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Here’s How The Debt Ceiling Fight Could Delay Your Tax Refunds

Jan. 11, 2013 6:20pm Guest Post

[Editor’s note: The following is a cross post by Jeff Cox that originally appeared on CNBC.com]:

Anyone counting on their tax refund to help pay for a vacation or take care of some leftover holiday bills could be in for a big disappointment this year, thanks to the debt ceiling impasse.

One of the first casualties of the government not being able to pay its bills is likely to be income-tax refund checks, which would be delayed as Washington pays essential bills first and until warring political factions settle their differences.

The U.S. government could hit its debt ceiling by mid-February, after which it would have to rely on tax receipts to operate. That would result in a partial shutdown where only essential services would be funded.

“It’s probably reasonable to assume there will be some delay” in tax refunds, said Steve Bell, senior director of economic policy for the Bipartisan Policy Center in Washington, D.C. “Normally, February is a very high income-tax refund month. People who anticipate refunds file as early as they can.”

The Internal Revenue Service already has pushed back the first day to file until Jan. 30 — eight days later than normal — as it sorted through the tax changes Congress imposed following the “fiscal cliff” battle.

While taxpayers likely will be able to file anytime after that, the date when they get their refunds likely will depend largely on who blinks first in the battle over raising the $16.4 trillion debt ceiling.

In a normal year, the government pays out about $85 billion in refunds during February, when the debt ceiling will be hit.

“We expect there will be no diminishing of people who are filing,” Bell said. “The question is whether they will have refunds within the three-week window that Treasury has to abide by.”

Efforts to get comment from the Treasury Department and White House were unsuccessful.

Economists already have begun bracing for the effects from the debt ceiling impasse.

In the case of the tax refunds, many Americans use them to pay off debt or simply to spend, allowing the money to circle back into the economy and help spur growth. Any delays, then, could hurt the fragile recovery.

CNBC: The Debt Ceiling Fight Could Delay Your Tax Refunds

Getty Images

“Since interest payments account for only 6 percent of total outlays, there is little risk that the federal government would have to default on its debts,” Paul Ashworth, chief US economist at Capital Economics, said in a note to clients. “But it could be forced to stop paying tax refunds at the height of the tax filing season, fail to pay government contractors or government employees (including military personnel) or stop sending out Social Security checks.”

Of course, there’s always the possibility that the debt ceiling debate could follow the fiscal cliff script: Brinkmanship up to and past the 11th hour, followed by a deal in which little damage is done immediately and the tough choices are pushed off to the future.

But Ashworth said that’s not a bet worth taking.

“Given how ill-tempered and dysfunctional the latest negotiations over the fiscal cliff were, there is a real chance that a deal proves impossible this time. (With) the stakes…a little lower, either side might be willing to trigger a partial government shutdown,” he said. “That could have a very disruptive impact on the economy, particularly if it lasts more than a few weeks.”

Indeed, the time frame would be key.

But anyone running their family budget based in any significant part on a tax refund could be in for a headache.

“If the debt ceiling isn’t raised, that could happen. Will it happen? I doubt it very much,” said Peter Cardillo, chief market economist at Rockwell Global Capital in New York. “When it gets down to the nitty-gritty, the debt ceiling will be raised.”

–

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Comments (39)

Tigress1
Posted on January 13, 2013 at 6:43pm
Tax refund? What’s that? You mean to say that people actually get their money BACK? Gee. Must be nice. When my husband writes the checks that money is never seen again. It’s just gone, gone, gone…

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right-wing-waco
Posted on January 12, 2013 at 11:32pm
Time to stop paying taxes for a while.

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4theThinMan
Posted on January 12, 2013 at 5:54pm
Why has the IRS pushed back the filing date? that the recent laws change the rules apply to THIS NEW year, not to last year – so the tax laws that were on the books as of Dec 31 should already have been in place – this is just another way for the government to renig on doing it’s business.

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4theThinMan
Posted on January 12, 2013 at 5:50pm
The government MANDATES withholding “tax” money from my retirement and now won’t return what they over kept? This is money that I never see, never get to use and must pay taxes on – now – no refund?

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Lara
Posted on January 12, 2013 at 11:15am
They do this EVERY STINKIN YEAR! Oh we will have to delay your tax refunds!!
How bout this, Due to the ongoing maroooooning in Washington, we may have to delay our returns due to the fact you are spending our refunds for your stupid vacations!

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bcope01
Posted on January 12, 2013 at 6:01am
Not raising the debt ceiling will not hinder your tax return. YES, the Government has the money to pay their debts, they just won’t have the out of control access to continue to spend like crazy. These are lies to SCARE you. Don’t believe them. Freeze the debt ceiling. It will freeze the spending.

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FANGS
Posted on January 12, 2013 at 3:32am
Money was never an issue under Republican leadership. If the Democrats in charge Don’t pass a budget and keep giving billions of money to their friends and unions. If We get stiffed, The gloves come off ,every democrat is history. The beatings will begin. And their Family’s will suffer the same fate. Stupidity has consequences.

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FANGS
Posted on January 12, 2013 at 3:18am
If Harry Reid doesn’t pass a Budget, and Taxpayers don’t get our refunds. All of Amereica will go after Reid and his Family. America’s not playing games any more.

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Mgui35
Posted on January 12, 2013 at 12:05am
They won’t like it too much when I file married and 14. See how much they like paying me those fat checks while I wait for MY MONEY. They are some dumb bunnies to bite the hand that feeds them.

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Advection
Posted on January 11, 2013 at 10:42pm
Late refund checks are the liberal politician’s wet dream. The MSM propaganda machine is certainly already filming specials about how the Republicans are to blame.

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1FreeVoice
Posted on January 11, 2013 at 9:26pm
“Since interest payments account for only 6 percent of total outlays, there is little risk that the federal government would have to default on its debts,”

Isn’t the government using 40 cents of every dollar collected to pay interest? They are spending THAT much ?!? No wonder we are so flaming broke. And the interest is compounding – it’s getting worse. Someone teach these people how to do basic math; that’s MY money they are treating like monopoly money. The CBO says when we reach 60 cents on the dollar we are DONE. They will have to amend the constitution to default on the debt.

We should cover this in my kid’s math class.

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NOTYERHUCKLEBERRY
Posted on January 11, 2013 at 8:52pm
I would really like to put a transmission in my pickup.

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ncgrammie4
Posted on January 11, 2013 at 8:13pm
I did taxes for 10 yrs at one of the largest tax preparation services. The people who will be getting the refunds they are talking about aren’t people who paid a lot in during the year. They work a minimal amount of time during the year, have little or no taxes withheld and file as head of household with two children. Their refund is usually $4000 to $6000. This is equal to about half of what the made during the year. They will be screaming blue murder until they get their free money.

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Spiritually_Distilled
Posted on January 11, 2013 at 8:11pm
who in the heck is getting a tax refund? i work 2 jobs to support my family, claim zero deductions and still have to pay more at the end of the year.

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- Angel_light
  Posted on January 13, 2013 at 1:51pm
  there is something very wrong here. I do the same thing and claim zero throughout the year so I KNOW that I don’t owe any money. I’m not sure if you have someone do your taxes or if you do them on your own (like I do), but it sounds fishy to me. I don’t know all the facts so I can’t guess either.
  
  Anyway; I like doing my own taxes every year and not having to go to an accountant and have them take part of it as payment. The online site I use is easy and straightforward and tells you what to do step-by-step. I’m not sure why more people don’t do the same.
  
  Report this comment
BHOHG2G
Posted on January 11, 2013 at 7:30pm
I can’t figure out why they won’t consider a flat tax. Pay X % on every check and call it good. No refunds. That would save a fortune in time and materials. I also think getting deductions for having more kids is bogus. I know families that were and or are getting seven to $10,000 in refunds for that. I think single and childless couples should get a tax break for Not having kids and vice versa. Irresponsible people having more kids getting a tax refund and I usually have to pay because I live within my means.

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BlackCrow
Posted on January 11, 2013 at 7:29pm
They let Obama get away with raising the debt ceiling by executive oder we need to push hard to prevent passage of another continuing resolution otherwise the Congress is meaningless as well as the Constitution. We will well and truly have lost the republic.

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progressiveslayer
Posted on January 11, 2013 at 7:12pm
The government doesn’t have any money,never has never will,it’s impossible for government to have money because government doesn’t produce anything of value. The government does however create debt and they’re masters at that. Look at California they sent out IOU’s to their slaves and almost every states is broke and the hogs in DC just raised our taxes to waste on more government BS programs. At this point I’m looking forward to the total collapse of the dollar and our tyrannical government,it’ll be a great time to thin out the herd and restore some normalcy.

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FloridaFarmGirl
Posted on January 11, 2013 at 7:07pm
Why doesn’t everyone claim EXEMPT? Quit paying anything to these communists. I for one am claiming EXEMPT on my federal taxes and they can come put me in jail. I have paid more than enough taxes in my lifetime and I have no representation in dc. Screw the government, after all that’s what they are doing to me and my family. Let the obama voters and the illegals pay the taxes for once.

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- BHOHG2G
  Posted on January 11, 2013 at 7:22pm
  Well you can, but…..I did it for a year five years ago due to a divorce and other things that I won’t go into. I was not trying to avoid paying. I just needed the money to live on and give me some breathing room.
  I finally took out a loan and it took me quite awhile to pay that off.
  The IRS will not throw you in jail. At first.
  They’ll just garnish your paycheck for like 25% and your credit takes a hit.
  They want YOU and me to work to pay their bills. It feels good, but you’ll pay in the end.
  
  Report this comment
The-Monk
Posted on January 11, 2013 at 6:53pm
I thought part of the liberal’s plans to not have to worry about paying out Federal tax refunds was to just have everyone whose not a Union or Gov worker to be unemployed.

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TSUNAMI_22
Posted on January 11, 2013 at 6:49pm
‘Here’s How The Debt Ceiling Fight Could Delay Your Tax Refunds’
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
My version (which should be America’s version):

Here’s how the debt ceiling fight may delay my IRS tax filing, if you raise it, I won’t file. Period.

~ they can’t put all of us in jail if we band together ~

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- DougHuffman
  Posted on January 11, 2013 at 6:54pm
  Riight! You mean like behind our 2nd-Looie the NRA? “Forward men. Cover my sss!” MOLON LABE
  
  Report this comment
skippy6
Posted on January 11, 2013 at 6:43pm
Tax refunds my ass!!! Add up all the taxes you pay and tell me if you get a refund…..

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CatB
Posted on January 11, 2013 at 6:27pm
Anyone who pays more in than they are required is a fool .. don’t give them a free loan and have to wait for them to RETURN your money. Change your deductions so you are close to neutral and bank the difference .. then if you owe you have the money and if you don’t .. you have saved some emergency cash.

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- DougHuffman
  Posted on January 11, 2013 at 6:33pm
  Like I said below …
  
  Report this comment
- thekuligs
  Posted on January 11, 2013 at 6:38pm
  I actually had an argument with some people yelling about how the government was holding “their” money hostage. Turns out, they all put in little to nothing and get back as much as, according to them, as much as ten grand. You should have seen what they said to me when I pointed out, it wasn’t their money then.
  
  Report this comment
- CatB
  Posted on January 11, 2013 at 6:41pm
  @DOUG
  
  Yours wasn’t posted when I wrote this .. in fact no one was.
  
  Report this comment
- DougHuffman
  Posted on January 11, 2013 at 6:50pm
  DaBlasé has problems with their code and their administrators.
  
  Report this comment
Snowleopard {gallery of cat folks}
Posted on January 11, 2013 at 6:26pm
Why should we worry about the tax refunds when what we face is a President supported by Reid and Pelosi who seek to usurp authority from the Constitution he does not lawfully have?

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- whywonder
  Posted on January 12, 2013 at 9:59am
  Snowpussy
  Do you do anything else in your life except throw your worthless two cents on every story on the blaze? I got your world view…republican good democrat bad.
  
  Report this comment
msconstrue
Posted on January 11, 2013 at 6:26pm
its always a damned it you do, or damned if you dont situation in washington………almost like they planned it that way!

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DougHuffman
Posted on January 11, 2013 at 6:25pm
They’re not usually “refunds” but return of excess withholding less interest earned – and given up. Adjust your W-4 to ZERO withholding and pay no more tax than legally required.

America’s foundation is anti-tax rebellion. Good people must be armed with wits, guns and the Truth. Read Georges Santayana

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- TSUNAMI_22
  Posted on January 11, 2013 at 6:54pm
  Adjust your W-4 to ZERO withholding and pay no more tax than legally required.
  ~~~~~~~~~~~~~~~~~~~~
  That’s exactly the wrong thing to do. You have the right idea, though. What you do is claim as many as possible. Example – being single, I claimed 4 and every tax season I paid-in or got back less than $100.
  
  You want to get it as close to $0 as possible.
  
  Report this comment
- DougHuffman
  Posted on January 11, 2013 at 7:06pm
  Please. I did not suggest lying.
  
  I believe that may be a crime in itself. The law is an sss that lawyers ride to work, don’t try to be one, you’re not smart enough.
  
  Report this comment
- TSUNAMI_22
  Posted on January 11, 2013 at 7:20pm
  It’s not a crime. You’re safe.
  
  Report this comment
- DougHuffman
  Posted on January 11, 2013 at 8:53pm
  No, I’m retired.
  
  Report this comment

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