Friday, October 18, 2013

Ken's Blog: The debt limit deal and next year's tax refunds

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Did the government structure yesterday's debt limit deal in such a way that allows them to seize our tax refunds next year?

In the aftermath of the government shutdown, the debt limit drama, and yesterday's last-minute deal, I ask you to consider a few points...

1) During the just-ended partial government shutdown, the IRS continued collecting taxes but stopped issuing refunds. According to this Washington Times article:

“Individuals and businesses should keep filing their tax returns and making deposits with the IRS, as they are required to do so by law,” the agency said in its guidance for taxpayers. “The IRS will accept and process all tax returns with payments, but will be unable to issue refunds during this time.”

2) The debt deal Congress passed last night funds the government only through January 15. Should they not pass a budget or stopgap spending measure by that date, a government shutdown will recur on January 16, and the IRS can be expected to stop issuing refunds again.

3) Even if the government stays open past January 15, the debt deal effectively sets a new X-date of February 7.

4) The fastest possible way to get a tax refund is to e-file with direct deposit. Once your return is accepted by the IRS, it typically takes about 10 days for it to be wired to your account. So if the IRS opens e-file on January 30 (like they did last tax season), the earliest you could get your refund would be about February 9. And if we end up tripping the X-date on February 7, what are the odds they'll send your refund on February 9? They'll almost certainly "suspend" refunds as part of the "extraordinary measures" the Treasury will take to avoid default.

As you can see, the government has set themselves up with two options to screw us next year. Should they decide to exercise either option and then pull the trigger on the economic transition, they can walk away with about half a trillion dollars of our money.