Tax Return Backlog, US Inflation, and Supply Chain Challenges
Tax Policy:
January 13: Democrats urge IRS to start with lowest-income Americans in clearing tax return backlog
House Democrats are urging the Internal Revenue Service to begin eliminating its backlog of unaddressed returns starting with the lowest-income Americans, days after the Treasury Department warned that tax refunds and other services may be delayed this year because of "Enormous challenges."
"We write with great urgency to request that you eliminate this backlog and do so by prioritizing those individuals with the lowest incomes-those individuals and families who, without their refunds, face eviction, food insecurity, or an inability to afford needed medications or treatments," the lawmakers wrote.
Treasury Department officials told reporters during a phone call on Monday that they foresee a "Frustrating season" for both taxpayers and tax preparers because of the COVID-19 pandemic, budget cuts previously made at the IRS, and federal stimulus actions, according to The Washington Post. The deadline for filing taxes this year is April 18, and the IRS will begin taking income tax returns on Jan. 24.
Rettig on Monday said planning the filing season process for the U.S. is “a massive undertaking,” noting that teams at the agency “have been working non-stop these past several months to prepare.”
"The pandemic continues to create challenges, but the IRS reminds people there are important steps they can take to help ensure their tax return and refund don't face processing delays," he added in a statement.
"Simply put, in many areas we are unable to deliver the level and quality of service every American deserves. This is frustrating for taxpayers, for tax professionals, for IRS employees, and for me. IRS employees want to do more, and we will continue in 2022 to do everything possible with the limited resources available to us," he said.
"The pandemic brought on a new way of thinking about tax administration as well as the need to assume certain risks. And we will continue to look for ways to improve," he added.
January 12: Taxpayer Advocate warns of tax refund delays this season
National Taxpayer Advocate Erin Collins expressed deep concerns Wednesday about the upcoming tax filing season in her annual report to Congress on the 2021 filing season.
The report found that tens of millions of taxpayers saw delays in the processing of their returns last year, and with 77% of individual taxpayers receiving tax refunds, "Processing delays translated directly into refund delays." Similar delays or worse are likely to occur this year.
"Paper is the IRS's Kryptonite, and the agency is still buried in it." National Taxpayer Advocate Erin Collins testifying before a congressional committee in October 2020. Tasos Katopodis/Bloomberg As of late December, the IRS had backlogs of 6 million unprocessed original individual returns, 2.3 million unprocessed amended individual returns, more than 2 million unprocessed employer's quarterly tax returns, and about 5 million pieces of taxpayer correspondence - with some of the submissions dating back at least to April 2021 and many taxpayers still waiting for their refunds nine months later.
"Since the fiscal year 2010, the IRS's workforce has shrunk by 17%, while its workload - as measured by the number of individual return filings - has increased 19%. The report reiterates the National Taxpayer Advocate's longstanding recommendation that Congress provide the IRS with sufficient funding to serve taxpayers well.
As of the postponed filing deadline of May 17, 2021, the IRS was holding 35.3 million tax returns for employee review that was made up of roughly half unprocessed paper returns and half tax returns suspended during processing, leading to refund delays for many of these taxpayers.
"Earned Income Tax Credit benefits are worth up to $6,660, Child Tax Credit benefits [were] worth up to $2,000 per qualifying child under the tax year 2020 rules, and RRCs are potentially worth several thousand dollars for families who did not receive some or all of their EIPs. Millions of taxpayers rely on the benefits from these programs to pay their basic living expenses, and when refunds are substantially delayed, the financial impact can range from mild inconvenience to severe financial hardship." The report blamed processing delays for leading to an array of customer service problems: The IRS's "Where's My Refund?" app often couldn't answer the question of what happened to a tax refund.
Taxpayers tried to check the status of their refunds on IRS.gov more than 632 million times in 2021, but "Where's My Refund?" doesn't give information on unprocessed returns, and it doesn't explain any status delays, the reasons for the delays, where returns stand in the processing pipeline, or what actions taxpayers should take if any.
The IRS mailed tens of millions of notices to taxpayers during 2021, including nearly 14 million math error notices, Automated Underreporter notices, notices requesting a taxpayer authenticate his or her identity where IRS filters flagged a return as potentially fraudulent, correspondence examination notices, and collection notices.
Global Trade:
January 16: Supply Chain Woes Could Worsen as China Imposes New Covid Lockdowns
American manufacturers are worried that China’s zero-tolerance coronavirus policy could throw a wrench in the global conveyor belt for goods this year. The country's zero-tolerance policy has manufacturers - already on edge from spending the past two years dealing with crippling supply chain woes - worried about another round of shutdowns at Chinese factories and ports.
If extensive lockdowns become more widespread in China, their effects on supply chains could be felt across the United States. Major new disruptions could depress consumer confidence and exacerbate inflation, which is already at a 40-year high, posing challenges for the Biden administration and the Federal Reserve.
“Will the Chinese be able to control it or not I think is a really important question,” said Craig Allen, the president of the U.S.-China Business Council. "If they're going to have to begin closing down port cities, you're going to have additional supply chain disruptions."
Transportation costs have skyrocketed, and ports and warehouses have experienced pileups of products waiting to be shipped or driven elsewhere while other parts of the supply chain are stymied by shortages.
High shipping prices began to ease after the holiday rush, and some analysts speculated that next month's Lunar New Year, when many Chinese factories will idle, might be a moment for ports, warehouses, and trucking companies to catch up on moving backlogged orders and allow global supply chains to return to normal. Major U.S. ports are handling more cargo than ever before and working through their backlog of containers - in part because ports have threatened additional fees for containers that sit too long in their yards.
A push to make the Port of Los Angeles operate 24/7, which was the centerpiece of the Biden administration's efforts to address supply chain issues this fall, has still seen few trucks showing up for overnight pickups, according to port officials, and cargo ships are still waiting for weeks outside West Coast ports for their turn for a berth to dock in. Last year, terminal shutdowns in and around Ningbo and Shenzhen, respectively the world's third- and fourth-largest container ports by volume, led to congestion and delays and caused some ships to reroute to other ports.
Economic News:
January 16: Omicron, Inflation Drive Down U.S. Growth Outlook
The outlook for economic growth in the first quarter and 2022 is darkening amid the latest wave of Covid-19, as consumers grapple with high inflation and businesses juggle labor and production disruptions.
The combination of higher inflation, supply-chain constraints, and the fast-spreading Omicron variant caused economists to trim their forecast for growth to 3.3% for the current year as a whole, based on the change in the inflation-adjusted gross domestic product in the fourth quarter of 2022 from a year earlier, from 3.6% in October.
By the end of 2022, wage inflation is expected to cool slightly to a 4.5% year-over-year increase in average hourly earnings.
On average, survey respondents expect annual inflation to moderate to 5% in June, up substantially from the 3.4% they forecast in October, as measured by the consumer price index.
Nearly two-thirds expect the Fed to raise rates at its March 15-16 policy meeting and keep raising them over the course of the year.
Over half of forecasters expect three rate increases this year, while nearly a third expect more than three.
"Freight rates remain extremely elevated, port backlogs are significant, Asia zero-covid policy is a major constraint while U.S. inventory rebuilding will add to the strains-that means demand could continue outstripping available supply for a considerable time to come," said James Knightley, chief international economist at ING. More than half of economists expect supply-chain disruptions to persist at least until the second half of this year, with a third expecting them to continue until 2023 or later.
January 12: Inflation is too high, President Biden’s pick for Fed vice chair says as her nomination hearing begins
Lael Brainard, a Federal Reserve governor who President Biden has nominated to be the central bank's new vice-chair, told lawmakers that the central bank will use its policies to wrestle inflation under control in prepared remarks for her confirmation hearing Thursday. Her nomination - and her new role at the Fed if the Senate confirms her - comes at a challenging economic moment.
Ms. Brainard also told lawmakers that the Fed's policies are "Focused on getting inflation back down to 2 percent while sustaining a recovery that includes everyone," calling that the central bank's "Most important task."
After nearly two years of propping up a virus-stricken economy by keeping interest rates at rock bottom and buying government-backed debt, Fed officials began to slow their large bond purchases late last year. Markets increasingly expect four rate increases in 2022, which would put the Fed's short-term policy interest rate just above 1 percent.
Ms. Brainard has been at the Fed since 2014, spanning the Obama, Trump, and Biden administrations. She used her prepared statement to emphasize that she has worked for many administrations in Washington - Democrats and Republicans alike - while pledging to take the Fed's mission to fight inflation and its independence from partisan wrangling seriously.
Midterm Elections:
January 14/16: Frustrated Democrats Call for ‘Reset’ Ahead of Midterm Elections
With the White House legislative agenda in shambles less than a year before the midterm elections, Democrats are sounding alarms that their party could face even deeper losses than anticipated without a major shift in strategy led by the president.
Democrats already anticipated a difficult midterm climate, given that the party in power historically loses seats during a president's first term. The party's struggle to act on its biggest legislative priorities has rattled lawmakers and strategists, who fear their candidates will be left combating the perception that Democrats failed to deliver on President Biden's central campaign promise of rebooting a broken Washington.
Representative Tim Ryan, a Democrat from a blue-collar Ohio district who is running for the state's open Senate seat, said his party isn't addressing voter anxieties about school closures, the pandemic, and economic security.
The end of the week provided another painful marker for Democrats: Friday was the first time since July that millions of American families with children did not receive a monthly child benefit, a payment established as part of the $1.9 trillion pandemic relief plan that Democrats muscled through in March without any Republican support.
Representative Cheri Bustos, a Democrat from rural Illinois, said Democrats should consider less ambitious bills that could draw some Republican support to give the party accomplishments it can claim in the midterm elections.
Many Democrats say they need to do more to sell their accomplishments or risk watching the midterms go the way of the off-year elections when many in the party were surprised by the intensity of the backlash against them in races in Virginia, New Jersey, and New York."We need to get into the business of promotion and selling and out of the business of moaning and groaning," said Bradley Beychok, a senior adviser for American Bridge 21st Century, a Democratic group.
January 12: Democrats Worry Biden Could Pay The Political Price For Rising Inflation
As long as prices rise, Biden could pay a political price in November's midterm elections, which will determine control of both houses of Congress. Biden six months ago pointed to the likelihood of inflation being temporary.
Democrats say they welcome a debate over the economy - pointing to a lack of firm plans from the GOP - but Republicans argued the new inflation numbers were another sign that Biden's policies are not working.
After initially arguing that rising prices would prove short-lived, the White House has deployed an all-of-the-above approach to inflation.
A senior White House official, speaking on the condition of anonymity to describe the administration's position, acknowledged that, year over year, prices are growing faster than hourly pay but pointed to independent forecasts projecting inflation could be halved over the next year.
"The danger is we're starting to see a dynamic of wage-price spiral in which rising wages lead to rising prices, which lead to rising prices, which lead to rising wages," said Larry Summers, who served in senior positions in the Clinton and Obama administrations but has been critical of Biden's $1.9 trillion stimulus package.
"The crucial macroeconomic insight from the experience of the 1960s and 1970s is that an overheated economy leads to not just high inflation but accelerating inflation," Summers added.
For Fun:
Massive asteroid safely zooms by Earth, a million miles away
A huge asteroid made its closest approach of the next two centuries Tuesday, flying quite safely past our planet.
Asteroid 7482, which is classified as a near-Earth asteroid, only got within five lunar distances of our planet, the equivalent of 1 million miles.
Any asteroids or comets that come within 1.3 astronomical units qualify as near-Earth objects, or NEOs, according to NASA. While there are no known objects "Out there" that may pose an immediate threat for Earth, NASA does keep its eyes peeled.
Through partner telescopes in space and on the ground, it monitors and hunts NEOs while assessing potentially hazardous ones through the Planetary Defense Coordination Office.
The agency also tests out technology for potential planetary defense, including the Double Asteroid Redirection Test that will seek to alter the path of an asteroid's moonlet in the fall of 2022.