Unprocessed Tax Returns, Student Loan Forgiveness, and 2022 Midterm Elections

Tax Policy:

November 10: IRS still coping with millions of unprocessed tax returns

The Internal Revenue Service had 4.4 million unprocessed individual returns received this year as of Oct. 28, including tax year 2021 returns and late-filed returns from the prior year, as IRS funding has become more of an issue during election season. 

The IRS reported in the latest update this week on the status of its mission-critical operations during COVID-19 that of those 4.4 million unprocessed returns, 1.9 million require error correction or other special handling, while 2.5 million are paper returns still waiting to be reviewed and processed. The work typically doesn't require the IRS to correspond with taxpayers, but does require special handling by an IRS employee so, in those cases, it's taking the IRS more than 21 days to issue any related tax refund.

Some of the problems holding up tax returns come from amended returns that arrived at the IRS and problems with tax returns indicating pandemic-related benefits such as expanded unemployment insurance and employee retention credits, for which the rules and thresholds changed, and that were exploited in some cases by criminals and fraudsters. The IRS is also still trying to hire thousands more employees to fill the ranks as workers retire.

 "I look at the numbers and see millions of taxpayers that are still waiting for their returns to be processed," wrote National Taxpayer Advocate Erin Collins in a blog post-Thursday. She noted that as of Oct. 21, the IRS had approximately 3 million individual returns and over 4 million business returns awaiting initial processing, as well as around 2 million amended individual and business returns.

In the National Taxpayer Advocate's blog, Collins noted that the IRS still has more than 250,000 unprocessed Forms 941-X adjusted quarterly tax returns and claims for a refund from employers in its inventory, but unfortunately, some can't be processed until the related Form 941, Employer's Quarterly Federal Tax Return, is processed first. As of Nov. 2, the IRS still had about 2.5 million Forms 941 in its inventory awaiting processing.

There are also delays in processing taxpayer correspondence, and currently, the IRS has around 4.5 million pieces of correspondence awaiting processing, Collins noted. Many of the documents are scheduled to be worked on by IRS customer service representatives who have to split their time during filing season between answering phones and processing amended returns and correspondence.

Student Loan Forgiveness:

November 14: Appeals court blocks Biden student debt cancellation plan

A federal appeals court on Monday temporarily blocked the Biden administration's student loan forgiveness program, which had already been halted nationwide by a separate court ruling.

The latest ruling, by a unanimous three-judge panel on the U.S. Court of Appeals for the 8th Circuit, added to the legal jeopardy surrounding President Biden's massive debt relief plan. The panel, which comprised two Trump-appointed judges and one appointee of former President George W. Bush, said its order would remain in effect until further notice by the 8th Circuit or the Supreme Court.

“The equities strongly favor an injunction considering the irreversible impact the Secretary’s debt forgiveness action would have as compared to the lack of harm an injunction would presently impose,” the panel wrote. "Among the considerations is the fact that collection of student loan payments, as well as an accrual of interest on student loans, have both been suspended."

President Biden's plan forgives $10,000 in federal student loan debt for those making under $125,000 annually and $20,000 for recipients of Pell Grants, which assist students from lower-income families. The policy, which the Congressional Budget Office estimates will cost about $400 billion over 30 years, has drawn numerous legal challenges.

The White House said 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 enact student debt relief policies amid the exigencies of the global pandemic.

Economic News/Policy: 

November 15: World Leaders Meet as Global Economy Faces Multiple Threats

World leaders gathered on Tuesday at a moment of severe geopolitical turmoil, as the global economy slinks toward recession, weighed down by high inflation, a growing scarcity of food, and the side-by-side threats of the oil shock and financial crisis.

President Biden and his counterparts in many of the Group of 20 nations, which include wealthy countries like Britain and Japan and emerging markets like India and Brazil, are pushing for an aggressive and coordinated response to those threats. They hope to broker agreements meant to dampen global oil prices, help emerging markets escape crushing debt and increase food supplies to poorer nations where the cost of grain, rice, and other staples has spiked since Russia’s invasion of Ukraine.

But the administration’s efforts have hit strong opposition from the two countries that will dominate Mr. Biden’s attention at the summit, and that can arguably do the most right now to lift the world’s economic outlook: Russia and China.

The Biden administration hopes that countries such as India and China, which have been stocking up on discounted Russian oil this year, will use the cap as leverage to negotiate even lower prices. Ahead of the Group of 20 meetings, Ms. Yellen traveled to India to meet with officials and deepen ties with the country at a pivotal moment.

November 13: Economy Week Ahead: U.S. Housing and Retail Sales in Focus

Monday: Japan’s statistics agency releases third-quarter gross domestic product. Japan’s economy expanded at a 3.5% annual rate in the second quarter, driven by strong consumer spending and higher exports.

China’s National Bureau of Statistics releases October figures on industrial production, retail sales, unemployment, and fixed-asset investment, a measure of infrastructure and equipment investing. Industrial production in China advanced by 6.3% in September, the fastest pace of growth since February.

Tuesday: The Labor Department releases its October producer-price index, which measures prices that suppliers charge businesses and other customers. The index rose 8.5% in September from a year before, down from its 8.7% increase in August and 11.3% in June.

The Federal Reserve Bank of New York releases its third-quarter household debt and credit report. Total household debt rose $312 billion, or 2%, in the second quarter from the previous three-month period.

Wednesday: The Commerce Department releases October retail sales. Retail sales, which measure spending at stores, online, and in restaurants, were unchanged in September from the prior month as shoppers faced high inflation and rising interest rates.

The National Association of Home Builders releases its November housing-market index, based on a survey of home builders on single-family housing market conditions. The index declined in October for the 10th consecutive month as high mortgage rates weakened demand.

The U.K.’s Office for National Statistics releases October inflation figures. The U.K.’s consumer-price index rose 10.1% in September from a year earlier, up from the 9.9% rise in August and back to July’s level, which was the fastest in 40 years.

The Fed releases October industrial-production figures, which measure the output of factories, mining, and utilities. U.S. industrial production increased by 0.4% in September from the previous month.

Thursday: The Labor Department reports the number of worker filings for unemployment benefits in the week ended Nov. 12. Initial jobless claims recently have hovered near the 2019 average of around 218,000.

The Commerce Department releases October figures on new residential construction and building permits. Housing starts fell 8.1% in September from the month before while building permits rose 1.4% in the same period.

Japan’s Statistics Bureau releases annual inflation data through October. Consumer prices in Japan rose 3% in September from the same month a year earlier, driven by a surge in global energy prices and a fall in the yen.

Friday: The National Association of Realtors reports October sales of previously owned homes. Existing-home sales declined 1.5% in September from the prior month to a seasonally adjusted annual rate of 4.71 million, the weakest rate since May 2020.

November 10: Markets Soar on Signs of Slower Inflation

Stocks rallied and bond yields tumbled as investors reset their expectations for the pace of interest rate increases by the Federal Reserve.

Stocks jolted higher on Thursday, after fresh data showed a moderation in inflation, bolstering investors’ expectations that the Federal Reserve will soon slow the pace of interest rate increases that have weighed on the market.

The S&P 500 soared 5.5 percent, its best one-day performance since April 2020 and the early market recovery from the coronavirus induced meltdown.

Other markets also experienced large moves, with the U.S. dollar falling over 2 percent, a welcome sign for countries around the world whose currencies have weakened as the American currency rose to a two-decade high. U.S. government bond yields, which underpin borrowing costs around the world and are particularly sensitive to expectations for future interest rate increases, fell sharply.

The slide in interest rate expectations helped stock markets. The Nasdaq Composite index, which is stuffed with tech stocks that are more sensitive to changes in interest rates, rose 7.4 percent on Thursday.

Some investors now expect stocks to maintain the rally through the typically quiet Thanksgiving holiday and into December when the next major update on the health of the labor market will be released. Others are more cautious.

“As much as I like an upmarket this is still a bear market rally,” John Lynch, chief investment officer for Comerica Wealth Management, said on Thursday. “We haven’t reached the bottom.”

November 9: Five ways the 2022 midterms could impact the US economy

The 2022 midterms were poised to usher in a "Red wave" in the House and potentially the Senate, teeing up a heavily Republican U.S. legislature in 2023. A GOP takeover of the Senate would also force Biden to find Republican support for his next slate of administration nominees.

Here are five ways the 2022 midterms could affect the economy.

Less federal spending: Republicans focused their midterms pitch largely on concerns about high inflation and the likelihood of the U.S. slipping into a recession sometime next year. GOP lawmakers pledged to rein in federal spending, which they have blamed for high inflation if given the chance to run the House or Senate.

Higher risk of a debt ceiling default: Several Republican lawmakers and even former President Trump himself have called on GOP leaders to use the federal debt ceiling as leverage in federal spending negotiations. While GOP leaders have vowed to make sure the U.S. doesn’t default on the debt, they may find it difficult to convince conservative hard-liners to strike a deal despite the serious implications of a debt ceiling breach.

Stimulus during a recession will be less likely: Republicans will have little incentive to help bolster the economy if the U.S. falls into a recession on Biden’s watch, even if they are in control of the House or Senate.

Push Biden to the middle on nominations: While the House plays no role in federal nominations, a GOP-controlled Senate would force Biden to nominate officials who could win enough bipartisan support to make it through the upper chamber. Senate Minority Leader Mitch McConnell (R-Ky.) held open several dozen administration and judiciary seats when the GOP ran the Senate during Obama’s final two years and would likely force Biden to find common ground with Republicans to fill other seats.

Tougher oversight of federal regulators: If the GOP captures the House or Senate, federal financial regulators can expect intense oversight from Republican-led committees and more political pressure over several polarizing initiatives.

Energy and Environmental Policy/News:

November 10: Biden: Federal Suppliers Must Work To Meet Paris Climate Goals

The Biden administration on Thursday will propose requiring all major federal contractors to set targets for reducing their emissions in line with the 2015 Paris climate accord, a significant step toward greening the government's sprawling operations and one that could ripple across the U.S. supply chain.

The proposed rule, which comes as leaders from nearly 200 nations converge at the U.N. Climate Change Conference in Egypt, would also mandate that federal contractors publicly disclose their greenhouse gas emissions and the risks they face from climate change.

ICYMI: 

November 12: Democrats Keep Control Of The Senate With Win In Nevada

Democrats were projected to retain control of the Senate on Saturday, clinching a narrow majority as they showed strength in battleground races in a daunting midterm year that handed President Biden a major victory as he looks to his next two years in office.

The final blow to Republican hopes of retaking the chamber came in Nevada, where on Saturday Sen. Catherine Cortez Masto was projected to win reelection, edging past Adam Laxalt, a former state attorney general.

Cortez Masto's projected win ensures Democrats a 50th seat, with a runoff election still to come in Georgia on Dec. 6 that could pad their slim majority.

With 97 percent of the vote in, Cortez Masto led by half a percentage point.

November 10: Winners and losers of the 2022 midterm elections

The results of Tuesday's midterm elections are reverberating even as some important races - and control of Capitol Hill - remain in doubt.

WINNERS President Biden President Biden fared far better in his first midterms than Democratic presidents Barack Obama and Bill Clinton did, providing a vindication of sorts to his political approach.

Whatever the final results, Biden has fared far better in his first midterms than the two most recent Democratic presidents, Barack Obama and Bill Clinton, did in theirs.

The Speaker, like the president, was being largely written off until voters actually cast their ballots.

MIXED House Minority Leader Kevin McCarthy Rep. Kevin McCarthy may achieve the House speakership, but if he does, he will have a much slimmer majority than he previously anticipated.

LOSERS Former President Trump Former President Trump did not score the victory he hoped for in the midterms, with the Trumpism brand hurting GOP candidates across the country.

DeSantis's impressive victory only deepened the gloom for the former president, who is apparently threatened enough by the Florida governor to have recently bestowed a nickname upon him.

For Fun: 

November 15: Is tonight the night that NASA’s massive SLS rocket finally takes flight?

As NASA has sought to build public interest in the Artemis program and spur momentum for the Artemis I launch of an uncrewed Orion spacecraft to the Moon and back, the space agency has increasingly used the slogan, "We are going."The response from much of the space community to this can be succinctly stated: "We are ready for you to go."

As one looks ahead to tonight's launch attempt, with a two-hour window opening at 1:04 am ET (06:04 UTC), it is worth looking back at what has come before to understand why this moment is so overdue.

The Space Launch System rocket was created in 2010 by just two US senators—a Democrat from Florida, Bill Nelson, and a Republican from Texas, Kay Bailey Hutchison. Hutchison retired in 2013, and Nelson lost reelection in 2019, so the rocket's long and costly development program has outlived both of their political careers.

The SLS rocket was a political compromise, keeping major defense contractors who previously had a piece of the space shuttle program on NASA's budget and preserving space agency jobs in Florida, Texas, and Alabama. It worked so very well at that.

Unfortunately, politically constructed rockets are not the most efficient spaceflight vehicles, so it has been a long road, filled with potholes, to reach the launch pad.