Bipartisan Tax Bill, IRS Direct File, and the Federal Trade Commission
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Tax Policy/News:
January 26: GOP leaders face conservative, moderate pushback on bipartisan tax deal
Speaker Mike Johnson (R-La.) faces a challenging decision regarding a bipartisan tax bill that aims to reduce business taxes while expanding the child tax credit, amidst opposition from both hard-line conservatives and Northeastern moderates within the GOP.
These internal disputes complicate the party's ability to pass legislation due to its slim majority. The bill has sparked controversy particularly among Republicans from high-tax states who are dissatisfied with the exclusion of an increase in the state and local tax (SALT) credit, a key priority for them.
Despite a contentious call with SALT Caucus members, the bill is expected to be fast-tracked, potentially leading to opposition votes from these members.
Furthermore, hard-liners criticize the bill for not addressing issues such as eligibility for child tax credits for undocumented immigrants and accuse the GOP leadership of prioritizing corporate interests.
Despite the internal discord, the bill has received support from Senate Majority Leader Chuck Schumer (D-N.Y.) and the White House, adding another layer of political complexity for Republicans wary of granting President Biden a legislative victory.
The bill, which has already passed out of the House panel with significant support, is anticipated to be brought to the floor under a fast-track process, bypassing the typical procedural hurdles and potentially allowing it to pass with bipartisan support despite the intra-party opposition.
January 25: IRS to launch free online filing system pilot in March
The IRS is set to launch its new online tax filing system, Direct File, in March, with expectations for widespread use across 12 states without imposing a maximum user limit.
Initially thought to be a limited pilot, the program is now open to any eligible taxpayer within these states, including Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington, and Wyoming.
Direct File is tailored for individuals with W2 income, unemployment compensation, Social Security benefits, and limited interest income, excluding those with investment returns or gig economy workers using 1099 forms.
The system will support standard deductions, set at $14,600 for single filers and $29,200 for married couples in 2024, and limit tax credit claims to child tax credit, earned income tax credit, and credit for other dependents.
Despite pushback from commercial tax preparation firms and political figures, the IRS maintains that Direct File is designed to be scalable and aims to provide a free, accessible filing option for eligible taxpayers, enhancing the tax filing process with features similar to commercial software, including prompts and recommendations for tax credits.
The Internal Revenue Service (IRS) is emphasizing the importance for businesses to reassess their eligibility for the Employee Retention Credit (ERC), a tax incentive from the pandemic era, as it intensifies compliance measures to prevent fraud.
The IRS's Criminal Investigation (CI) division is spearheading educational sessions for tax professionals to ensure accurate understanding and application of the ERC.
Businesses that may have erroneously claimed the ERC are encouraged to participate in the IRS's Voluntary Disclosure Program or utilize a special withdrawal process for pending claims to avoid penalties and interest.
This initiative comes in response to aggressive marketing tactics that misled businesses into filing inappropriate claims.
The IRS is also ramping up audits and criminal investigations targeting fraudulent ERC claims and has initiated actions against promoters of erroneous claims.
With a substantial amount of ERC claims under scrutiny, the IRS aims to safeguard the integrity of pandemic-related tax relief measures and ensure compliance with tax laws.
Economic News/Policy:
January 24: A key indicator says the Fed is still poised to cut interest rates in March
Despite market expectations adjusting away from an imminent Federal Reserve interest rate cut, Apollo's Chief Economist Torsten Sløk suggests that a reduction in March remains a strong possibility, as indicated by the Taylor Rule.
This economic principle, which the Fed has utilized since the 1990s, suggests interest rates should be set based on inflation and unemployment levels, advocating for a current fed funds rate of 4.5% instead of the existing 5.25%-5.50%.
This discrepancy implies that rates have been higher than the Taylor Rule recommends, fueling speculation of an upcoming Fed rate cut.
However, this outlook contrasts with some Fed officials' warnings about potential further rate hikes due to persistent inflation and the possibility of new economic shocks.
Market sentiment had previously leaned towards a rate cut in March, with over 80% probability according to fed fund futures, but this optimism has dampened, with current expectations falling to just over 50%.
January 24: Americans’ economic outlook brightens as inflation slows and wages outpace prices
Recent indicators suggest a growing optimism among Americans regarding the economy and inflation, potentially buoying consumer spending and influencing President Joe Biden's political prospects.
The University of Michigan's consumer sentiment index has seen its most significant increase since 1991, and the Federal Reserve Bank of New York reports that Americans' inflation expectations are at their lowest in nearly three years, with an increasing number of people expecting their financial situations to improve.
This positive shift in sentiment is attributed to slowing inflation, increased incomes, lower gas prices, and a buoyant stock market, with inflation dropping from around 9% in June 2022 to 3.4% and real wages rising.
Despite the significant reduction in inflation, prices remain nearly 17% higher than three years ago, posing a question for voters about whether the decline in inflation or the still-high cost of living will have more impact in the upcoming presidential election.
High costs for essentials like food and rent continue to burden many, although some, like software developer Dana Smith, feel optimistic about the economy's direction. This change in public sentiment, influenced by political affiliations, could play a crucial role in shaping the economic and political landscape ahead of the 2024 presidential race.
Technology:
January 25: FTC investigating relationships between AI startups, tech giants
The Federal Trade Commission (FTC) is initiating an investigation into significant investments by major tech companies in generative AI firms, focusing on the collaborations between Microsoft and OpenAI, Amazon and Anthropic, as well as Google and Anthropic.
The FTC aims to explore how these financial engagements and partnerships might influence competition and innovation within the burgeoning AI sector.
FTC Chair Lina Khan emphasized the importance of safeguarding against practices that could inhibit market openness and fair competition amidst the rush to develop AI technologies.
Responses from the companies involved highlight differing perspectives: Google emphasizes its commitment to openness, while Microsoft views its partnership with OpenAI as a means to foster competition and hasten innovation.
This inquiry comes against the backdrop of Microsoft's complex relationship with OpenAI, marked by the contentious departure and swift reinstatement of OpenAI CEO Sam Altman.
The scrutiny extends beyond the U.S., with the UK's Competition and Market Authority and the European Union also examining the implications of these tech giants' investments in AI on market dynamics and regulatory standards.
Energy and Environmental Policy/News:
January 24: Manchin blasts Biden guidance on EV charger tax credit: ‘Spits in the face of rural America’
Senator Joe Manchin (D-W.Va.) has voiced strong criticism towards the Biden administration for its liberal interpretation of eligibility criteria for electric vehicle (EV) charger tax credits under the Inflation Reduction Act, a piece of compromise legislation backed by Manchin and other Democrats to encourage climate-friendly technologies.
The administration's guidance, which broadly defines nonurban areas as any census tract with at least 10% of blocks not classified as urban, effectively makes the tax credit accessible to roughly two-thirds of the U.S. population.
Manchin argues this approach neglects rural Americans, who the tax credit was initially intended to support, by prioritizing investments in areas that may not need it as urgently.
This dispute highlights ongoing tensions between Manchin and the Biden administration over interpretations of the Inflation Reduction Act's provisions, particularly those concerning EVs.
While Manchin sees this as a deviation from the law's intent, other Democrats, like Senators Alex Padilla (Calif.) and Catherine Cortez Masto (Nev.), have lauded the guidance for its potential to drive investments in clean energy infrastructure and support the transition to a zero-emission vehicle fleet.
ICYMI:
January 23: TurboTax maker Intuit barred from advertising ‘free’ tax services without disclosing who’s eligible
The Federal Trade Commission (FTC) has imposed a directive on Intuit Inc., the company behind TurboTax, preventing them from advertising their tax filing services as "free" unless they truly offer such services at no cost to all customers or clearly state the eligibility criteria.
This decision follows the FTC's finding that Intuit engaged in deceptive advertising by promoting TurboTax's free filing services, which were not accessible to all users, across various media platforms.
The FTC's order mandates Intuit to transparently disclose the percentage of consumers eligible for free services and to clarify when the majority of taxpayers do not qualify.
Intuit has contested the FTC's ruling, deeming it "deeply flawed" and expressing confidence in overturning the decision through an impartial entity.
This ruling comes after Intuit faced a significant settlement in 2022, where it was required to pay $141 million in restitution for misleading advertising practices, particularly affecting low-income taxpayers.
For Fun:
January 24: Scientific breakthrough may save northern white rhino through surrogacy
In a historic achievement, scientists have successfully transferred a rhinoceros embryo for the first time, marking a significant step in the conservation of the endangered northern white rhino.
With only two females of the species remaining, Najin and Fatu, both unable to carry pregnancies, the breakthrough raises hope for the survival of the northern white rhino.
Following the death of the last male northern white rhino, Sudan, in 2018, conservationists intensified efforts to save the species.
In 2019, oocytes were harvested from Najin and Fatu, and embryos were created using the sperm of deceased northern white rhinos.
The successful transfer of a southern white rhino embryo, announced recently, demonstrated the viability of the procedure.
With 30 embryos now available, future surrogates, likely southern white rhinos, could contribute to the reintroduction of the species into the wild in the next 10 to 15 years, offering a lifeline to a population threatened by poaching since the 1960s.
Plans for implanting a surrogate with a northern white rhino embryo are underway this year, marking a crucial step in the ongoing conservation efforts.