We could be facing a perfect storm of total suckitude next spring:
Obamacare has only gotten passing attention this election season, but it is likely to return as a hot topic early next year. That is because during the 2015 tax filing season, millions of low- to moderate-income taxpayers will likely first learn that they exceeded the income eligibility levels for the Obamacare subsidy they received in 2014 and will need to repay the government. This repayment could result in a sufficiently abrupt and targeted reduction in consumer spending that could delay the Federal Reserve from starting to raise short-term interest rates, which the consensus view expects to occur in March, coincidentally contemporaneous with when this looming “consumer cliff” hits.
Based on a simple regression analysis, we expect the average tax refund next year to be $2,550. And based on conservative estimates, we project the average subsidy repayment to be $1,000. But the real concern is the extent to which we believe this issue will be relevant for the segment of the population that relies most heavily on their annual tax refund – between 1.1 million and 3.3 million subsidy recipients are likely to have to repay at least a portion of their subsidy. Thus, low- to moderate-income people in the aggregate will be hit with a $1.1 billion to $3.3 billion reduction in consumer spending power next spring.
That Means It’s Working™