Up until now the government shutdown has taken a limited toll on the American people. But as it enters its third week, the shutdown threatens to halt billions of dollars in tax refunds.
“This [shutdown] could even extend into months rather than weeks,” according to Capital Economics’ Chief US Economist Paul Ashworth. “Up to now, the economic cost has been limited. But the disruption will increase exponentially for every week the shutdown isn’t resolved, particularly if it delays the payment of tax refunds next month.”
Problems will start initially for the millions of taxpayers that file their taxes before the April 15th deadline. This is usually done to receive a refund from the IRS at an earlier date, however those checks won’t be processed on time if the shutdown persists.
“[The] longer the shutdown lasts, the more government services will grind to a halt. The IRS usually pays around $125 [billion] in tax refunds in February and a further $75 billion in March,” Ashworth noted. “In [annualized] terms, that would be equivalent to an 11% decline in GDP.”
“Of course, once the shutdown ended, Federal salaries would be paid and tax rebates sent out, so the impact on first-quarter GDP should be much smaller than that… as long as the shutdown ends within the next month or two,” Ashworth said. “Unfortunately, there is no guarantee that will happen since both sides appear to be hunkering down for a very long fight.”