R&D Credit Claims, Short-Term Funding Bill, and The Dow Jones
Tax Policy:
September 30: IRS extends the time to 'perfect' R&D credit claims
The Internal Revenue Service is giving companies and tax professionals another year to fix up their claims for the research and development tax credit. The agency said Friday it is extending for one more year, through Jan. 10, 2024, the transition period during which taxpayers are given 45 days to "Perfect" a research credit claim for refund before the IRS makes a final determination on the validity of the claim.
Last year, the IRS Office of Chief Counsel issued a memorandum imposing new requirements for backing up claims for tax refunds for research and development tax credits.
In an effort to discourage companies from submitting dubious claims for tax breaks for R&D work they never carried out, the IRS started asking for more detailed information about all the business components for which the research credit claims relate for that year, and each business component, companies will need to identify all the research activities they've performed and name the individuals who performed each research activity, along with the information each individual sought to discover.
In January, the IRS extended the deadline for "Perfecting" the refund claims, expanding the transition period from 30 to 45 days to provide more evidence to back up tax refund claims involving the research credit, while also issuing new guidance.
For claims that include a research credit claim filed during the transition period from Jan. 10, 2022, through Jan. 9, 2023, taxpayers were given 45 days to perfect the claim that is filed on a timely basis but does not provide the five essential pieces of information: Identifying all the business components that form the factual basis of the research credit claim for the claim year; All the research activities performed by each business component; All individuals who performed each research activity by business component; All the information each individual sought to discover by business component; and, The total qualified employee wage expenses, supply expenses, and contract research expenses.
Economic News/Policy:
October 2: Economy Week Ahead: U.S. Jobs Market and Trade in Focus
Monday: S&P Global and the Institute for Supply Management released September surveys of purchasing managers measuring economic activity in the U.S. manufacturing sector. S&P Global’s initial September manufacturing index indicated slightly faster growth than in August but was the second-lowest reading since July 2020. The data firm also releases September manufacturing indexes for other countries. The Commerce Department releases August figures on construction spending, which fell in July.
Tuesday: The Labor Department releases August data on job openings, quits, hires, and layoffs. Employers had 11.2 million openings in July, down from a record 11.9 million in March but still historically elevated. The ratio of job openings to unemployed people seeking work jumped back to nearly 2-to-1 in July.
The Commerce Department releases August figures on factory orders, shipments, and inventories. Orders for manufactured goods fell in July following a streak of nine monthly increases.
Wednesday: The Commerce Department reports the U.S. trade deficit in August. The trade gap in goods and services shrank by 12.6% in July from the prior month, driven by weaker demand for imports, which had dropped for two straight months.
S&P Global and the Institute for Supply Management release September surveys of purchasing managers measuring economic activity in the U.S. services sector. S&P Global’s initial September services index reflected a slower decline in activity than in August. The data firm also releases September services indexes for other countries.
Thursday: The European Union’s statistics agency releases August figures on retail sales in the 19-nation eurozone bloc. Retail sales picked up in July from the prior month, reflecting resilient consumer spending in the eurozone amid high inflation. On an annual basis, retail sales declined 0.9% through July.
The U.S. Labor Department reports the number of U.S. applications for unemployment benefits in the week ended Oct. 1. Initial jobless claims fell to their lowest level in five months the prior week, below the 2019 weekly average of around 218,000, suggesting that employers are holding on to their workers in a persistently tight labor market.
Friday: The Labor Department reports on the state of the U.S. labor market in September, including the number of U.S. job gains, the unemployment rate, and average weekly earnings. Payroll growth remained robust in August and the jobless rate rose to 3.7% in August from the half-century low of 3.5% registered the prior month.
S&P Global releases September surveys of purchasing managers measuring economic activity in China’s services sector. The August services index fell from the prior month, reflecting slower growth, as the country dealt with Covid-19 outbreaks and a severe heat wave.
October 2: Inflation Keeps the U.S. From Stepping Into Slow Dollar’s Rapid Rise
The U.S. dollar has soared in value as the Federal Reserve raises interest rates to fight the highest U.S. inflation in decades and investors move money into dollar-denominated assets. Treasury Secretary Janet Yellen says the U.S. supports market-determined exchange rates, adding that the strength of the dollar is largely the product of the Fed's policies and subsequent capital inflows to the U.S. The Fed manages monetary policy while the Treasury Department oversees U.S. exchange-rate policies.
First, with the Fed on course to keep raising interest rates, any U.S. foreign-exchange intervention is likely to have a limited impact on the dollar's value.
"Treasury may well fear that the dollar's strength will set the stage for complaints from abroad and protectionist pressures in the U.S. down the road, but for the near term their best strategy is to try and keep their mouths shut," said Mark Sobel, a former top Treasury career official who now is the U.S. chairman of the Official Monetary and Financial Institutions Forum.
A strong dollar generally helps reduce U.S. inflation by reducing the prices of goods and services imported into the U.S. It also typically curbs U.S exports by making them more expensive in global markets, slowing economic growth, which also can ease price pressures.
These effects hurt the bottom line of U.S. exporters, but the Biden administration has made no effort to reverse the dollar's rise because it wants to see lower inflation, the former officials say.
September 30: Stocks dive on the last day of September in the worst closing since 2020
The Dow Jones Industrial Average of stocks dropped more than 500 points to close at 28,725, falling below 29,000 for the first time since November 2020. All three major indices are now squarely in the bear market territory, marking a 20 percent decline off recent highs.
The Dow is now down 22 percent since January, the S&P 500 down 25 percent, and the Nasdaq down more than 33 percent. Many market commentators noted that this was the worst September for the S&P 500 in 20 years. It's the third quarter in a row that markets have seen broad-based declines, spurred on by interest rates hikes from the Fed that are intended to bring down inflation and slow activity across the economy.
Some economists have argued that too much fiscal stimulus was pumped into the economy, leading to too much money chasing too few goods, while the Fed kept interest rates at zero and maintained a policy of quantitative easing. The latest Consumer Price Index was up 8.3 percent annually, with core inflation rising 0.6 percent since last month - double what economists had been expecting.
September 28: How low could stocks go? Much further, say Wall Street analysts
In the midst of a bear market and with the Federal Reserve expected to hike interest rates even further, leading Wall Street analysts are eyeing one question with increasing concern: Just how much further could stocks fall? The precise answer is impossible to predict, but experts told The Hill they expect investors to see more pain before growth in the economy resumes. The technology-heavy Nasdaq index has lost more than 30 percent of its value over the same period, hurting from the higher debt levels its companies hold that make them particularly vulnerable to interest rate hikes.
The analysts also predicted that Treasury yields have further to climb, projecting higher returns for the 10-year through this year and into next. "The hawkish Fed pivot has pushed real 10-year U.S. Treasury yields up by 240 and risks are tilted towards higher rates. The real 10-year U.S. Treasury yield has surged from [negative] 1.1 percent at the start of the year to 1.3 percent, the highest level since 2011," they wrote.
Other big Wall Street investors are expressing similar thoughts about the inevitability of equity markets falling still further. The yield on a 10-year U.S. Treasury note rose above 3.9 percent on Monday before settling around 3.85 percent.
"Folks who can go out now and get a risk-free return on a nominal basis of 3.7 percent on a 10-year Treasury are starting to rethink what they want to pay for equities," Dan Alpert, managing partner of Westwood Capital said.
Market analysts for Deutsche Bank noted that recent dips in stocks are being complemented by falling commodity prices, an indication of slowing demand that may signal further retreat in equity markets.
Government Funding:
September 30: House sends stopgap funding bill to avoid government shutdown to Biden’s desk
The House on Friday passed a short-term funding bill to keep the government running for the next few months, narrowly avoiding a shutdown just hours until the midnight deadline. The Democratic-led House voted 230-201, largely along party lines, to advance the legislation as GOP leadership urged their members to reject the bill over disagreements about the timing and policy areas like border funds.
The White House requested emergency funding in both areas earlier this month.
Manchin had previously struck a deal with Democratic leadership to use the must-pass funding bill as a vehicle for the permitting reform measure, aimed at speeding up the approval process for energy infrastructure projects, in exchange for his vote on Democrats' sweeping tax, climate, and health care bill last month.
The package passed on Friday also excludes supplemental funding for the nation's coronavirus and monkeypox response, despite a request by the White House for billions of dollars, after Senate Republicans opposed the ask. White House releases 'AI Bill of Rights' blueprint Lawyer refused Trump instructions to tell Archives all documents returned.
Lawmakers will face a time crunch after the midterms to finish work on the fiscal 2023 spending bill, setting the stage for another shutdown showdown in December as Congress also stares down an end-of-year deadline for a defense authorization bill and other measures.
Energy and Environmental Policy/News:
October 3: OPEC+ production cut threatens gas price spike ahead of midterms
OPEC+ is set to hold a critical meeting on Wednesday in Vienna to decide whether to cut production, a move that would drive up the price of oil.
“This is probably a little bit of payback,” Phil Flynn, an analyst with the Price Futures Group, said in an interview. "The Biden administration early on was saying they were going to use their strategic reserve to teach OPEC a lesson. Back in November, they called out OPEC to raise production and OPEC didn't see it that way. And so the Biden administration released oil from the reserve to try to cool down gasoline prices." "And even though it might have had some influence on prices for a little while, now you could see prices getting up higher than they would have been because there wasn't a production response from the oil companies. Now OPEC has more control over the market."
Congress created the strategic reserve in 1975 in response to an oil embargo enacted by Arab members of what would become OPEC against countries that supported Israel in a 1973 Arab-Israeli war.
One industry source said the OPEC+ announcement is indicative of the worsening relationship between the U.S. and Saudi Arabia, the group’s top oil producer. Biden had criticized the Saudi human rights record, and the murder of dissident journalist Jamal Khashoggi had become a flashpoint in the relationship. "The OPEC countries want to wrest [greater] control of the oil production in the world and I think they tried to utilize this pandemic as a way to increase their market share," the source said.
OPEC has said it is also concerned about the strong dollar, which is putting pressure on many world currencies and decreasing revenues for countries that export to the U.S. It blames the dollar's rising strength on Federal Reserve interest rate hikes.
"The strong rise of the U.S. dollar is an outcome of considerable monetary tightening efforts by the US Federal Reserve, in combination with uncertainty in the global economy. The strengthening of the US dollar led to rising import costs in non-US-dollar denominated economies" in the first half of 2022, OPEC said in its September report on world oil markets .“Oil demand is forecast to remain driven by ongoing global economic growth, especially by the recovery in travel and transportation, which is projected to lead to robust overall growth in oil demand of 3.1 [thousand barrels per day] in 2022 and 2.7 [thousand barrels per day] in 2023,” the report said.
For Fun:
October 1: Jimmy Carter celebrating 98 with family, friends, baseball
Jimmy Carter, already the longest-living U.S. president in history, turned 98 on Saturday, celebrating with family and friends in Plains, the tiny Georgia town where he and his wife, 95-year-old Rosalynn, were born in the years between World War I and the Great Depression. His latest milestone came as The Carter Center, which the 39th president and the former first lady established after their one White House term, marked 40 years of promoting democracy and conflict resolution, monitoring elections, and advancing public health in the developing world.
Jason Carter, the former president's grandson now leading the Carter Center board, described his grandfather, an outspoken Christian, as content with his life and legacy.
Carter Center leaders said the former president, who survived a cancer diagnosis in 2015 and a serious fall at home in 2019, was enjoying reading congratulatory messages sent by well-wishers around the world via social media and the center's website even before the actual birthday.
Jason Carter said his grandfather mostly looked forward to a simple day that included watching his favorite Major League Baseball team, the Atlanta Braves, on television. Since its opening, the center has monitored elections in 113 countries, said CEO Paige Alexander and Carter has acted individually as a mediator in many countries, as well.
On elections and democracy, perhaps the most unpredictable development is that Jimmy Carter has lived to see the center turn its efforts to the home front.
September 29: NASA spacecraft will fly by an ocean world orbiting Jupiter
A NASA spacecraft will fly by one of the most intriguing ocean worlds in our solar system on Thursday. The Juno spacecraft, which has been orbiting Jupiter since 2016, was scheduled to make its closest approach yet to the moon Europa at 5:36 a.m. ET, flying within 222 miles of its icy surface.
Juno will capture some of the highest resolution images ever taken of Europa's ice shell. The spacecraft also is expected to gather data about the moon's interior, where a salty ocean is thought to exist.
Juno’s Microwave Radiometer instrument will study the ice crust to determine more about its temperature and composition. It’s the first time this kind of information will be collected about Europa’s frozen shell.
The data and images captured by Juno could help inform NASA’s Europa Clipper mission, which will launch in 2024 to perform a dedicated series of 50 flybys around the moon after arriving in 2030. Europa Clipper may be able to help scientists determine whether the interior ocean exists and if the moon — one of many orbiting Jupiter — has the potential to be habitable for life.