What Happens to Your Tax Refund in a Debt-Ceiling Stalemate?

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Billy House
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Billy House
Feb. 5, 2014, 11:37 a.m.

Ex­pect­ing a fed­er­al tax re­fund? Per­haps you should hurry up and file.

As House Re­pub­lic­ans struggle to co­alesce around a strategy for em­bra­cing an in­crease to the na­tion’s $17 tril­lion-plus debt ceil­ing so the na­tion can keep pay­ing its bills, Demo­crats on the Ways and Means Com­mit­tee are float­ing a new bo­gey­man if the delay con­tin­ues.

A wave of bank runs by wor­ried de­pos­it­ors was blamed for help­ing to drive the United States even deep­er in­to the Great De­pres­sion in the 1930s.

Now, sug­gest the Demo­crats, there could be a po­ten­tial “pan­ic” when Amer­ic­ans in up­com­ing weeks  file their in­come-tax re­turns, par­tic­u­larly if fear builds that the Treas­ury De­part­ment might not be able to im­me­di­ately re­fund all that it owes to tax­pay­ers.

“Fail­ure to act quickly [on the debt ceil­ing] will en­danger our eco­nom­ic re­cov­ery and send a sig­nal to Amer­ic­an tax­pay­ers that their re­funds may be in jeop­ardy, po­ten­tially rais­ing un­ne­ces­sary pan­ic among fam­il­ies await­ing their tax re­funds,” wrote the Demo­crats in a let­ter Monday to Speak­er John Boehner. The let­ter was cir­cu­lated by rank­ing mem­ber Sander Lev­in and signed by oth­er Ways and Means mem­bers.

The let­ter goes on to say, “Past Re­pub­lic­an de­fault threats” have cost Amer­ic­ans hun­dreds of bil­lions in lost re­tire­ment sav­ings, in­creased the costs of own­ing a home, and even jobs.

“Let’s not add delay­ing re­funds to the list,” the let­ter states.

“First come, first served,” said one seni­or Demo­crat­ic aide on Wed­nes­day of the mil­lions of re­funds paid out each year, adding that “Treas­ury can only pay out what it has.”

In fact, Boehner has made it clear that he and oth­er House Re­pub­lic­ans do not in­tend to let the na­tion de­fault on its bills, and that they will pass a debt-ceil­ing in­crease. But the ques­tion re­mains: How soon can he and his con­fer­ence agree on how to pro­ceed?

Ad­min­is­tra­tion of­fi­cials are already warn­ing that the Treas­ury De­part­ment will run out of “ex­traordin­ary meas­ures” to keep gov­ern­ment afloat by the end of Feb­ru­ary if Con­gress does not ap­prove the hike in the na­tion’s bor­row­ing lim­it.

Demo­crats are now sug­gest­ing that timeline might be­come even more con­trac­ted if there is a great­er-than-usu­al num­ber of tax filers in the com­ing weeks.

The fil­ing peri­od began Fri­day—already a week later than usu­al be­cause of the gov­ern­ment shut­down last year—mean­ing that some filers have been antsy to get go­ing.

Demo­crats are pre­par­ing a “fact sheet” out­lining this tax-re­fund dooms­day scen­ario, said the aide.

The fact sheet will note that 110 mil­lion Amer­ic­ans re­ceived tax re­funds in 2013, av­er­aging $2,700 each. It will also point out that 40 to 50 per­cent of re­funds gen­er­ally are dis­trib­uted by March 1.

To back up their his­tory, they point to two fil­ing-ses­sion charts from the In­tern­al Rev­en­ue Ser­vice, for March 1 of 2012 and 2013 , and for the end of years 2012 and 2013.

Demo­crats say they are now mon­it­or­ing to see wheth­er there is a heav­ier-than-usu­al volume of first-week fil­ings.

The up­shot of their strategy is that House Re­pub­lic­ans who are wor­ried about get­ting slammed by con­stitu­ents for passing a clean debt-ceil­ing in­crease should think about something else: con­stitu­ents get­ting angry over delayed tax re­funds.

Boehner’s of­fice had no im­me­di­ate com­ment Monday on the Demo­crat­ic strategy or the let­ter. And a Treas­ury De­part­ment spokes­man re­spon­ded only by point­ing out that Sec­ret­ary Jac­ob Lew has pre­vi­ously stated—re­gard­ing po­ten­tial tax re­fund delays—that “we ought not to be do­ing things that in­ter­fere with the abil­ity of the gov­ern­ment of the United States to meet all of its ob­lig­a­tions on a timely basis.”

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