Recession Fears, Supreme Court Halts, and IRS Funding Pleas

Tax Policy:

April 18: IRS pleads for more funding as it looks back over tax season

The IRS hopes to hire 10,000 more employees by the end of the year to deal with the processing backlogs that have plagued the agency since before the start of the year, especially for paper returns.

“This tax season has been unlike any other,” wrote IRS Commissioner Chuck Rettig in a Tax Day message. “The COVID-19 pandemic left a series of new challenges in its wake — and for the first time, the IRS was called upon to distribute emergency resources to millions of struggling families and businesses. IRS employees did not hesitate, fighting hard during the pandemic to deliver on every front. Working around the clock and in-person throughout almost all of the last two years, IRS employees distributed three rounds of stimulus checks and advanced the Child Tax Credit — delivering nearly $1.5 trillion in needed relief to the American people. There is more to be done: Millions of returns are awaiting processing, and billions in refunds are still to be distributed. But our work is paying off. Refunds are rapidly being sent to the vast majority of taxpayers within 21 days, with 70 million refunds worth $222 billion delivered through April 8.” However, he noted the IRS is desperately short on staff and resources.

"Over the course of the last decade, the IRS' budget fell more than 15%in real terms," he wrote.

President Biden's fiscal year 2023 budget proposal provides $14.1 billion for the IRS, encouraging the agency to improve taxpayer service, upgrade its technology and hire more staff.

"The IRS has a plan in place to get through its backlog of unprocessed returns this year," said Sarin. The Professional Managers Association, a group of IRS managers, said Monday that the backlog is now down to around 2.4 million.

April 18: Supreme Court won’t hear challenge to SALT tax deduction

The Supreme Court on Monday declined to review a challenge to the $10,000 ceiling imposed on the state and local tax deduction, one of the most controversial provisions of the 2017 tax bill ushered into law by President Trump and a GOP Congress. The Republican-led tax cuts capped at $10,000 the amount of state and local taxes that individuals could deduct from their federal income taxes, a move that effectively increased the tax burden on high-earners in states like New York and California. The lower courts rejected the states' argument, finding that the deduction was not constitutionally protected, prompting the states' ultimately unsuccessful petition to the Supreme Court.

"Congress has acted well within that power both in establishing, and in placing limits on, the deduction for state and local taxes," the department told the justices in court papers.

"Only about 9 percent of households would benefit from repeal of the Tax Cuts and Jobs Act's $10,000 cap on the state and local property tax deduction," Howard Gleckman, an analyst with the Tax Policy Center, a Washington think tank, wrote in a brief. "More than 96 percent of the tax cut would go to the highest-income 20 percent of households. The top 1 percent of households, those making $755,000 or more, would receive more than 56 percent of the tax cut. TPC estimated repeal would reduce federal tax revenues by $620 billion between 2018 and 2028.".

"This always was a long shot. New York and the other states claimed that by capping the SALT deduction the federal government was limiting their authority to set their own taxes. But the SALT deduction is a federal provision that Congress can adjust as it chooses. Its impact on state taxation is only indirect," he said.

April 18: Tax Day 2022 Is Here: What to Know About Refunds, Extensions and Deductions

The April deadline isn't the deadline to file a complete return for tax year 2021. The Internal Revenue Service allows taxpayers a six-month extension to file the return by sending in Form 4868, which is available through tax-prep firms or the IRS. Filers who owe tax can skip Form 4868 and still get an extension if they make a payment through certain government portals.

If someone doesn't file or pay $1,000 of tax for a year, then these two penalties add $475 to the tax bill, according to Bryan Skarlatos, a tax lawyer with Kostelanetz & Fink.

The penalty for filing taxes late takes effect right away. Two of the most potent are for failure to file and failure to pay. If someone doesn’t file or pay $1,000 of tax for a year, then these two penalties add $475 to the tax bill, according to Bryan Skarlatos, a tax lawyer with Kostelanetz & Fink.

Interest is also due on the unpaid tax and penalties, currently at an annual rate of 4%. That pushes the total owed above $500, or more than half the unpaid tax. That pushes the total owed above $500, or more than half the unpaid tax. Other penalties may apply as well. 

Build Back Better Act/Spending Bill: 

April 18: Democrats prepare to take second run at Biden spending plan

Democrats are signaling they want to turn back to the spending plan that was meant to be the center of a stalled legislative agenda after a current two-week break even as they face many of the same hurdles and intraparty tensions that plagued the 2021 talks. White House chief of staff Ron Klain pointed to a reconciliation bill - which lets Democrats pass key priorities without needing GOP votes - as on the party's legislative to-do list.

Reviving even a smaller version of the bill feels like a longshot given the fact that Democrats are facing many of the same headaches that bungled the first effort. Manchin wants half of any new revenue from a spending bill to go toward deficit reduction. Senate Democrats have talked up trying to lower costs as the center of their message to voters heading into November, but any bill would need GOP support to pass outside of budget reconciliation.

Democrats passed a sweeping coronavirus relief bill last year and recently got a deal on new legislation cracking down on Russia, but they are quickly running out of time to enact their priorities. Democrats introduce bill to expand congressional workplace protections Psaki: Media and public figures 'all talking to ourselves on Twitter, cable'.

Economic News/Policy: 

April 19: Global Economic Forecasts Are Dropping Fast

The pall over the world economy was underscored on Tuesday by the International Monetary Fund, which said in its World Economic Outlook that global output was expected to slow this year to 3.6 percent, from 6.1 percent in 2021. At the Peterson Institute for International Economics, a Washington think tank, economists expect global growth to decline from a rapid 5.8 percent in 2021 to 3.3 percent annually in 2022 and 2023. The World Bank also expressed alarm this week about the state of the global economy, warning that the lingering pandemic, Covid-19 lockdowns in China, and higher inflation could amplify income inequality and poverty rates.

According to the Bank of International Settlements, more than half of emerging economies have inflation rates above 7 percent.

60 percent of "Advanced economies," including the United States and the euro area, have inflation over 5 percent, the largest share since the 1980s, the bank said.

Last week, forecasters at Germany's top economic institutes projected that a full European ban on Russian energy imports would cause German output to contract 2.2 percent next year and push inflation up to 7.3 percent, a record for postwar Germany.

Depending on how the pandemic and the war unfold, trade growth could be as low as 0.5 percent or as high as 5.5 percent, Ngozi Okonjo-Iweala, the organization's director-general, said in a news conference last Tuesday. The group forecast that global trade growth would rebound to 3.4 percent next year, though those estimates are also subject to change.

April 17: Economy Week Ahead: Jobless Claims, Housing Data

Tuesday: U.S. housing starts rose in February more than expected. Economists expect that they fell 2.2% in March.

Wednesday: U.S. existing-home sales decreased 7.2% in February as higher mortgage rates started to cool the housing market. Economists forecast that they dropped 3.7% in March.

Thursday: New filings for unemployment insurance rose slightly during the week that ended April 9 following several weeks in which they flirted with record lows. Economists anticipate that they dropped slightly to 180,000 in the week ended April 16.

Friday: New purchasing managers surveys by S&P Global are expected to show U.S. economic output continuing to expand but at a slightly slower pace than in March. The purchasing managers' index for April is expected to dip to 58.6 for manufacturing and to 57.9 for services. Readings above 50 indicate growth.

April 14: Supply Chain Hurdles Will Outlast Pandemic, White House Says

The coronavirus pandemic and its ripple effects have snarled supply chains around the world, contributing to shipping backlogs, product shortages, and the fastest inflation in decades. In a report released Thursday, White House economists argue that while the pandemic exposed vulnerabilities in the supply chain, it didn't create them - and they warned that the problems won't go away when the pandemic ends.

"Though modern supply chains have driven down consumer prices for many goods, they can also easily break," the Council of Economic Advisers wrote.

White House economists analyzed the supply chain as part of the Economic Report of the President. Some economists noted that making supply chains more resilient could carry its own costs, making products more expensive when inflation is already a major concern.

Adam S. Posen, the president of the Peterson Institute for International Economics in Washington, said the pandemic and Russia's invasion of Ukraine might lead companies to locate at least some of their supply chains in places that were more politically stable and less strategically vulnerable. Rather than reeling in supply chains to concentrate them in developed countries, she said, businesses are doing more "Nearshoring" - shifting to low-cost but less-distant countries - as well as pursuing risk-mitigation strategies like building up inventory.

April 14: Recession fears rise as Fed fights inflation

After slashing rates to near-zero levels amid the onset of the pandemic, the Fed in March launched a series of interest rate hikes meant to bring down soaring inflation. "Our goal is to restore price stability while fostering another long expansion and sustaining a strong labor market," Fed Chair Jerome Powell said last month, adding the bank is aiming for the economy to achieve a "Soft landing, with inflation coming down and unemployment holding steady."

Those confident in the Fed's handle on inflation believe the bank can stanch inflation while only reducing job openings and the intense need for workers, rather than slowing the economy into layoffs. "The supply-side drivers of inflation, which includes the supply chain disruptions and also higher global commodity prices, the Fed can do very little about. Nonetheless, the Fed is going to be raising interest rates," Peterson said during a Thursday briefing with reporters.

"As you slow the economy down, inflation will fall," Ray Fair, an economics professor at Yale University, said, adding that's how the Fed can help lower inflation.

Some economists fear inflation may be rising too quickly for the Fed to curb without raising rates so high, it halts economic growth. Others believe the Fed may have to contend that higher inflation could be around for a little while longer, as the central bank proceeds in slowing down the economy.

April 14: High Gasoline Prices Take Up Big Share Of March Retail Spending Increase

U.S. retail sales rose in March for the third straight month as consumers confronted the highest inflation in four decades and absorbed record-high gasoline prices. Retail and restaurant spending rose by 0.5% in March compared with the previous month, the Commerce Department said Thursday, down from the revised monthly increase of 0.8% in February.

Gasoline sales jumped 8.9% in March over the previous month after Russia's invasion of Ukraine triggered higher oil and gasoline prices. Excluding gasoline sales, retail sales fell by 0.3%. Declines in online shopping and auto sales also held back spending totals.

Retail sales aren't adjusted for inflation; on an adjusted basis, retail sales fell by 0.7% last month, according to the Federal Reserve Bank of St. Louis and economist estimates. While gasoline prices rose at 18.3% in March over February, the increase in sales was less than half of that. Higher prices have also decreased demand for some discretionary purchases, such as furniture, which saw a modest rise in sales in March that didn't keep up with inflation.

April 13: Annual wholesale inflation rises record 11.2 percent in March

Wholesale prices jumped 1.4 percent in March from February to hit a record 11.2 percent annual increase, as widespread inflation affecting the US economy shows no signs of letting up. The numbers released on Wednesday follow an 8.5 percent annual rise in consumer prices announced Tuesday, the highest increase since December 1981. The Producer Price Index published by the Department of Labor's Bureau of Labor Statistics measures the price of goods and services that businesses pay to each other, while the Consumer Price Index measures retail prices that consumers pay directly.

While the CPI is considered the benchmark for inflation measurements, wholesale metrics reflect conditions in the supply chains and production pipelines where disruptions have been driving inflation since the beginning of the pandemic. More than half of the overall wholesale increase in March is due to a 5.7 percent jump in prices for energy, with a 20-percent jump in the price of diesel fuel in particular. On the service side, prices moved up 0.9 percent in March following a 0.3 percent jump in February.

“Starting in March 2020, in response to the disruptions of Covid-19, the U.S. government created about $3 trillion of new bank reserves, equivalent to cash, and sent checks to people and businesses,” Hoover Institution economist John H. Cochrane wrote in a January brief. "Mechanically, the Treasury issued $3 trillion of new debt, which the Fed quickly bought in return for $3 trillion of new reserves. The Treasury sent out checks, transferring the reserves to people's banks. The Treasury then borrowed another $2 trillion or so, and sent more checks. Overall, federal debt rose nearly 30 percent. Is it at all a surprise that a year later inflation breaks out?".

Democrats have sought to pin it on corporations looking to make an extra buck during a period of economic vulnerability for consumers.

April 13: A Fed governor says the latest inflation data reaffirms the case for big rate increases

The central bank is contemplating a half-point rate move in May. Christopher J. Waller, a Fed governor, said inflation data may justify big increases in months to come. Christopher J. Waller, one of the Federal Reserve's governors in Washington, said on Wednesday that recent economic data suggests that the central bank should raise interest rates by more than usual in May, and potentially in June and July as well. Mr. Waller and other officials have made a case for making big rate increases to speed up the process, following the Fed's decision to increase rates by a quarter of a percentage point in March.

Jerome H. Powell, the Fed chair, has signaled that a large rate increase is up for debate, and minutes from the central bank's last meeting showed that "Many" officials would have favored a large increase in March if it hadn't been for the uncertainty created by Russia's invasion of Ukraine.

Mr. Waller suggested that even though inflation might be touching a peak - data this week showed it rising at the fastest pace since 1981, as the war in Ukraine drove gas prices higher and exacerbated already-rapid price increases - it remained "Very high," and the Fed was going to need to keep working to reduce it. Mr. Waller said it was critical to lifting rates up to, and even above, neutral to bring down inflation.

Markets have heavily penciled in big rate increases in May and June, and investors had marked up the odds of a big move in July over recent weeks.

April 12: Manchin on inflation: Biden administration ‘failed to act fast enough’

Sen. Joe Manchin blamed the Biden administration and the Federal Reserve for rising inflation on Tuesday after Labor Department data found that inflation had increased by 8.5 percent over the past 12 months. "The Federal Reserve and the Administration failed to act fast enough, and today's data is a snapshot in time of the consequences being felt across the country," Manchin said in a statement.

Manchin has been raising concerns about inflation for months, but his remarks may be used by the GOP in attacks on Democrats. Sen. Lindsey Graham, the top Republican on the Budget Committee, said that "If you want inflation to go down, Americans will have to change leadership."

"If the Biden administration truly wants to find the cause of record high inflation, all they have to do is look in the mirror. These dramatic, record-setting increases in inflation weren't caused by Vladimir Putin, but by the bad choices of President Biden and the Democrats who control Congress," he said.

Manchin has long pointed to inflation as one of his primary concerns about passing a larger Build Back Better package. "Getting inflation under control will require more aggressive action by a Federal Reserve that waited too long to act. It demands the Administration and Congress, Democrats and Republicans alike, support an all-the-above energy policy because that is the only way to bring down the high price of gas and energy while attacking climate change," he said.

Environmental Policy/News:

April 15: Wind power overtook coal, nuclear for first time on March 29

Wind power was the No. 2 source for power generation in the U.S. for the first time ever on March 29, surpassing coal and nuclear power, the U.S. Energy Information Administration said Thursday. Wind turbines in the continental U.S. produced 2,017-gigawatt-hours of electricity on the 29th, according to data from the EIA. While there have been days in the past when wind generation separately outpaced coal and nuclear generation, the 29th marked the first day that it surpassed both power sources.

Natural gas remained the top source of power generation on March 29, comprising 31 percent of power generation, followed by wind, nuclear, and coal. The milestone comes a little more than two years after nationwide wind capacity outstripped nuclear capacity in September 2019. This did not immediately result in higher wind power output than nuclear power, because wind generators are designed to run at a lower capacity than nuclear generators.

Wind power generation often hits an annual high in spring, when wind speeds tend to peak and electricity demand is usually at one of its lowest points, which prompts coal and nuclear generators to reduce output. Overall, wind typically produces the least amount of electricity per month of any major source, and the EIA does not project that it will surpass coal or nuclear for a full month at any point during this year or 2023. The Interior Department has signed off on a number of offshore wind projects, including most recently the first wind power lease off the Carolinas in late March.

For Fun: 

April 18: Mars scientists look to less expensive missions

On the eve of the release of the planetary science decadal survey likely to place a decreased emphasis on Mars, scientists and NASA officials are planning how to continue the exploration of the planet with less expensive missions. Agency officials, speaking at a conference on low-cost Mars mission options in Pasadena, California, in late March, acknowledged it's unlikely another flagship-class Mars mission will be the top priority of the new decadal survey.

"In the coming years, MSR is going to be the top priority for NASA relative to Mars and it seems unlikely that the next large-scale mission that the decadal recommends will have Mars as a target," said Eric Ianson, director of the Mars Exploration Program at NASA Headquarters, in remarks that opened the meeting.

Beyond MSR, the only other large Mars mission that NASA had announced was the International Mars Ice Mapper, an orbiter equipped with a radar to look for subsurface ice deposits of interest to both scientists and human exploration planners.

At the conference, Rick Davis, NASA program executive for I-MIM, pressed ahead with a presentation about the mission, including how it could incorporate solar electric propulsion and also deploy a communications relay in Mars orbit to support other missions.

Recent studies, one by the Mars Architecture Strategy Working Group and another by a committee organized by Caltech's Keck Institute for Space Studies, concluded that low-cost Mars missions were both feasible and useful. Rob Lillis of the University of California Berkeley, principal investigator for ESCAPADE, cautioned at the conference that his mission might not be applicable to other concepts for low-cost Mars missions.