Late last year, we suffered through endless weeks of hearing dire warnings about the dreaded consequences of the so-called “Fiscal Cliff”. Congress' matchless skill at putting off almost any difficult decision spared the country from the worst of the doomsday scenarios. However, a newly released report has identified one very important item that has “fallen steeply off the 'Cliff'”, and taxpayers are not happy about it!
An analysis by ConvergEx Group in New York has reported that, through February 3, the IRS had disbursed tax refunds totaling just $4.3 billion! You might be thinking: “but a billion dollars is a lot of money! What is the issue?”
The issue is that, twelve months ago, the IRS had already paid out refunds totaling $26.9 billion – a mountain more than has been distributed thus far this year (a $22.6 billion “mountain”, to be precise!).
So did the IRS just arbitrarily decide to be slow and stingy this year? No, this particular “fall over the 'Cliff'” is completely the fault of our U.S. Congress! In August of 2011, when they were utterly and hopelessly deadlocked on resolving crucial budgetary and tax issues, they slipped into their favorite action strategy – delay. Knowing that Congress needs strong motivation to ensure genuine action, its political leaders created an ominous “Fiscal Cliff” – over which the U.S. would free fall unless Congress proactively agreed on legislation before January 1, 2013!
Incredibly, despite the fact that they gave themselves sixteen months to deliberate, compromise, and act, and despite the fact that everyone in the universe was aware of that “deadline”, Congress diddled, dawdled, pontificated, and obfuscated – but failed to meet their own deadline!
By the time they managed to agree upon the most immediate issues (finalizing 2012 income tax provisions and determining 2013 tax brackets and benefit parameters), we were already into the 2012 tax filing season – thereby placing the IRS under the gun to revise all impacted tax regulations and forms for 2012, as well as to update/revise withholding forms and guidelines for 2013!
The biggest consequence of the failure of Congress to act on time has been a 13 day delay in the start of official e-filing, and the related delay in the processing of refunds. That is the reason for the aggregate federal tax refund dollar amount “falling off the 'Cliff'”!
To compound the pain of Congress' inefficacy, millions of small business owners and millions of taxpayers who are eligible for certain tax breaks (such as education credits) will have to delay the filing of their returns until all the related forms have been updated! Obviously, their refunds will be processed considerably later than in 2011!
What is the full impact of this? Income tax refunds that would normally be in taxpayers' hands, available to be spent (and stimulate our weakened economy) will be delayed by weeks. That has a huge impact on economic recovery! Nicolas Colas, the chief market strategist for ConvergEx Group, observed the following: “About 80 million filers, or 58% of the total, get money back each year. The average refund is $2,927, or an entire month of take-home pay for a family earning the median annual income of $50,054 (assuming a 20% tax hit).”
As reported above, the delay has already cost the economy an infusion of $22.6 billion! Colas helpfully points out that this “mountain of money” would buy either 900,000 new cars ($25,000 cost) or 113,000 new homes (at $200,000 each)! As deceased Illinois Senator, Everett Dirksen, is famously reputed to have intoned: “A billion here, a billion there, and pretty soon you are talking real money!” http://www.chicagotribune.com/business/breaking/la-fi-mo-irs-delays-tax-refunds-fiscal-cliff-20130208,0,3991591.story