It's tax time in America, and this year many of us are looking forward to a tax cut and a refund -- along with a return to something a little more normal after the government shutdown.

But hold that thought. Because the long-term results of three short-term decisions could  wind up meaning taxes for millions of Americans won't go as they expected.

The three decisions: 

  • The "last minute tax law," which President Trump signed on the Friday before Christmas in 2017
  • The 35-day federal government shutdown
  • The odd circumstances under which the shutdown ended temporarily, during which Trump warned about another shutdown beginning Feb. 15.

A $100 billion question.

In a normal February, the Internal Revenue Service processes about $100 billion in tax refunds. 

Many Americans count on that money to make big purchases or even just to make ends meet. And many businesses, large and small, have grown accustomed to a bump in sales during February and March as Americans spend those refunds.

But this year, thanks to those three decisions, we have the potential for a perfect storm of tax consequences.

First, many wage-earning Americans may now learn that they got their tax cut in 52 weekly increments during 2018 (or 24 increments, or 26, however often they get paid). Others who live in states with high local taxes might actually wind up paying more, because they lost an important deduction.

In fairness, that confusion happens every time there's a big new tax law. But this year, during almost the entire month of January, while people were trying to make sense of last year's law and do their taxes, the IRS was about 85 percent shut down, which made it difficult to get guidance.

"A waste of time."

Now the next step. One of the things the Trump administration apparently realized a few weeks into this whole mess was that the IRS couldn't legally process refunds during a shutdown.

The administration promptly overturned the legal ruling, ordering thousands of IRS workers back on the job (temporarily without pay). But roughly half of them didn't show up, according to reports, citing financial hardship.

Now they're all supposed to be back on the job. But, as they arrived, President Trump said he was willing to see the government shut down again on February 15 -- and later proclaimed that efforts to negotiate with Democrats over the budget and wall funding to prevent another shutdown were "a waste of time."

Imagine what that does to morale at the IRS. They're already behind on guidance for 2018 and processing tax refunds. How quickly does anyone think they'll catch up?

Delay or denial

Delayed refunds means that a massive cash injection that the economy takes for granted won't be happening on time. Some Americans who just recently thought their taxes would work one way, will instead see something different.

Imagine how the people you work with would react if you furloughed them, and then brought them back on board for your most important season of the year, but also let it be known you might furlough them again in a couple of weeks.

In a government shutdown, the most effective workers who have the most options elsewhere are the very ones most likely to leave for jobs elsewhere. 

We know that job sites saw an uptick in government employees at least applying for other positions. LinkedIn says it saw a 59 percent increase.

Those who remain now face a big backlog. And they're only human, so you can imagine how their efficiency might be affected as they process Americans' tax refunds, while knowing they're likely to be without work again in just a few weeks.

Enough with the brinksmanship.

There are two real lessons here. The first is probably something we can't do much about, which is that when laws get made at the very last minute, and behind closed doors like the 2017 tax law, the outcome is always uncertain.

But the second lesson is that brinkmanship over the functioning of the federal government is dangerous if we want government to work well, and if we don't want to hurt the economy.

It's a political issue only insofar that it takes place in Washington. But no matter how you feel about the border wall, the budget, and politics in general -- and whether you fault Democrats or Republicans -- the lesson is clear. 

Published on: Feb 3, 2019
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