Tax Policy, Government Funding, and Student Loan Forgiveness
Tax Policy:
December 7: Who Would Benefit From Restoring The Full CTC, EITC, and The TCJA’s Business Tax Breaks?
TPC looked at five key elements of a possible agreement: Making the Child Tax Credit fully refundable as it was in 2021, restoring the more generous 2021 version of the earned income tax credit for workers who don't live with their children, allowing businesses to once again write off the full cost of research in the year the expenses are incurred, extending more generous "Bonus depreciation" of capital equipment, and allowing more liberal rules for firms to deduct interest costs.
Since expensing largely results in a change in the timing of tax payments, the revenue loss for the next 10 years would drop to about $155 billion.
The fiscal cost of extending tax cuts and jobs act business provisions and a more generous child tax credit and earned income tax credit Who benefits most? If Congress agrees to all the changes, TPC found the biggest beneficiaries, measured in terms of percent change in after-tax income, would be the lowest-income households.
They'd get an average tax cut of 2.1 percent in 2023, or $370. The next highest income group, those making between about $30,000 and $60,000, would see their tax bill fall by an average of about 0.5 percent of after-tax income, or about $200. Not surprisingly, low-income families with children would benefit the most.
They'd see an average tax cut of about $1,000, raising their after-tax incomes by 3.7 percent.
Because these high-income households make the highest wages and also own the most corporate shares, they'd receive an outsized benefit from the corporate tax cuts through higher wages and salaries and increased stock prices.
Representative changes In 2027, after all the individual income tax provisions of the TCJA, are due to expire, the overall story is roughly the same, though the numbers change somewhat.
The table shows the impact on federal tax revenue for fiscal years 2023-42 of repealing amortization of research and experimental (R&E) expenditures; extend the limitation of interest deductions to 30 percent of EBITDA; make 100 percent bonus depreciation permanent; make the child tax credit (CTC) fully refundable regardless of earned income or individual income tax liability; and extend expansion of earned income tax credit (EITC) for workers without qualifying children enacted by the American Rescue Plan (ARP). These tables were revised on December 7, 2022.
A rapper who boasted in a YouTube music video about getting rich quickly by scamming a COVID relief program was sentenced today to 77 months in federal prison. Fontrell Antonio Baines, a.k.a. "Nuke Bizzle," of Memphis, Tennessee, was sentenced by United States District Judge Michael W. Fitzgerald, who also ordered him to pay $704,760 in restitution to the California Employment Development Department.
Baines pleaded guilty on July 11 to one count of mail fraud and, in a separate case, to one count of unlawful possession of a firearm and ammunition by a convicted felon.
Baines defrauded the program to obtain unemployment benefits administered by the EDD in the names of third parties, including identity theft victims. The applications for benefits also included false statements about the work histories and in-state residences of the named applicants. Through his fraud, Baines turned the taxpayer-funded program into “his personal piggybank,” according to a sentencing memorandum filed by federal prosecutors.
The applications for these benefits listed addresses in Beverly Hills and Koreatown to which Baines had access. As a result, Baines was able to take possession of and use the debit cards that EDD pre-loaded with the unemployment benefits obtained through the fraudulent applications.
Baines filed 92 fraudulent PUA claims with EDD, resulting in attempted losses to EDD and the United States Treasury of approximately $1,256,108 and actual losses of at least $704,760.
According to court documents, Baines bragged about his ability to defraud the EDD in a music video posted on YouTube and in postings to his Instagram account. In the music video called "EDD," Baines boasts about doing "My swagger for EDD" and, holding up a stack of envelopes from EDD, getting rich by "Go[ing] to the bank with a stack of these" - an apparent reference to the debit cards that came in the mail.
Economic News/Policy:
December 18: Economy Week Ahead: U.S. Housing, Spending in Focus
Monday: The National Association of Home Builders releases its index that tracks the sentiment of single-family home builders. The NAHB/Wells Fargo Housing Market Index has declined every month this year. It had a preliminary reading in November of 39, down from 45 in October and 54 in September.
Tuesday: The Commerce Department reports November data on building permits and housing starts as well as completions for residential construction. Housing starts in October were at a seasonally adjusted annual rate of 1.4 million, down 4.2% from September and 8.8% from a year before.
Wednesday: The National Association of Realtors reports how many existing homes were sold in November, and for how much. October existing-home sales decreased 5.9% from September to a seasonally adjusted annual rate of 4.43 million—the ninth straight month of declines. Sales declined 28.4% in October from a year earlier.
Thursday: The Labor Department releases initial unemployment insurance claims for the week ended Dec. 17. Initial claims, a proxy for layoffs, declined last week to the lowest level since late September.
The Commerce Department releases its third estimate of the output of the U.S. economy in the third quarter. The agency said in its second estimate that gross domestic product increased at an annual rate of 2.9%.
Friday: The Commerce Department releases figures on household spending, income, and inflation for November. Personal spending, which includes goods-and-services purchases, rose 0.8% in October. Income rose 0.7% in October from September. The personal-consumption expenditures price index, the Federal Reserve’s preferred gauge of inflation, increased 6% in October from a year earlier, marking an easing from 6.3% in September.
The Commerce Department releases data on new home sales and prices for November. Sales of new houses in October were at a seasonally adjusted annual rate of 632,000, a 7.5% increase from September.
The University of Michigan releases its final reading of consumer sentiment for December. Preliminary December sentiment was 59.1, an increase of 4% from November and a decline of 16% from a year earlier.
December 17: Fed, Wall Street ‘in a brawl’ over inflation cure
Inflation as measured by the consumer price index had fallen for the fifth straight month - and far more than analysts expected - according to data released right before the Fed was set to slow down its interest rate hikes. While the Fed did end up boosting rates by a smaller amount than its previous four hikes, a dour forecast from officials, including Chairman Jerome Powell, shook markets out of their optimism.
“The Fed and the stock market are fighting. They’re in a brawl right now,” said Callie Cox, U.S. investment analyst at online investment firm eToro, in a Friday phone interview. "The stock market's been itching for a pivot for months now, really since the summer, and the Fed time and time again has told us that they're serious about inflation, they want to get inflation under control, and if that means keeping rates high for a while, so be it," she added.
Fed officials know their tough talk about keeping rates high and snuffing out inflation at whatever the cost alarms investors and traders.
“The Fed knows that its words are equally as powerful in a world where social media is so pervasive and information just moves so quickly,” Cox said. "The Fed is preparing markets for what's coming before it actually happens. This time around it just feels a little bit more painful because the Fed needs to get inflation down."
On Wednesday, Fed officials boosted their projections for how high they would need to raise interest rates and how long they would keep them at levels meant to hinder the labor market.
"The Fed did not welcome the disinflation trends that have just started to emerge and focused on robust job gains and elevated inflation. Any hopes of a soft landing disappeared as the Fed seems like they are committed to taking rates much higher," said Edward Moya, senior markets analyst at OANDA, in a Wednesday note to clients.
December 11: Economy Week Ahead: U.S. Inflation, Fed Rate in Focus
Tuesday: The Labor Department releases its November consumer-price index, a measure of what consumers pay for goods and services. Inflation has eased some in recent months but remains high. The CPI increased 7.7% in October from a year earlier, down from 8.2% in the prior month.
The Federal Open Market Committee will begin a two-day meeting to discuss whether and how much to raise interest rates.
Wednesday: The Fed is due to announce a decision on interest rates as it attempts to bring down high inflation. Officials have raised rates this year at the fastest pace since the early 1980s, and they are expected to raise their benchmark interest rate by 0.5 percentage point. The Fed is also due to release updated interest-rate and economic projections, and Fed Chair Jerome Powell is scheduled to have a press conference after the rate announcement.
Thursday: The Commerce Department releases figures for retail sales, which includes spending at stores, online, and at restaurants. Retail sales rose a seasonally adjusted 1.3% in October compared with September, when they were unchanged.
The Labor Department releases initial unemployment insurance claims for the week ended Dec. 10. Initial claims, a proxy for layoffs, have risen recently from lows earlier in the year but remain close to their 2019 weekly average. The Fed releases figures on industrial production, including output at factories. The Commerce Department releases business inventories, a measure of the value of goods held by businesses.
Friday: The data firm S&P Global releases December purchasing managers indexes for the manufacturing and services sectors in various countries. The PMIs track business activity and sentiment, with a reading above 50 indicating expansion and a reading below 50 indicating contraction. The U.S. composite output index fell to 46.3 in November from 48.2 a month earlier, among the quickest contractions since 2009.
December 9: Labor costs point to corporate profit as the main inflation driver
The continued drop in labor costs has economists pointing to private sector profits as a main driver of inflation, undercutting arguments from the Federal Reserve regarding its plan to bring down consumer prices that remain around 40-year highs.
Paul Donovan, an economist with Swiss Bank UBS, wrote in a note to investors saying that Wednesday's labor cost numbers showed again that corporate profits are rising faster than labor costs. "Today's inflation is more about margin expansion than labor costs," he wrote. Earlier this week, Donavan said the slowing labor cost growth underscored "How little of the current inflation is labor related."
Speaking on CNBC Thursday morning, Rep. Kevin Brady, the top Republican on the Ways and Means Committee, sounded a familiar refrain, arguing the labor situation in the U.S., which has been characterized by a tight job market and rising nominal wages, was behind lingering consumer inflation.
More targeted proposals to fight inflation and price increases by businesses have been advanced by Democrats in recent months, mainly in the form of windfall profits taxes on the oil sector, which the United Nations has singled out as a primary source of commodity inflation.
"Big corporations, especially Big Oil, are using inflation as an excuse to gouge consumers, hoard record profits, and raise CEO pay and bonuses. We've got to protect hardworking Americans from corporate profiteering, and passing my bill to claw back Big Oil windfall profits is the right place to start," Whitehouse said in a statement to The Hill.
Government Funding:
December 21: No Tax Title in Omnibus, Not Even a Little One
The coalition’s Emily Cadik told Tax Notes the issue wasn’t with the LIHTC provisions as introduced in the Affordable Housing Credit Improvement Act of 2021 (H.R. 2573), which has bipartisan, bicameral support, but with the overall contours of the tax package.
“A lot of the tax items that you normally see included in a year-end tax bill like tax extenders, none of that was included,” Cadik said. “The real holdup was a partisan divide over some of the business tax incentives like research and development and the child tax credit, and the impasse over that.”
Cadik said the coalition will continue to push for LIHTC expansion until the bill is completely done. “There’s a cut to affordable housing production if Congress doesn’t extend this 12.5 percent allocation increase,” she added.
The bill doesn’t relax a Form 1099-K reporting requirement, as sought by the Coalition for 1099-K Fairness, which counts eBay, Etsy, PayPal, and Airbnb among its members.
Jay Timmons of the National Association of Manufacturers, which fought for full research and development expensing and to loosen the limitation on the net interest deduction under section 163(j), said failing to include the provisions “will now undercut small manufacturers’ ability to invest in their workers, facilities and communities.”
“As the next Congress convenes, we urge lawmakers to prioritize these policies, and we will continue to work with manufacturing champions from both parties to provide tax certainty to the nearly 13 million people who work in manufacturing today,” Timmons said.
December 20: What made the cut in Congress’s 4,155-page, $1.7 trillion funding bill — and what didn’t
Congress is set to vote on a 4,155-page, $1.7 trillion government funding bill within days of its release this week. The omnibus funding package, made up of the 12 annual appropriations bills, will fund the government and its various agencies through the remainder of fiscal 2023, which ends in late September.
Negotiators say the defense funding baseline saw about a 10 percent increase, above the 7.1 percent inflation rate and almost double that of the nondefense baseline, when not factoring in veterans funding - which Democrats had previously pressed be categorized in its own section in spending talks.
The funding bill includes more than $40 billion for Ukraine aid, higher than what the White House requested last month. The jump comes as there have been concerns about how such funding would fare next year in a GOP-led House where some conservatives have become critical of the aid.
The bill includes about $40 billion in funding to "Assist communities across the country recovering from drought, hurricanes, flooding, wildfire, natural disasters, and other matters," a legislative summary from Senate Appropriations Chair Patrick Leahy said.
In funding highlights boasted by GOP negotiators, Republicans said the bill cut IRS funding "For the first time in a decade." Spending bill would revamp pandemic response, Medicaid funding New York panel finalizes 'nation-leading' climate blueprint.
December 15: Senate passes short-term funding bill to avert a government shutdown
The Senate on Thursday passed a short-term funding bill that punts Friday's government shutdown deadline through next week as negotiators race to patch together a larger government funding deal for fiscal 2023. The Senate voted 71-19 to pass the continuing resolution, sending the legislation to President Biden for approval after it passed the House the night before on a vote of 224-201.
The bill freezes funding levels through Dec. 23 to buy time for ongoing spending negotiations, preventing a shutdown that would have otherwise begun on Friday at midnight.
Divisions have been on display within the GOP over how long lawmakers should put off setting new government funding levels - particularly as Congress prepares to usher in a newly Republican-led House next month. Others in the GOP have pushed against a one-week CR in favor of a stopgap bill that would kick the deadline into the new year to give the party more influence on how the government should be funded for fiscal 2023, which began in October. Other Senate Republicans opposing the bill also pressed for partisan amendments ahead of the vote.
Just nine out of 213 House Republicans voted with Democrats to advance the bill on Wednesday after GOP leadership urged rank-and-file members to reject the short-term funding bill.
Student Loan Forgiveness:
December 12: Supreme Court takes up another clash over Biden’s student debt relief plan
The Supreme Court on Monday agreed to hear a second legal clash over President Biden's ambitious student debt relief plan that is currently blocked by lower courts. The two cases involve an effort by the Biden administration to reinstate a loan forgiveness program that would give federal borrowers making less than $125,000 a year up to $10,000 debt relief.
A Texas-based federal judge last month invalidated the program and a New Orleans-based federal appeals court let that ruling stand, prompting the administration's appeal to the Supreme Court.
Separately, a St. Louis-based appeals court halted the loan relief program in response to a challenge by six conservative-led states - Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina.
The White House, for its part, maintains that its policy is authorized by a 2003 federal law known as the Higher Education Relief Opportunities for Students Act, which both the Trump and Biden administrations have drawn upon to alleviate student borrowers' financial strain during the global pandemic.
The Congressional Budget Office estimates Biden’s plan will cost about $400 billion over 30 years. Its aim is to forgive up to $10,000 in federal student loan debt for those making under $125,000 annually and up to $20,000 for recipients of Pell Grants, which assist students from lower-income families. The program has drawn numerous legal challenges including two cases that sought emergency relief in the Supreme Court earlier this year that was unilaterally rejected by Justice Amy Coney Barrett.
For Fun:
December 19: Arctic blast this week brings the coldest Christmas in nearly 40 years for millions
The coldest air of the season – by far – will dive down from Canada, bringing dangerously cold temperatures to millions this week. Temperatures will drop so low in some places that frostbite could begin in as little as five minutes on exposed skin.
Temperatures are already cold to start the week across much of the northern tier of the country.
This big winter storm will take shape beginning on Tuesday, bringing heavy snow, strong winds – both of which could lead to blizzard conditions – rain, and even colder temperatures to follow. The snow will begin across the Rockies and amplify as it approaches the Midwest, where the biggest impacts from the storm will be felt.
Snow will begin for this region Thursday evening and last through much of the Christmas weekend. Heavy snow will fall across much of the Midwest and extend as far south as the Lower Mississippi Valley - where we could see snow flurries as far south as Jackson, Mississippi.
“It’s night in the northern hemisphere Arctic regions and there’s snow and ice covering that entire area. So, you’ve basically got a source freezer sitting up there in the Arctic polar regions,” Greg Carbin, branch chief at the prediction center said. "It's sort of the Polar Express and the cold air can hold on to those characteristics because there's a lot of snow cover on the ground, even across the north-central United States."