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Govt. Shutdown Scenarios: SEC Enforcement to Slow, IRS Refunds to Stop

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As Democrats and Republicans dig in their heels on the budget under threat of impending doom, neither looks likely to budge and a government shutdown looks more and more inevitable.

Democrats are crying foul. They say that while they’ve agreed to numerous cuts proposed by Republicans, now the criterion for compromise is the agreement of 218 Republicans—the number House Speaker John Boehner, R-Ohio, has apparently told both President Barack Obama and Sen. Harry Reid, D-Nev., must agree to any negotiated package.

No longer, apparently, is Boehner willing to achieve a compromise that can garner enough bipartisan votes; now the votes must all be Republican. According to a senior Democratic aide quoted in The Washington Post, “Our takeaway from the meeting was that Republicans will not accept anything that cannot pass the House without 218 Republican votes. “That means $73 billion isn’t good enough.” The $73 billion refers to cuts already agreed to by Democrats—$33 billion on top of an already-negotiated $40 billion. That account has not been denied by Boehner’s office.

Possible outcomes, regardless of who agrees to what, are these: the SEC may halt enforcement to an undetermined degree. So far the functions considered essential are still being determined, with a statement to come later on Wednesday or Thursday morning, according to SEC spokesman John Nester, who said plans had not yet been finalized and any discussion at present would be premature.

Mary Schapiro, Chairman of the SECIn an April 1 report on AdvisorOne on the budget battles and their impact on the SEC’s operations, AdvisorOne's Washington Bureau Chief Melanie Waddell wrote that SEC chair Mary Schapiro (left) told lawmakers in mid-March that the continuing resolutions were hampering the agency’s ability to hire and attract knowledgeable and experienced personnel.

(See an exclusive AdvisorOne interview on April 6 with Mary Schapiro on the SEC's contingency plans for a shutdown and the ongoing budget issues.)

The IRS will most likely continue to collect taxes, but not issue refunds. And regardless of the agency, only essential personnel will be allowed to come to work, lest they be punished or even dismissed for violating the law. They may or may not be paid after the shutdown ends; odds are that they won’t, in the drive to cut the budget. All BlackBerrys have been ordered turned off.

The Democrats are also reacting negatively to House Budget Committee Chairman Paul Ryan’s long-term budget plan to reduce the deficit, which will cut back funding for enforcement of Dodd-Frank. Senate Banking Committee Chairman Tim Johnson said in a statement: “Let’s be clear, the House Republicans’ attacks on the Wall Street Reform law have nothing to do with cutting the budget—CBO predicted that the law would reduce deficits by $3.2 billion over 10 years—and everything to do with gutting consumer and investor protections and letting Wall Street run wild all over again.”


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