Tax Relief, Income Taxes, and Amended Returns

Tax Policy/News:

June 24: Who Gets A Break? Clashing Ideas On Tax Relief Are Teed Up For The 2024 Campaign

Just six days after the bipartisan deal on the debt limit became law, House Republicans proposed a slew of tax cuts, leading to charges of hypocrisy by Democrats in a squabble that shows two clashing visions for the U.S. economy.

GOP lawmakers are pushing deep tax cuts for companies and the affluent as the primary driver for sustaining economic growth, while President Joe Biden and fellow Democrats seek more targeted tax cuts to achieve social goals such as reducing child poverty and shifting to renewable energy that can help the economy in the long run.

The Republican tax cuts for businesses, coupled with an increase in the standard deduction for households, would be funded by wiping out $216 billion in tax breaks over 10 years that Biden signed into law last year to support the development of electric vehicles and renewable energy.

The dispute sets the stage for the 2024 elections and the immediate economic challenges that the winners will face: Lawmakers will need to raise the debt limit again and key portions of the 2017 tax cuts passed under then-President Donald Trump will expire and cause taxes to rise for most households unless they are extended.

While Republicans are promising their tax cuts on the need to get tax relief flowing through the economy, Democrats are positioning their preferred tax breaks as investments that would occur over decades.

The bottom 40% of households would on average have tax cuts of less than $12 a month, according to an analysis by the Tax Policy Center.

Households in the top 20% would have an average monthly tax cut of $46. By contrast, Democrats would rather help families by renewing the expanded child tax credit, which became more accessible and increased in size because of Biden's 2021 coronavirus pandemic relief package.

June 22: Wisconsin Republicans pass plan to cut income taxes by 15% on average

Income taxes would be cut across the board by $3.5 billion under a plan passed Thursday by Republicans who control the Wisconsin Legislature’s budget-writing committee, a proposal that Democrats assailed as being skewed to benefit the wealthy.

Under the income tax cut, which is retroactive to Jan. 1, 2023, the average reduction would be 15% for all filers or $573, Republicans said.

The state would still go from four to three brackets, with the lowest rate dropping to 3.5% and the highest rate being 6.5%. The income tax cut will be paid for by tapping the state's projected $7 billion surplus.

Senate Majority Leader Devin LeMahieu proposed moving to a flat income tax rate of 3.25% by 2026, saying the state surplus offered a "Once-in-a-lifetime opportunity" to make generational tax reform.

Democratic Gov. Tony Evers, who had proposed a tax cut primarily benefiting low and middle-income earners, criticized the GOP plan, declaring, his spokesperson Britt Cudaback said via social media, that "The GOP is doubling down on tax breaks for wealthy millionaires and billionaires instead of prioritizing relief for working families.”

Wisconsin's total tax burden, which is total taxes measured as a share of personal income, fell to its lowest point in more than 50 years in 2022, according to the Wisconsin Policy Forum.

Republican Rep. Terry Katsma said the cuts were designed to keep Wisconsin competitive with neighboring states with lower rates, like Illinois, which has a flat tax of 4.95%. "We have to be competitive with the states around us," Katsma said.

June 21: Taxpayer Advocate: IRS Falls Behind On Processing Amended Returns   

The mid-year report to Congress, released Wednesday by National Taxpayer Advocate Erin Collins, found the IRS reduced its backlog of unprocessed paper-filed original tax returns from 13.3 million at the end of the 2022 filing season to 2.6 million at the close of the 2023 filing season, an 80% reduction that marked a return to pre-pandemic levels.

The report also found the IRS is still behind in processing amended tax returns and taxpayer correspondence.

The report said the IRS was much more effective in answering taxpayer calls this year, "But [that] could only be accomplished by prioritizing the phones over other IRS operations, and it resulted in greater delays in the processing of paper correspondence." "In submitting this report, I'm finally able to deliver some good news: The taxpayer experience vastly improved during the 2023 filing season," Collins wrote.

"The IRS caught up in processing paper-filed original Forms 1040 and various business returns; refunds were generally issued quickly; and taxpayers calling the IRS were much more likely to get through - and with substantially shorter wait times. Overall, the difference between the 2022 filing season and the 2023 filing season was like night and day," Collins continued.

In addition to answering telephone calls and processing amended tax returns, Accounts Management employees at the agency process taxpayer responses to IRS notices and many types of taxpayer requests, such as applications for Employer Identification Numbers, a high percentage of Identity Theft Victim Assistance cases, and tax return preparer authorizations.

The report urged the IRS to prioritize information technology upgrades that will improve the taxpayer experience.

Collins believes the IRS will be able to make major strides in the near future: "With adequate funding, leadership prioritization, and appropriate oversight from Congress, I believe the IRS will make considerable progress in the next three to five years in helping taxpayers comply with their tax obligations as painlessly as possible."

Economic News/Policy:

June 27: A U.S. recession is coming this year, HSBC warns — with Europe to follow in 2024

The U.S. will enter a downturn in the fourth quarter, followed by a "Year of contraction and a European recession in 2024," according to HSBC Asset Management.

In its midyear outlook, the British banking giant's asset manager said recession warnings are "Flashing red" for many economies, while fiscal and monetary policies are out of sync with stock and bond markets.

Joseph Little, global chief strategist at HSBC Asset Management, said while some parts of the economy have remained resilient thus far, the balance of risks "Points to high recession risk now," with Europe lagging the U.S. but the macro trajectory generally "Aligned." The Fed paused its monetary tightening cycle at its June meeting, leaving its fed funds rate target range at between 5% and 5.25%, but signaled that two further hikes can be expected this year.

Market pricing narrowly anticipates the fed funds rates to be a quarter percentage point higher in December of this year, according to CME Group's FedWatch tool.

HSBC expects the recession in Western economies to result in a "Difficult, choppy outlook for markets" for two reasons.

"First, we have the rapid tightening of financial conditions that caused a downturn in the credit cycle. Second, markets do not appear to be pricing a particularly pessimistic view of the world," Little said.

"We think the incoming news flow over the next six months could be tough to digest for a market that's pricing a 'soft landing'," Little commented.

June 26: Treasury yields inch lower as investors look ahead to economic reports, Fed speaker comments    

Treasury yields moved slightly lower on Monday as Wall Street kicked off a light week for economic data and awaited commentary from Federal Reserve speakers.

The 10-year Treasury lost about 2 basis points to trade at 3.715%. The 2-year Treasury was trading 2 basis points lower at 4.729%. Those moves come after an attempted mutiny against the Russian military over the weekend by the Wagner Group, a private militia led by Yevgeny Prigozhin.

Federal Reserve Chairman Jerome Powell said last week that inflation remained too high and the central bank's battle to bring it down was far from over. 

Powell indicated that further interest rate hikes were therefore likely, a point that was also echoed by various other Fed officials.

Many investors are now considering when these rate hikes may be coming and how high interest rates will ultimately go.

According to the CME Group FedWatch tool, markets are currently pricing in a nearly 77% chance of a rate hike being announced at the Fed's next meeting in July.

Several Fed officials are slated to speak this week, including Powell on Wednesday and Thursday.

Energy and Environmental Policy/News: 

June 24: As fuel taxes plummet, states weigh charging by the mile instead of the tank

States across the country face a variety of hurdles as they experiment with road usage charging programs aimed at one day replacing motor fuel taxes, whose purchasing power is less each year, in part due to inflation, fuel efficiency, and the rise of electric cars.

The federal government is about to pilot its own such program, funded by $125 million from the infrastructure measure President Joe Biden signed in November 2021.

Only three states - Oregon, Utah and Virginia - are generating revenue from road usage charges, despite the looming threat of an ever-widening gap between states' gas tax proceeds and their transportation budgets.

Many states have implemented stopgap measures, such as imposing additional taxes or registration fees on electric vehicles and, more recently, adding per-kilowatt-hour taxes to electricity accessed at public charging stations.

Doug Shinkle, transportation program director at the nonpartisan National Conference of State Legislatures, predicts that after some 20 years of anticipation, more than a decade of pilot projects and years of voluntary participation, making programs mandatory is the next logical step.

Democratic Gov. Jay Inslee vetoed the measure arguing that Washington needs a program in place before starting to collect citizens' personal data.

States also must grapple with the social and environmental implications of their plans for replacing the gas tax, said Asha Weinstein Agrawal, director of the National Transportation Finance Center at San Jose State University's Mineta Transportation Institute.

Technology:

June 23: Lawmakers ask watchdog to review AI risks

Ed Markey and Gary Peters are requesting that the Government Accountability Office review the potential harms of generative artificial intelligence as lawmakers mull possible regulations for the booming industry.

"These current and potential future harms require urgent study. We ask GAO to assess this list of questions about harms from generative AI and potential strategies for mitigation," they wrote.

The letter from Markey and Peters requesting the GAO review follows a series of hearings in Congress, including a Senate Judiciary subcommittee one in May with the CEO of OpenAI, the company behind the popular ChatGPT AI chatbot.

It also comes after Senate Majority Leader Chuck Schumer laid out a framework for AI regulation earlier this week.

Schumer's SAFE Innovation Framework for AI calls for lawmakers to push forward with regulation that is guided by five key pillars: security, accountability, protecting foundations, explainability and innovation.

Schumer also said the Senate will convene a series of forums with experts in AI to guide lawmakers.

The administration has also been focusing on AI. President Biden met with tech leaders in San Francisco this week to discuss AI, following meetings at the White House with companies leading in AI, including Microsoft and Google, in May.

ICYMI: 

June 25: Coast Guard Launches Investigation Into Titan Sub Implosion

The Coast Guard on Sunday launched an investigation into the loss of the Titan sub, which imploded with five people on board while attempting a dive to the wreckage of the Titanic.

The Coast Guard's Marine Board of Investigation, the service's highest level of investigation, will include authorities from Canada, France and the United Kingdom as they look into what caused the deadly implosion.

The Coast Guard did not provide a timeline for the investigation.

The U.S. Navy on Sunday told The Associated Press that it would not be using the Flyaway Deep Ocean Salvage System to assist the Coast Guard in retrieving debris.

A frantic search was launched for the sub, in which the Coast Guard searched by air and sea as the hours counted down to when the five people on board were expected to run out of air.

Prior to the confirmation that the sub had imploded, officials had said the sub had a limited amount of oxygen on board that would only have lasted 96 hours.

On Thursday, the Coast Guard said the OceanGate vessel experienced a "Catastrophic loss of the pressure chamber," and confirmed that the debris found on the seafloor were pieces of the missing sub.

June 24: Deadly Matador, Texas, Tornado Receives Rating From National Weather Service  

According to a storm survey released Saturday by the NWS office in Lubbock, Texas, the twister touched down north of Matador at 7:51 p.m. and was on the ground for 9.4 miles while it carved a winding path of destruction through the town.

Residents of the town told FOX Weather's Will Nunley that they believe a third of the town of less than a thousand people had been destroyed.

"There's some great people who got hit all the way down through here," Leslie Jameson, a Matador resident, said Thursday.

"I can't - It's just hard to describe. We're just sitting here kind of dumbfounded. Don't know where to start or what to do, but we've got to start somewhere." Deana Washington, who lives in Matador, told FOX weather. She, her husband and their grandchildren survived the terrifying twister by sheltering in their bathroom with pillows over their heads.

Including the Matador fatalities, at least 73 people across the U.S. have been killed by tornadoes this year.

The Matador tornado is the deadliest twister in Texas since 2015, according to the National Weather Service.

Three of them died June 15 during an EF-3 tornado in Perryton, Texas, about 180 miles north of Matador.

June 23: ChatGPT and generative AI: A tax professional's savior or nemesis?

ChatGPT and generative AI are not the answer in and of themselves but are tools to help humans find the answers faster

While passing a test may say you are a CPA on paper, you do not have any of the experiences and expertise developed over a career.

Few would argue that someone who passed the CPA exam is immediately an expert on par with a CPA with 20 years of experience.

Without human oversight, generative AI can quickly run amok with inaccurate analyses and perhaps dangerous answers, especially when related to the tax code or an accounting method.

While the CPA exam does include what test-takers perceive as task-based simulations based on real work problems, they are not as focused on the unending scenarios the tax code actually leads to in the real world.

Some have commented that ChatGPT's performance on a practice CPA exam in a recent study calls into question the competitive advantage of the human accountant relative to the machine.

This response shows a total disconnect from what accountants and tax professionals truly do for their clients.

The future is a combination of human fact-checking and generative AI responses.

This is how the industry can ensure accurate data and information, without sacrificing the convenience that generative AI can provide.

One skill all tax and accounting professionals can master is writing prompts. Prompts help you feed generative AI algorithms the data and criteria you want to analyze. Most tax and accounting professionals are embracing the technology. 

For Fun: 

June 21: US approves chicken made from cultivated cells, the nation’s first ‘lab-grown’ meat   

For the first time, U.S. regulators on Wednesday approved the sale of chicken made from animal cells, allowing two California companies to offer "Lab-grown" meat to the nation's restaurant tables and eventually, supermarket shelves.

The Agriculture Department gave the green light to Upside Foods and Good Meat, firms that had been racing to be the first in the U.S. to sell meat that doesn't come from slaughtered animals - what's now being referred to as "Cell-cultivated" or "Cultured" meat as it emerges from the laboratory and arrives on dinner plates.

The move launches a new era of meat production aimed at eliminating harm to animals and drastically reducing the environmental impacts of grazing, growing feed for animals and animal waste.

The companies received approvals for federal inspections required to sell meat and poultry in the U.S. The action came months after the U.S. Food and Drug Administration deemed that products from both companies are safe to eat.

Cultivated meat is grown in steel tanks, using cells that come from a living animal, a fertilized egg or a special bank of stored cells.

Good Meat, which already sells cultivated meat in Singapore, the first country to allow it, turns masses of chicken cells into cutlets, nuggets, shredded meat and satays.

Globally, more than 150 companies are focusing on meat from cells, not only chicken but pork, lamb, fish and beef, which scientists say has the biggest impact on the environment.