IRS Funding, Bank Volatility, and Debt Limits
Tax Policy/News:
April 6: The IRS reveals how it will spend its $80B
In a report to the Secretary of the Treasury, the Internal Revenue Service laid out its strategic operating plan for the next decade, with details on how it plans to use the extra funding it was recently given to improve customer service, beef up its ability to examine large corporate and high-income individual taxpayers and update its antiquated systems and technology.
"The plan is a bold look at what the future can look like for taxpayers and the IRS," recently installed IRS Commissioner Danny Werfel said, in a statement. "Now that we have long-term funding, the IRS has an opportunity to transform its operations and provide the service people deserve. Through both service and technology enhancements, the experience of the future will look and feel much different from the IRS of today."
The IRS said there are three key areas where the money will be deployed:
To "rebuild and strengthen" customer service activities, which suffered enormously over the course of the pandemic, leading to infamously long wait times on IRS phone lines, for instance;
To build the agency's capacity to audit high-income taxpayers — which the IRS specified are the roughly 30,000 people earning more than $10 million a year — and complex large businesses; and,
To update the agency's many outdated technology systems.
The plan includes 42 "key initiatives" and 190 "key projects" that the service will undertake over the next decade, with the understanding that it will add projects as necessary.
April 5: IRS to release plans for spending $80 billion funding boost
The tax world is getting ready for a detailed IRS breakdown of how it plans to spend the $80 billion it was awarded in the Democrats’ Inflation Reduction Act (IRA) passed last year. The $80 billion will be spent over the next 10 years and represents the most substantial funding boost for the federal tax collection agency in decades.
The IRA breaks the money down into four main categories: $25.3 billion for operations, $3.1 billion to help answer the phones, $4.8 billion for new technology, and a whopping $45.6 billion for enforcement and audits.
There have been some notable criticism of how the new money for the IRS was broken down in the IRA. Critics of the funding boost say too much of it is going to audits as opposed to basic taxpayer services and new technology, which has been outdated for years.
Lawmakers and officials have justified the new money for enforcement by pointing to the “tax gap,” which is the amount of money that the government is owed each year but does not collect.
That was about $470 billion a year between 2017 and 2019, the IRS recently projected, or roughly 2.4 percent of total U.S. production. The tax gap is measured retroactively and the latest hard numbers are for the years 2014 to 2016 when it averaged $428 billion a year.
Those are businesses that typically have legal designations such as S-corps, partnerships, and LLCs. Large corporations fail to pay $23 billion per year while small corporations come up short $14 billion annually.
Economic News/Policy:
April 11: Bank Volatility to Cut U.S. Economic Growth, IMF Says
Tighter bank lending prompted by the recent failure of two midsize American banks will slow U.S. economic growth this year, the International Monetary Fund estimated, warning that rising interest rates pose a threat to the global financial system.
U.S. banks’ lending capacity will decline by 1% this year due to the fall in the value of many bank stocks as investors reassess the health of midsize banks, the IMF said in a report on global financial stability released Tuesday. That reduction in lending is expected to shave 0.44 percentage point off U.S. gross domestic product in 2023, the multilateral financial organization said.
In a separate report released Tuesday, the IMF forecasts the U.S. economy, the world’s largest, to expand by 1.6% this year, down from 2.1% in 2022. The organization projected that the global economy will grow 2.8% this year, a slowdown from 3.4% last year, as nations continue recovering from slumps caused by the pandemic and the war in Ukraine.
Global growth is helped by China, the IMF said, which is reopening after its long pandemic lockdowns. But inflation in China eased for the second straight month in March, a cautionary signal on the strength of the nation’s recovery.
Risks to the global economy include the volatile banking sector, high inflation, and climbing interest rates, the IMF said.
The IMF said Tuesday that high inflation and rising interest rates will continue to pose a risk to the global economy. After years of ultracheap borrowing, many financial institutions could also struggle to adapt to elevated interest rates, the product of the highest inflation in decades, the IMF said.
Looking five years ahead, the IMF forecasts global economic growth of 3% in 2028, the lowest such forecast in decades.
April 9: Here’s how the debt limit fight could impact the banking crisis
The banking system is showing signs of stabilizing after the collapses of Silicon Valley Bank and Signature Bank, but the looming battle to stave off a national default could complicate that rebound.
Treasury Secretary Janet Yellen told lawmakers after the collapses of SVB and Signature that a breach of the debt limit would be "Completely devastating" to the banking industry.
“I don’t think that Congress should for a second contemplate the possibility of not raising the debt ceiling to pay our bills,” she warned last month.
How debt ceiling fears could hit the banking sector: SVB collapsed less than a month ago as clients withdrew billions in the span of hours amid fears over the security of their deposits.
Though the Fed appears to be nearly done with hiking interest rates, concerns over a debt ceiling impasse could drive borrowing costs higher. Experts say that could boost financial pressure on other banks like SVB, which lost billions of dollars as the bonds they held dropped in value amid rising rates.
Where debt ceiling talks stand: The White House and Democrats have been adamant that Congress should quickly pass a clean bill raising the debt limit without conditions. Republicans have drawn red lines around raising or suspending the roughly $31.4 trillion cap without fiscal reforms or spending cuts, but Democrats insist any budget negotiations be carried out separately from debt limit talks.
How safe is the banking sector now?: "We got to remember that it was driven by banks kind of structuring their investments, not prepared for rapid interest rate increases,d Ben Ritz, director of the Progressive Policy Institute’s Center for Funding America’s Future said of the ongoing banking crisis, noting higher interest rates "Devalues bonds, which reduces the capital reserves" and can make "It easier for a bank to collapse."
"Even if people get anxious, I think as long as we raise the debt limit in time then I wouldn't be worried about there being this kind of public trust collapse and, like, a run on all the banks," Ritz said.
On the table: Senators laser-focused on bank failures
At the same time, lawmakers have also been eyeing potential legislation in response to the ongoing banking crisis, including measures that would repeal a 2018 law that loosened regulations on banks like SVB. But others have held off on endorsing major policy changes as the dust settles.
ICYMI:
April 10: Why progressive lawmakers are fighting against a TikTok Ban
Progressive lawmakers are emerging as the fiercest defenders of TikTok on Capitol Hill as the push to ban the popular video-sharing app heats up in Washington.
A handful of left-leaning lawmakers - including members of the "Squad" - have voiced support for TikTok and opposition to banning the platform, taking on a vocal coalition of bipartisan members who believe the app should be prohibited in the U.S. The anti-TikTok ban crowd - while recognizing that the app poses concerns - has advocated for a broader conversation about data privacy and social media, arguing that zeroing in on TikTok would not alleviate the issues at hand.
The anti-TikTok ban crowd — while recognizing that the app poses concerns — has advocated for a broader conversation about data privacy and social media, arguing that zeroing in on TikTok would not alleviate the issues at hand. Members have also pointed to free speech concerns and the practical and political positives that come with the platform.
Rep. Jamaal Bowman, the first high-profile lawmaker to back the app amid the campaign to ban it, expressed the same concerns at a press conference last month alongside TikTok creators.
Lawmakers have argued that banning TikTok would not help address the concerns at hand, namely how much data social media companies are allowed to collect.
During a press conference with TikTok creators last month, Pocan said "There is a real problem and we should be addressing it and it includes TikTok and Facebook and Twitter and Instagram and other platforms, about our data and our privacy of our data and selling our data and allowing misinformation - but that is not what's being addressed when people say they want to ban TikTok."
Progressives have also cited the practical and political benefits of TikTok when pushing against a ban.
Lawmakers who are against banning TikTok also said they want more information. They noted that despite hearing about national security concerns with the app, Congress has not yet received a briefing.
For Fun:
April 11: ’60 Minutes’ Investigates Deep Space and the James Webb Space Telescope
Since NASA shared the first five images from the James Webb Space Telescope last July, astronomers have been busy using the telescope to study the cosmos and uncover new information about the origins of the universe. Scott Pelley took a closer look at Webb and its images in the most recent episode of “60 Minutes.”
“NASA’s James Webb Space Telescope has hardly opened its eyes, and the universe is new. More mysterious, more beautiful than humanity’s dreams,” Pelley says. The largest space telescope ever built, Webb launched into space on Christmas Day in 2021 from Arianespace’s ELA-3 launch complex in French Guiana.
Webb’s journey to the second Lagrange point (L2) took about a month and the $10 billion space telescope is about a million miles (1.5 million kilometers) from Earth. From its orbit around the Sun, Webb can peer back toward “the origin of everything,” Pelley says.
Pelley sat down with astrophysicist Brant Robertson to discuss Webb’s JWST Advanced Deep Extragalactic Survey (JADES) image. Robertson, who works at the University of California Santa Cruz, helps lead the JADES team.
Robertson explains that all the many thousands of dots in the JADES image are galaxies, some of which are larger than the Milky Way Galaxy. The image contains around 130,000 galaxies, half of which had never been seen before.