The Fiscal Slope, Phase II

I’m working as a paid tax preparer for H & R Block again this year. The money’s not great, but you get fabulous stories out of the gig. In December my office was gearing up for January’s opening. Then the fiscal cliff intervened.


In past years the IRS has begun accepting tax returns during the second week of January. This year, Congress did not pass the tax bill until after January 1. Some of the provisions of that legislation were actually retroactive for 2012 taxes.

The IRS had prepared tax forms, instructions, and software based on what tax law was at the end of December. Come January 1, the law changed, and they had to make a number of systemic changes in a hurry. As a result, last week the IRS has announced that the first day that tax returns will be accepted will be January 30. At the tax office, we have been rescheduling clients for later in the month, and working on managing expectations for people who expect a large refund check before the end of January. Not going to happen.

Early season tax filers tend to be skewed towards the lower income quintiles. These are folks who not only get all of their withholding back, but also receive large payments from the Federal government for Earned Income Credit and Child Tax Credits.

A number of these low income filers have actually borrowed in the fourth quarter against their potential tax refunds. H & R Block has such a loan program. It is called Emerald Advance. These loans have a high interest rate, but are intended to be extremely short term, lasting only a month or two before being repaid out of the borrower’s tax refund.

The delay in starting to accept returns until the end of January has upset the apple cart to some extent. A number of people who did not plan on making an interest payment will now have to make at least one. But a bigger problem has begun to loom in the distance.

The debt ceiling.

The Federal government has already reached the limit of its borrowing ability. By deferring some payments into Federal health and pension funds, the Treasury has postponed a cash crunch. By the middle of February, however, the bag of tricks will be empty, and tough choices are going to have to be made. Some bills will be paid, and others will not.

I’m going to guess that funding tax refunds will be a lower priority than making military payrolls or paying bondholders. If I’m right, it may be more than just a couple of weeks delay before refunds are paid out, compared with previous tax years.

People who borrowed against their tax refund are going to take a haircut. People who planned on paying off Christmas bills with tax refunds are going to get stung.

What was billed as a fiscal cliff is really more of a steep slope. We’ve gone over the edge, and are rolling downhill. We missed the first boulder on the slope, but there are others.