Breaking out of the holiday 'debt loop' may be easier than you think
Polling shows that many Americans don’t like the landmark tax overhaul passed a year ago, but maybe that’s because they haven’t received a bulk of the benefits yet.
The law cut tax rates for some individuals, but lots of Americans haven’t seen all those savings flow through to their paychecks, according to Wells Fargo & Co. That will be made up during a “historic” refund season early next year, with, for example, a household earning US$45,000 a year realizing 70 per cent of its tax benefit, the bank said Friday in a research note.
Oftentimes, retailers struggle to draw shoppers in February and March. But bigger-than-expected refunds could help maintain the momentum this year from what is shaping up to be one of the best holiday-shopping seasons in recent memory.
“We see reasons to be bullish,” Wells Fargo said. Households have also been aided by rising hourly wages and lower gas prices, the bank said in calling 2019 the “year of the low-income consumer.”
This creates a good environment for companies that serve this demographic. Wells Fargo pointed to Dollar General Corp., Foot Locker Inc., AutoZone Inc. and Altria Group Inc. Of course, Walmart Inc. (WMT.N) and McDonald’s Corp. (MCD.N) also have lots of exposure to this group.
Middle-income households, those earning from US$55,000 to US$75,000 a year, will also see benefits, with as much as half of their tax-cut bounty showing up in refunds, Wells Fargo said.
Home Depot Inc. called out the potential for a robust refund season last month when it reported earnings. The home-improvement chain analyzed the paychecks for 300,000 of its store employees and found that only 1 per cent had altered their withholding rate.
“People, when they file their taxes next year, are going to get a nice surprise,” said Carol Tome, Home Depot’s chief financial officer. “It’s good for the economy because they’ll do something with that money.”