consumer spending represents about 70 percent of the United States Gross Domestic Product. When you have more money to spend, and use it for consumer goods, it reflects on the GDP of the country.

The monetary effect in tax refunds is no small amount either. Between April 2015 and April 2016, the IRS paid out a grand total of $228.78 billion .

Tax refunds increase savings

For those of us always looking to put away an extra dollar in the college fund or the retirement fund, tax refunds can play a large role.

Of course, it is an elementary consideration, that without any money you cannot save. Therefore, getting the refund check or direct deposit into your bank account from the IRS can prove to be a big boost in your savings profile. How does your saving help the economy?

When you deposit your money in the bank, the additional cash assists the bank in having more money to lend. It means the bank can give more loans to deserving ventures. Your savings can help contribute to entrepreneurship, the creation of goods and services.

Your savings can mean that nice bistro in your community can stay open. Or that little diner can continue to serve up the cuisine it is well known for.

Tax refunds stimulate investment

Investment means putting your money into something that generates more money. If you invest our tax refund into the stock market, then you are investing and thus creating more wealth for the economy.

A lot of people wish they had the money to invest in ventures that interest them. It is not always easy because they often need a cash windfall to start any new venture.

Your tax refund could be that windfall. Due to tax credits, tax refunds can provide that extra cash The Child Tax Credit is worth $1000 per child and the American Opportunity Tax Credit can bank $2500 per eligible student.

You are potentially getting your hands on a lot of dough. If you use it wisely and invest, you can benefit your local economy.

Tax refunds create jobs

Pretty much all economic activity has the ability to create jobs. Consider the Trump tax bill and how it has created new jobs in the United States and welcome tax benefits. Spending tax refunds in your community provide more cash that can assist in employing more people or capital for small businesses. Investing can help start or maintain ventures that stimulate job growth.

 What do you spend tax refunds on

The question now becomes: how will you spend your tax refund?

A 2015 study by the Georgetown Institute for Consumer Research found that Americans planned to spend a third of their refund checks servicing debt, a third investing or saving, and a third on new purchases. Another study by Bankrate showed that the 26 percent that planned to spend the refunds were not planning to spend on themselves. Rather, they were spending on necessaries like food and utility bills.

To see the effects of your tax refund on the economy, you need to spend, save or invest wisely.

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About the Author

Wayne Housley

Commitment to your cause is my primary concern as an attorney. I have been litigating cases for almost twenty-five years and have tried criminal cases that range from speeding tickets to capital murder and family law cases ranging from temporary custody to divorce cases. Allow my experience to work for you.

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