WASHINGTON — The White House on Monday directed the Internal Revenue Service to pay tax refunds to millions of Americans during the federal shutdown, marking its most dramatic reversal yet of past legal precedent as officials scramble to contain public backlash from the funding lapse.
Last year, and during previous administrations, the IRS said it would not pay tax refunds during a government shutdown. But Trump administration lawyers ruled Monday that the refunds could be processed after all, a move that some Democrats called legally dubious.
The decision could prove extremely consequential for U.S. households and the U.S. economy. Last year, between Jan. 29 and March 2, the IRS paid out more than $147 billion in tax refunds to 48.5 million households.
But it is also the latest in a string of sudden shifts and legal reversals that have shown the White House reverses precedent in the face of public pressure. Senior administration officials changed rules to pay Coast Guard salaries in December, restart an IRS program to clear mortgage applications, and reopen some national parks. They are now considering whether they can find a way to prevent nutrition assistance payments from expiring at the end of this month, and a new legal ruling on that could come later this week.
“We have tried to make this as painless as possible consistent with the law,” White House Office of Management and Budget Acting Director Russell Vought said at a briefing, describing the White House’s approach to managing the shutdown.
President Trump has threatened to continue the ongoing partial federal shutdown for months, much longer than past lapses have endured.
Government shutdowns force impacted agencies to severely curtail their operations, sending workers home without pay and eliminating certain services and programs.
Instead of following a set plan, though, the White House has constantly adjusted the way it is managing the shutdown, seeking to change operations when there are complaints from businesses or public groups.
“You’ve got programs that have different capacities to weather shortfalls in funding and some of them can’t weather this at all,” said Douglas Holtz-Eakin, a Republican and former director of the Congressional Budget Office. “This is what you get,” he added, referring to the shifting management of the shutdown.
Trump had signaled to many White House officials in mid-December that he would back down from his threat to shut down parts of the government over his demand for border wall money, but he changed course two days before the lapse was due to begin.
This caught many White House officials flat-footed, as several cabinet secretaries and agency leaders left Washington over Christmas week for vacations and other travel. Some others have worked to contain the fallout by reversing policies multiple times in recent days.
None of the decisions, though, have been as consequential as the tax refund change. The average tax refund paid during February last year was more than $3,000, and allowing that money to be paid could prevent an outcry from many taxpayers. Near the end of the tax filing deadline last April, the IRS paid out $243.6 billion in refunds to 86 million households.
A number of Democrats on Monday said the White House’s decision was purely political.
“I think carving out this exception for political reasons is another blow to morale” among federal workers, said Rep. Gerry Connolly, D-Va.
Sam Berger, who worked in the general counsel’s office at OMB during a shutdown in the Obama administration, said the new decision reverses years of precedent and runs contrary to the Antideficiency Act, the law establishing that federal agencies cannot spend money that has not been authorized by Congress.
“What we’re seeing now is an effort by the administration to ignore legal views, to basically put aside the law and limit the political impact of what’s going on,” he said.
Since this shutdown began on Dec. 22, the IRS has sent home 90 percent of its staff without pay, something that was scheduled to continue indefinitely until Congress appropriated new funds.
Tax refunds aren’t paid with money appropriated by Congress, but the workers who process the tax refunds are. That’s why, in the past, tax refunds have stalled during shutdowns, because there were no workers to process them.
The IRS employees who are brought back in the coming days to handle tax refunds will still not be paid until the shutdown ends.
“There is a pot of money to pay refunds, but there is not a pot of money to do the work to actually pay the refunds,” Berger said.
He said the Trump administration’s IRS decision could be found to violate the Anti-Deficiency Act, which could carry fines or even criminal penalties.
But White House officials said they were trying to do everything they could to minimize the shutdown’s impact on American households and businesses. Trump “has directed OMB to take steps to mitigate the impact of the shutdown on everyday Americans,” Vice President Mike Pence told reporters at the briefing.
A senior OMB official said that the agency determined that processing tax refunds was similar to paying Social Security benefits, something that is allowed during government shutdowns because Congress’s intent was for these payments to continue.
These legal decisions come in the midst of a constantly changing strategy in the White House over how to manage the shutdown. Trump asked senior advisers Sunday for a way to end the shutdown in a way that didn’t make him look like he was capitulating to Democrats, an official said.
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