Michael Dedmon | Policy Manager| The Financial Clinic
While a partial shutdown of the federal government dominates the daily news cycle, the real impact on people’s lives can be hard to see because many essential services continue to function – more or less – as normal. For example, the U.S. Postal Service is still running, Social Security payments continue to be made, many Veterans’ services are still available, and federal employees deemed essential like federal transportation safety workers and military personnel continue to report to work each day. But, beneath the surface, this staged political crisis is already generating more significant consequences than many realize, and the risk of a deeper national crisis rises every day the impasse continues.
Up to 450,000 of these government employees won’t be receiving a paycheck this Friday despite working throughout the shutdown, and there are thousands more who have been furloughed while the negotiations over reopening the government continue. Although the majority of the furloughed and all essential employees will receive back pay for the time lost to the shutdown, many staff working for government contractors, like cleaning and food service employees, will not. This loss of income presents a huge risk to these less financially secure employees who already receive significantly fewer protections and are paid much less.
Nearly 80% of Americans report that they live paycheck to paycheck, and over 40% of families lack emergency savings, claiming that coming up with $400 would pose a significant financial burden. Like many workers across the country, federal employees have seen their incomes stagnate in the past decade, allowing them even less flexibility to deal with unplanned instability. This sudden shock to their income will force many of them into tough financial choices like whether they should pay their rent and utility bills or buy groceries. Like so many other households dealing with income volatility, many families will be forced to rely on risky and expensive credit products to make ends meet. As the shutdown drags on, it’s critical that we not lose sight of the very real impact this disruption has on the financial lives of federal employees and their families, and consider the long-term effects some will feel after the political disputes are resolved.
In addition to these affected employees, a number of vulnerable households across the country that rely on government services will soon start to feel the consequences of the shutdown. The Washington Post reports that the Department of Housing and Urban Development (HUD) is scrambling to prevent the eviction of over 1,000 people receiving support from a federal program that ended on January 1st, and in just weeks, millions of SNAP beneficiaries could face reductions to their benefits. Also, with tax season just around the corner, the IRS is both unable to process tax refunds and will have to delay critical support it provides to nonprofits, like The Financial Clinic, that participate in the Voluntary Income Tax Assistance (VITA) program. The Post has reported that over 90% of Internal Revenue Service (IRS) staff has been sent home without pay just weeks before tax season begins in earnest.
This is especially poorly timed this year as changes to tax law passed by Congress in late 2017 spell a number of important changes that may impact low- to moderate-income (LMI) households this season, including the elimination of the personal exemption, the introduction of new tax brackets, and alterations to the Child Tax Credit. “With the new tax law changes starting this year, VITA customers will be looking to their tax preparer to learn what the changes mean for them. ‘Why is my refund changing?’ Many will not think to ask the question of how will this impact their future refunds.” says Darren Liddell, Director of Program Innovation at The Financial Clinic. “Also, refunds won’t be issued while the government is shut down even though the government will still accept the returns.”
Credits claimed at tax time like the Earned Income Tax Credit (EITC) can make up 12% of some households’ yearly income and present a huge opportunity to get ahead financially, save some money for future goals like education and retirement, or pay down debt. Financially insecure families expect a properly functioning federal government to process their returns and issue their refund just like the IRS expects them to file on time. “We see the biggest rush for VITA services right at the beginning of tax season, so in late January, as many customers want to file as soon as they can,” according to Darren. Families looking to get on top of debt accumulated during the holiday season, make some headway on yearly savings goals, or make education/childcare payments for the semester will be relying on receiving their refund.
The financial pain inflicted on government employees, a looming shutdown of some housing and nutrition programs, and the disruption of the tax season are real consequences that will have a lasting impact on the lives of some of our most vulnerable friends and neighbors. The human impact should be considered with the knowledge that all of it is, in fact, needless, as the shutdown is the result of a manufactured, partisan crisis over a poorly conceived and racially charged plan for border security. We call on all representatives in Congress to fulfill one of the most basic tasks entrusted to them: provide the resources to deliver the critical services Americans everywhere rely on and reopen the government without delay.