Further Delay in Tax Filing Will Enable State Budget Disaster

At the start of 2020 when COVID-19 took hold in the U.S., the Treasury Department rightly decided to push the 2019 tax deadline from April 15 to July 15 in order to provide relief to the millions of Americans who lost their jobs from the nationwide economic shutdown. While this was a necessary step at the time, calls by some to extend the 2019 tax filing deadline even further – potentially a full year to April of 2021 – are misguided. While extending the tax payment deadline is a sensible way to provide temporary relief to individuals and businesses, extending the tax filing deadline a second time would jeopardize the already fiscally-strained state budgets (since states’ deadlines are tethered to the Federal Government’s). In addition, since taxpayers tend to wait until the deadline to file whether they are owed a refund or not, it would further delay a much-needed infusion of billions of dollars in refunds owed to working families at a time when many need them.

Extending the tax filing deadline beyond July 15 would have numerous fiscal and regulatory consequences that our nation simply cannot afford right now, and likely won’t be able to afford for the foreseeable future. For one thing, most states rely on income tax filings in order to fund their state budgets. In total, 38 percent of total state tax revenue is derived from personal income taxes. In order to prevent widespread and extreme state budget shortfalls – most of which have already been exacerbated due to COVID-19 – we must keep the July 15 filing deadline. Some economic projections show almost all states will incur a 15 percent budget shortfall, with many estimating a 25 percent budget shortfall for the next fiscal year. Maintaining the July 15 tax-filing date would help ensure stability of state budgets – and prevent confusion among taxpayers.

As important, what America needs most right now is an economic shot in the arm. Based on IRS data, there is approximately $60 billion in refunds still to be returned to taxpayers for the tax year 2019. Americans owed refunds should be encouraged to file now to bring economic relief both to their own families and to our economy.

What’s more, further delaying the tax filing deadline potentially into 2021 is simply inviting chaos and delay during the tax filing season for 2020 – the IRS already regularly encounters delays in processing returns and uses outdated technology; there is little reason to believe that it will be able to double their capacity next April. This would likely mean delays in billions in refunds to those owed them for the 2020 tax year.

It is true that many Americans still need economic relief, but it is important that our policymakers provide it in a prudent fashion that relieves the burden of tax payments for those who owe them, but without discouraging those owed refunds from filing, or further disrupting state and local budgets and inviting further economic destruction.

 

 

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