Audit Rates, Tax Return Backlog, and the 14th Amendment
Tax Policy/News:
May 15: Black Americans likely audited at higher rates, IRS says
IRS Commissioner Danny Werfel said Monday that Black taxpayers may be getting audited at significantly higher rates than non-Black taxpayers.
"Our initial findings support the conclusion that Black taxpayers may be audited at higher rates than would be expected given their share of the population," Werfel wrote to Senate Finance Committee Chairman Ron Wyden.
A study out of Stanford University found audit rates could be as much as five times higher for Black taxpayers than white taxpayers. Wyden asked Werfel to investigate the matter after the latter took the helm of the federal tax collection agency earlier this year.
“We are dedicating significant resources to quickly evaluating the extent to which IRS’s exam priorities and automated processes, and the data available to the IRS for use in exam selection, contribute to this disparity,” Werfel wrote to Wyden.
The IRS doesn't collect information on the race or ethnic background of individual taxpayers, but researchers at Stanford were able to infer racial information using statistical methods involving name data and Census block groups.
It's not simply a matter of people who claim the EITC getting audited at higher rates that led to more Black people getting audited, the researchers found.
"The larger source of the disparity stems from the selection of taxpayers for audit within the population of EITC claimants: Black taxpayers claiming the EITC are between 2.9 and 4.4 times as likely to be audited as non-Black EITC claimants. In contrast, we observe a much smaller, though still statistically significant, difference in audit rates between Black and non-Black taxpayers who do not claim the EITC," they wrote.
The IRS is in the middle of hiring tens of thousands of new staff and is receiving an operational redesign that will centralize many aspects of its enforcement and collections protocols, potentially tweaking the systems that produce higher audit rates for Black taxpayers.
May 15: IRS reduces tax backlog, but still not below pre-pandemic level
The Internal Revenue Service was able to decrease the pile of unprocessed tax returns this tax season, but it's still not back where it was before the pandemic, according to two reports.
The reports, issued Monday by the Treasury Inspector General for Tax Administration, found the IRS making significant strides this tax season. In a report on the interim results of the 2023 filing season, TIGTA found the IRS made significant progress to reduce tax return inventories closer to pre-pandemic levels. More than 2 million individual tax returns and transactions remained in inventory as of the end of 2022, compared to more than 8.4 million as of the end of 2021. "This backlogged work will continue to have a significant impact on associated taxpayers," said the report.
Economic News/Policy:
May 15: Yellen Says Treasury Still Expects U.S. Could Default as Soon as June 1
Treasury Secretary Janet Yellen again said the U.S. could become unable to pay its bills on time as soon as June 1 if Congress doesn’t first raise the debt limit.
The new forecast from Ms. Yellen doesn’t change the timeline for negotiators trying to find an agreement to raise the roughly $31.4 trillion debt ceiling. The Treasury chief had previously warned that the U.S. could default on its debt as soon as June 1.
Ms. Yellen said in a letter to congressional leadership that she would update lawmakers about the deadline again next week. Since running up against the debt limit in January, the Treasury has been relying on accounting maneuvers called extraordinary measures to pay the country’s bills.
May 14: Democrats press Biden to use 14th Amendment on debt ceiling
Senate Democrats are urging President Biden to use the 14th Amendment to raise the debt ceiling, arguing he has the constitutional authority to take the unilateral step to prevent a GOP-driven default.
"The 14th Amendment is not anyone's first choice. The first choice is that the Republicans raise the debt ceiling because the United States government never, ever, ever, ever defaults on its legal obligations. But if Kevin McCarthy is going to push the United States over a cliff, then it becomes the president's responsibility to find an alternative path," said Sen. Elizabeth Warren.
Asked whether Biden should deploy the 14th Amendment as soon as next month, Warren said it "Depends what the alternative is."
Biden on Tuesday offered caution when it comes to the 14th Amendment talk, saying "The problem is it would have to be litigated" and warning that "In the meantime, without an extension, it would still end up in the same place," suggesting that a default still might result if a court stayed his action.
Senate Republican Leader Mitch McConnell responded to Biden's threat to use the 14th Amendment by declaring on the Senate floor that "Unconstitutionally acting without Congress" is "Not an option."
The brinksmanship has spurred Democrats to press Biden to weigh executive action.
Sen. Richard Blumenthal, another member of the Judiciary Committee, said "There's a strong argument" that Biden "Has authority" to use the 14th Amendment to avoid a default if he can't strike a deal with McCarthy.
May 14: Plunging Tax Revenue Accelerates Debt-Ceiling Deadline
Wall Street and Washington got jolted this month by government warnings that the U.S. could become unable to pay all its bills as soon as June 1. That crunch came months sooner than expected, raising the specter of a default on federal obligations unless Congress increases the debt ceiling.
The reason: the expected annual gusher of tax-season payments didn’t flood into the Treasury. When the Congressional Budget Office analyzed tax collections for the current fiscal year through April, the tally fell about $250 billion short of predictions from just a few months ago.
The immediate impact is that the U.S. may run out of cash before mid-June tax payments roll in, and that is spurring urgent talks between the Biden administration and congressional Republicans on how to lift the debt ceiling.
Independent of debt-ceiling dynamics, the tax shortfall continued a wild boom-and-bust cycle for federal receipts over the past three years.
Some Republicans pointed to the revenue surge as proof that the 2017 tax cuts were working. In fact, in the immediate aftermath of the law’s enactment, there were modest increases in business investment and strong wage gains, but trying to divine any effects of that tax law now, after an intervening pandemic, is dicey at best.
President Biden crowed about deficit reduction that happened during his administration but the jury is still out on the big picture as the boom-and-bust returns to normal.
“Being a little bit more humble when you see a one-year spike in revenue would be good because that can lead to more dangerous policy,” Mr. Goldwein said.
For Fun:
May 16: 62 New Moons Discovered Orbiting Saturn Using Innovative Astronomy
An international team of astronomers has found 62 new moons around Saturn using an innovative technique. These irregular moons contribute to Saturn’s total moon count of 145, surpassing Jupiter, and provide insights into the planet’s moon system’s collisional history.
Over the past two decades, Saturn’s surroundings have been repeatedly examined for moons with increasing sensitivity. In this latest study, Dr. Ashton’s team used a technique known as ‘shift and stack’ in order to find fainter (and thus smaller) Saturnian moons. This method has been used for moon searches around Neptune and Uranus, but never for Saturn. Shifting a set of sequential images at the rate that the moon is moving across the sky results in enhancement of the moon’s signal when all the data is combined, allowing moons that were too faint to be seen in individual images to become visible in the `stacked’ image. The team used data taken using the Canada-France-Hawaii Telescope (CFHT) on top of Mauna Kea, Hawaii between 2019 and 2021. By shifting and stacking many sequential images taken during 3 hour spans, they were able to detect moons of Saturn down to about 2.5 kilometers in diameter.