Tax Season, Spending Bill Pause, and Covid-19 Cybersecurity Threats

Tax Policy:

January 1: Headaches and Backlogs Loom as Tax Filing Season Nears Again

The third tax-filing season during the coronavirus pandemic is set to begin soon with more delays, uncertainty, and frustration likely for taxpayers and tax preparers.

The advanced payments of the child tax credit received during 2021 must be reflected on tax returns, and people who were eligible for March's $1,400 economic stimulus payment but didn't receive it can claim it on their returns.

"Accuracy has a value now," said Mark Steber, chief tax information officer at Jackson Hewitt Tax Service Inc., which prepares about 2 million returns annually.

Employees at IRS paper processing centers are still working under pandemic restrictions, making electronic filing more important, said Douglas O’Donnell, the agency’s deputy commissioner for services and enforcement.

“The pandemic has created unique challenges for the IRS,” he said. “IRS employees continue working hard to prepare for the upcoming tax season as well as addressing outstanding tax returns.”

The Democrats' stalled $2 trillion education, health, and the climate-change bill would increase the $10,000 cap on the state and local tax deduction to $80,000, starting with the 2021 tax returns that people are about to file.

Normally, Congress is reluctant to change a prior year's tax law after-tax filing has already started, given the administrative burden on taxpayers and the IRS. But in March 2021, Congress retroactively lowered income taxes on unemployment benefits received in 2020, and the IRS issued nearly 12 million refunds to people who had already filed and paid taxes on that income.

The same thing could happen soon with the state and local tax deduction, where the IRS may start accepting 2021 returns before Congress makes a final decision on what the 2021 tax code is.

December 28: A Lavish Tax Dodge for the Ultrawealthy Is Easily Multiplied

The Qualified Small Business Stock, or Q.S.B.S., the exemption allows early investors in companies in many industries to avoid taxes on at least $10 million in profits.

The goal, when it was established in the early 1990s, was to coax people to put money into small companies. But over the next three decades, it would be contorted into the latest tax dodge in Silicon Valley, where new billionaires seem to sprout each week.

Even though these recipients didn't put their money into the companies, they nonetheless inherit the tax break, and a further $10 million or more in profits becomes tax-free.

Early investors in some of Silicon Valley's marquee start-ups - including Uber, Lyft, Airbnb, Zoom, Pinterest, and DoorDash - have all replicated this tax exemption by giving shares to friends and family, according to people who worked or were briefed on the tax strategies.

The story of the tax break is in many ways the story of U.S. tax policy writ large.

Manoj Viswanathan, who is a director of the Center on Tax Law at the University of California, Hastings, estimates the tax break will cost the government at least $60 billion over the coming decade.

The likely result, said Paul Lee, the chief tax strategist at Northern Trust Wealth Management, would be even more tax avoidance.

Because Roblox met the criteria for the small-business tax break, the gift recipients could also become eligible for millions of dollars in profits free of capital gains taxes.

The unprecedented explosion - and the corresponding tax bills - has made the Q.S.B.S. tax break more enticing.

Build Back Better Act/Spending Bill: 

January 4: Democrats hit pause on Biden's climate, the social spending package

Senate Democrats are putting President Biden's climate and social spending plan on the back burner as they plan to debate voting rights legislation this month and hold a vote on changing the Senate's filibuster rule.

Senate Majority Leader informed colleagues Monday the Senate will turn immediately to voting rights legislation and would vote to reform the chamber's filibuster rule by Martin Luther King Jr. Day, on Jan. 17, if Senate Republicans block it.

Any such vote in the next few weeks would be guaranteed to fail, and Schumer has previously told colleagues in meetings that he doesn't want to force Manchin to vote on the bill before he is prepared to support it.

Forcing Manchin to vote against popular reforms such as expanded Medicare benefits, a national family paid leave program and more than $500 billion to address climate change might satisfy liberals such as Senate Budget Committee Chairman.

The day that Manchin announced his opposition, Sanders declared: "If Sen. Joe Manchin wants to vote against the Build Back Better Act, he should have the opportunity to do so with a floor vote as soon as the Senate returns."

Democratic pollster Celinda Lake says focus groups show that Democratic voters became more interested in addressing voting reform at the end of last year, as they became more focused on election reform laws passed by GOP-controlled state legislatures around the country ahead of the 2022 midterm elections.

The Senate has already held three failed votes on voting rights legislation since Democrats captured the majority a year ago.

Global Trade:

January 3: U.S., European Factories See Easing Supply Strains, but Omicron Threatens Setbacks

According to surveys of purchasing managers, there were some signs of a modest easing of bottlenecks in the final months of last year as Asian factories reopened following pandemic-related lockdowns.

Despite the easing of supply issues, the U.S. and European businesses reported slightly slower growth in activity during the month.

The U.S. purchasing managers index for manufacturing fell to 57.7 in December from 58.3 in November, the slowest pace of growth in 2021, according to data firm IHS Markit In Europe, the same index declined to 58.0 from 58.4, its lowest level in 10 months.

European factories reported a second month of easing logjams, according to the firm.

Factories in the eurozone also reported that the prices they paid for inputs rose at the slowest pace since April 2021, while they in turn announced the smallest price increases in four months.

Consumer prices in the eurozone rose at the fastest pace on record in November, while the European Central Bank last month said it doesn't expect the inflation rate to fall back to its 2% target until much later in 2022 than it had previously anticipated.

Despite the easing of supply problems, businesses reported slightly slower growth in activity during the month, with the Purchasing Managers Index for manufacturing falling to 58.0 from 58.4, its lowest level in 10 months.

January 2: Economy Week Ahead: Eurozone Manufacturing, U.S. Jobs Report

Monday: IHS Markit will provide a look at the health of the European manufacturing sector with December’s purchasing managers index. The index is expected to slip slightly to 58.0 from 58.4 in November, amid a continuing supply-chain crunch and rising Covid-19 infection rates in Europe.

Tuesday: The ISM Manufacturing Index, released by the Institute for Supply Management, is expected to fall slightly in December, but remain firmly in expansion territory. The monthly report, which measures activity in U.S. factories, has shown that the manufacturing sector has been driven by strong demand, but constrained by ongoing supply-chain challenges.

The Labor Department is to release the Job Openings and Labor Turnover Survey for November. In October, there were 3.6 million more job openings than people looking for work, illustrating the gap between employer demand and labor supply.

Thursday: The U.S. trade deficit, reported by the Commerce Department, is estimated to widen in November to $72.6 billion, up about $5.5 billion from the month before. Global supply-chain constraints and elevated consumer demand for capital goods are some of the factors feeding the deficit.

Friday: Economists estimate that U.S. employers added jobs at a faster pace in December as the labor-market recovery continued. The data reflects mid-December surveys before the Omicron variant caused Covid-19 cases to rise sharply. Analysts expect the Labor Department report to show a gain of 405,000 jobs for December, with the unemployment rate ticking down to 4.1% from 4.2% in November. The labor-force participation rate will be closely eyed as a gauge of whether workers are coming off the sidelines and rejoining the labor force.

Covid-19 and Its Impact:

December 29: CDC guidance, omicron threatens businesses

The cyber agency warns of increased threats to manufacturing groups.

Manufacturing organizations are at higher risk of being targeted by hackers during the COVID-19 pandemic, the nation's key cybersecurity agency warned Wednesday.

Key areas of concerns highlighted by CISA include the increased use of robotics and remote processes during the pandemic to protect workers, which CISA noted has opened up new security vulnerabilities, and the increasing lack of qualified personnel to protect highly technical manufacturing systems.

Ransomware attacks, which have become a major concern during the course of the pandemic in all sectors, have also become a threat to manufacturing companies.

Threats against the manufacturing sector have grown in recent years.

The Department of Homeland Security, which houses CISA, announced in 2016 that it had investigated twice the number of attempted attacks on manufacturing companies in 2015 as it had the year before.

The White House said that a potential mandate is not off the table, and the uptick in COVID-19 cases brought on by the highly transmissible omicron variant has raised questions over whether a requirement is another way to keep Americans safe.

December 28: COVID surge multiplies dangers for Biden

Biden is desperate to avoid any public perception that he is failing to meet the challenge.

Early in his presidency, with mass vaccinations coming on-stream and near-euphoria that the end of COVID seemed to be in sight, Biden often scored 60 percent approval or higher on the pandemic.

The administration acknowledged just before Christmas that no contract had yet been signed for the 500 million tests Biden has promised will start to become available in January.

In his Monday remarks, even as Biden reminded voters of the huge increase in the availability of home tests since he took office, he added: "It's not enough, it's clearly not enough. If we'd known, we would've gone harder, quicker."

A number of studies have shown that the severity of omicron, especially among the vaccinated, is significantly less than the original strain of COVID or the delta variant.

Gov. Hutchinson said the White House COVID team had given "Great support to the governors." The Arkansas Republican also welcomed recent remarks from Biden "Designed to depoliticize our COVID response," adding, "I think that was helpful."

If omicron hits with even harder force and the healthcare system start creaking under the strain, the political fallout for Biden is sure to be severe.

Cryptocurrency: 

December 28: The infrastructure bill could be a game changer for cryptocurrency

As crypto has attracted more novice investors, this burgeoning new market has led to a host of tax complexities, and federal regulators have their sights set on reining in the "Wild West era" of crypto.

"Currently, for its purposes, the IRS treats crypto as property. But under a provision of the infrastructure bill, cryptocurrency would be treated both as property and a security," he explained.

That's important because currently, only brokers are required to send a 1099 form to crypto holders and to the IRS about a specific investor's earnings.

If a business receives more than $10,000 in cash for any service or product, it has to file Form 8300 with the IRS. Traditionally, crypto is exempt from that requirement because of its designation as property.

For individual tax preparers, the infusion of new regulations is an unwelcome complication at a time when crypto is so new to them.

The group most likely to feel the biggest sting of these changes, Hunley says, is likely to be the crypto exchanges.

All stakeholders - from preparers to investors to exchanges - have to get ready for a new era of crypto.

December 28: Washington grapples with regulating crypto

The cryptocurrency explosion has forced Washington to adapt federal financial rules to a quickly growing and changing industry.

Americans have poured billions of dollars into cryptocurrencies and a wide array of blockchain-based financial platforms over the past year as the pandemic triggered an investment boom.

While the crypto market has picked up steam steadily over the past decade, a surge of interest in the space and the rapid rise of decentralized financial networks has drawn fresh attention from regulators and lawmakers:

• The Securities and Exchange Commission, Commodity Futures Trading Commission (CFTC), the Treasury Department, and state money transmission licensers all share overlapping jurisdiction over parts of the crypto industry, which often leaves firms unsure about their regulatory obligations. The SEC and CFTC have focused primarily on crypto firms and offerings that clearly violate general investor protection and anti-fraud laws.

Democratic lawmakers and regulators in both parties have also expressed particular concerns with “stablecoins,” tokens tied to cash or other safer assets held by the coin’s issuer.

For Fun: 

January 4: Ford doubling production of electric F-150 pickup trucks

Ford announced on Tuesday that it would almost double the annual production of its electric F-150 Lightning pickup truck.

"The reality is clear: People are ready for an all-electric F-150 and Ford is pulling out all the stops to scale our operations and increase production capacity," said Kumar Galhotra, Ford's president of Americas and international markets.

Ford initially planned to produce about 80,000 models of the electric truck, but customer demand for the trucks priced at about $40,000 before taxes prompted them to increase output.

"With nearly 200,000 reservations, our teams are working hard and creatively to break production constraints to get more F-150 Lightning trucks into the hands of our customers," Galhotra added.

Within the next two years, Ford intends to have the capacity to produce 600,000 electric vehicles each year.

Test-drove a Ford Lightning as part of a visit to the company's plant in Dearborn, Mich., in May, during which he touted electric vehicles as the "Future of the auto industry."

Ford's latest announcement comes just one day ahead of General Motors publicly introducing its Chevrolet Silverado electric pickup, scheduled to take place on Wednesday, Reuters reported.

January 3: Mars may start 'terraforming itself'

A magnetic shield "Upwind" of Mars could protect the planet from the solar particles that continually strip away its atmosphere, allowing future pioneers to create a situation "Where your blood doesn't boil if you walked out on the surface.," retiring NASA scientist Jim Green told The New York Times.

If passed, the new designation promises to unlock a flood of investment to new gas and nuclear plants, and it's already unleashed bitter criticism.

Germany, "Expressly rejects" the new proposal, Hebestreit said, citing risks over the storage of spent nuclear fuels.

Behind the quote: At issue is the E.U's new green "Taxonomy" list, which clarifies which energy sources will qualify for preferential investment.

After a year of wrangling, a draft E.U. plan would allow certain natural gas and nuclear plants to qualify, potentially unlocking "Trillions" in new investment and building the next generation of E.U. natural gas and nuclear infrastructure - even though neither source has traditionally qualified for the environment, social and governance funding, the Times reported.

Germany's new government, in particular, leads a group of German-speaking countries - like Austria and Luxembourg - that are angry at its neighbor France's push to meet its carbon commitments by relying on nuclear power.

For the gas side, the E.U. is considering giving the "Green" designation to new plants that - provided they go in before 2030 - both keep carbon dioxide emissions below 270 grams per kWh and replace more polluting infrastructure, Euronews reported.