Money supply and the consumer - social engineering in action

drsteph · May 4, 2009

http://finance.yahoo.com/news/INSIDE-WASHINGTON-Taxpayers-apf-15094808.html

Relevant parts:

But new tax withholding tables issued by the IRS could cause millions of taxpayers to get hundreds of dollars more than they are entitled to under the credit, money that will have to be repaid at tax time.

At-risk taxpayers include a broad swath of the public: married couples in which both spouses work; workers with more than one job; retirees who have federal income taxes withheld from their pension payments and Social Security recipients with jobs that provide taxable income.

The Internal Revenue Service acknowledges problems with the withholding tables but has done little to warn average taxpayers.

<snip>

For many, the new tax tables will simply mean smaller-than-expected tax refunds next year, IRS spokesman Terry Lemons said. The average refund was nearly $2,700 this year.

But taxpayers who calculate their withholding so they get only small refunds could face an unwelcome tax bill next April, said Jackie Perlman, an analyst with the Tax Institute at H&R Block.
More...

So, it seems the plan is to increase liquidity this year, then take it away next year.

Since most folks 'spend' their paycheck instead of saving (or have in the past - jury out on this one for the future but old habits die hard), they will inject it into the economy NOW. Idea being is that once things ramp up again, the excess liquidity can be withdrawn next year through an offset on the taxes, taken from a refund that hasn't hit the economy yet. Or at least that's how it should work for the bottom 2/3'rd of taxpayers (my back of the napkin calculation).

Consumption smoothing?

Very interesting to see how policy is coordinated like this. Do you see any other signs of similar medium term activity? Post.

jueco2005 · May 4, 2009

I would gladly take it............but I hate those Keynesian policies. Oh well.

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Money supply and the consumer - social engineering in action

drsteph

jueco2005