IRS Recruitment, Inflation, and Green Tax Credits
Tax Policy/News:
April 14: IRS plans to hire more accountants
In a statement Friday accompanying its annual data book, the IRS clarified its priorities for how it will use the extra $80 billion in funding from last year's Inflation Reduction Act in terms of tax examinations and audits.
"The IRS will focus the Inflation Reduction Act enforcement resources on hiring the accountants, attorneys, engineers, economists, and data scientists needed to pursue high-income and high-wealth individuals, complex partnerships, and large corporations that are not paying the taxes they owe," said the agency's statement."Given the increase in filing populations over time, the complex nature of the tax filings, and the IRS's inability to keep pace due to a lack of resources, it makes sense to focus initial Inflation Reduction Act implementation efforts exclusively on increasing our capacity to assess compliance of high-income and high-wealth individuals, complex partnerships, and large corporations. The IRS has no plans to increase the audit rate for households making less than $400,000."
The IRS noted that its audit rates have been declining, which is one reason why it wants to hire more employees for tax examinations and audits.
The IRS processed over 262.8 million federal tax returns during FY 2022. Of those, 160.6 million were the tax returns of individuals, and of that total, 150.6 million were e-filed, or almost 94% of all individual tax returns.
The IRS noted that its audit rates have been declining, which is one reason why it wants to hire more employees for tax examinations and audits. However, its audit rate data is not the most up-to-date.
The 2018 information is the most recent year the IRS has final audit rate data because it's the most recent tax year for which the statutory period has closed, so in most cases, no new audits will be started and the audit coverage rates for that year should be final.
Tax year 2018 audit rates for taxpayers with over $10 million in total positive income were 9.2%, down from 13.6% for tax year 2012. Over the same period, the overall corporate audit rate fell from 1.3% to.6% and the audit rate for partnerships fell from 0.3% to 0.1%.
The IRS stressed that in the Strategic Operating Plan, it released earlier this month, the agency is focusing on pursuing high-income and high-wealth individuals, complex partnerships, and large corporations that are not paying the taxes they owe. As a result, the IRS said it has no plans to increase the audit rate for households making less than $400,000.
Economic News/Policy:
April 17: Democratic senators favor forcing House vote on debt limit increase
Democratic senators are getting antsy over the lack of progress on legislation to avoid a national default and want House Democrats to begin working on a plan to force Republicans to vote on a bill to raise the debt limit.
House Minority Leader Hakeem Jeffries has shelved the idea of circulating a discharge petition to force a vote on a clean debt limit increase, opting instead to put pressure on Speaker Kevin McCarthy to schedule such a vote himself.
Sen. Richard Blumenthal (D-Conn.) expressed pessimism about negotiating a deal with McCarthy, who has yet to offer a detailed plan for reducing spending. Democrats say such a plan would need to be the starting point of any talks. “At some point, they will have to move forward with a discharge petition,” he predicted of House Democrats. “As we come closer to cataclysmic financial meltdown, I think the pressure will build on Republicans to be realistic.”
Blumenthal said “there should be a consideration” of moving a discharge petition soon, adding: “It ought to be begin as soon as necessary.”
Members of the House minority can use the House discharge rule to bring a bill to the floor without the support of the majority's leadership by collecting signatures from a majority of the chamber's members.
Democrats in both chambers think they could get a handful of moderate Republicans to sign a petition to circumvent McCarthy to avoid a default if there doesn’t appear to be another viable option, though none have publicly said they would do so. Jeffries waved aside the possibility of moving a discharge petition when asked about it at a press conference last month.
"The most viable option right now is for the extreme MAGA Republicans in the House to get their act together and do what they consistently did when Donald Trump was the president of the United States of America," he told reporters, noting the House raised the debt ceiling three times under Trump "Without fanfare."
Any debt limit measure to be moved with a discharge petition would have to be referred to a House committee at least 30 days before attempting to move it to the floor.
Sen. Elizabeth Warren said she favors House Democrats circulating a discharge petition to move a clean debt-limit increase "If that's what it takes" to get it passed.
Some Democratic senators worry the date when the nation faces default may arrive without enough advance warning to give House Democrats the time they need to discharge a clean debt limit bill to the floor for a vote before disaster strikes.
April 15: Economists Turn More Pessimistic on Inflation
The economy is proving more resilient and inflation more stubborn than economists expected a few months ago, and as a result, the Federal Reserve will keep interest rates high for longer, according to The Wall Street Journal’s latest survey of economists.
On average, economists expect inflation, as measured by the annual increase in the consumer-price index, to end this year at 3.53%, up from 3.1% in the January survey. Inflation in March was 5%, the Labor Department reported this past week, the lowest in two years.
The midpoint of the Federal Reserve’s current target range for the fed-funds rate now stands at 4.9%, and most economists see that midpoint rising to 5.125% by the end of June, implying one more quarter-point increase in May or June. But whereas markets expect the Fed to then cut rates by year-end, only 39% of economists surveyed agree; most see no rate cut before 2024. That’s a change from January when a slim majority did expect a cut by the end of the year.
The pace of job growth has slowed in recent months but remains much higher than the 2019 pre-pandemic average. Employers added 236,000 workers in March, a historically strong gain but the smallest in more than two years, according to the Labor Department. The unemployment rate ticked down to 3.5%.
Economists expect that pace to slow considerably and turn negative later this year. They see the economy adding 12,000 jobs a month on average over the next four quarters, with job losses from the third quarter of 2023 through the first quarter of 2024. On average, they expect a 4.3% unemployment rate at the end of 2023, lower than the 4.65% they projected on average in the January survey.
The Wall Street Journal survey of 62 forecasters was conducted April 7-11. Not all participants responded to every question.
Energy and Environmental Policy/News:
April 12: Green Tax Credits Are Likely to Be More Popular—and Expensive—Than Expected
Green tax credits from last year’s climate law are likely to be far more popular than anticipated, potentially reducing carbon emissions—but also increasing costs to U.S. taxpayers, according to an emerging consensus of government and private-sector forecasters.
Buyers of electric vehicles and clean-energy producers could claim tax credits worth hundreds of billions of dollars more than lawmakers expected when they passed the Inflation Reduction Act, recent estimates from Goldman Sachs Group Inc., researchers at a Brookings Institution conference, and the White House Office of Management and Budget suggest.
The 2022 law was aimed at spurring a clean-energy future, using a range of incentives to encourage electric cars, solar energy, green hydrogen, nuclear power, and carbon-capture facilities. It also includes other provisions, such as funds for the Internal Revenue Service and prescription-drug changes.
To environmental advocates and the Biden administration, more people using the tax credits could mean faster-than-expected results: Reductions in carbon emissions, higher wages for workers on clean-energy projects, and supply chains that are less reliant on China.
But the tax-credit boom could undermine another administration talking point about the law: The claim that it will reduce long-run budget deficits. The Goldman and Brookings analyses contend that the tax credits could cost American taxpayers three times as much as the $271 billion forecast when Congress passed the law. The OMB figure points in the same direction, though its estimates about revenue from tougher tax enforcement—which are larger than congressional projections—turn the law from deficit-increasing to deficit-reducing.
Estimates of carbon-capture tax credits and hydrogen tax credits also could turn out to be low, depending on how regulations are written and how quickly those technologies get adopted.
The law’s tax credits are largely open-ended. Some, such as the $7,500 electric-vehicle credit, have caps per purchase and income limits. Others, such as investment tax credits for wind and solar energy, limit the value of the tax benefit to a percentage of the cost of a project. But in general, more electric vehicles, wind turbines, and hydrogen fuels will mean more tax credits.
“We’re in this weird moment,” said Mr. John Larsen of the Rhodium Group. “It’s like all the money’s on the table and you just have to see how the market responds.”
For Fun:
April 18: The Lyrid meteor shower could give you the chance to see up to 20 shooting stars this weekend
The Lyrid meteor shower is peaking this weekend, giving lucky sky gazers the chance to see around 10 to 20 shooting stars an hour.
The event happens every year when the Earth passes through a cloud of dust left behind by the tail of a comet. As debris from the comet falls into our planet's atmosphere, it burns up and leaves behind a trail of dazzling shooting stars in the night sky that can be viewed for several seconds.
This year, conditions are optimal to catch a glimpse of the streaks with the naked eye as the moon will be in its first crescent and won't be obscuring the show.
The showers began last week, and are due to peak from April 21 to 23 in the Northern Hemisphere. The Southern Hemisphere will also have a chance to see Lyrid meteors, but they will be fewer in number.