If a deal to avoid a federal government shutdown isn’t reached, October Child Tax Credit payments and Social Security checks could be delayed. Backlogged tax returns from 2020 and stimulus checks would also be put on hold even longer.
It would mean the first debt default in history, and prompt a series of complications for the federal government as agencies like the IRS remain backlogged.
“The federal government would have to significantly cut back spending, [which] would probably mean delaying about $80 billion in payments due November 1 to Social Security recipients, veterans and active duty military for as long as two weeks,” Mark Zandi said. Zandi is chief economist at Moody’s Analytics.
This would create a cash deficit of $200 billion for the Treasurer Department if shutdown lasted through November.
The consequences would be ‘cataclysmic’, according to Treasury Secretary Janet Yellen if shutdown occurs. “The current economic recovery would reverse into recession, with billions of dollars of growth and millions of jobs lost,” she wrote. “The higher cost of borrowing would fall on consumers. Mortgage payments, car loans, credit card bills — everything that is purchased with credit would be costlier after default.”
The 2022 fiscal year begins October 1 for the federal government, which is why the September 30 deadline looms.
How will Child Tax Credit payments be impacted?
Staffing has been a problem for the IRS. But shutdown would mean furloughs that would undo progress made over the last several weeks clearing major backlogs. The agency still has millions waiting for stimulus checks, child tax credit payments, and tax refunds.
Earlier this month the IRS said that it could take 120 days to process what’s left of tax returns, and take care of backlogged child tax credit payments and stimulus checks owed to Americans. If the government shuts down it could take even longer. In fact, some payments may not arrive until 2022.
There’s also the unknown of how it would impact October payments of the child tax credit.
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