IRS Setbacks, Inflation, and Companies Withdrawal from Russia

Tax Policy:

March 14: IRS plans to hire thousands likely to fall short

Last week, Congress approved a 6% funding increase for the IRS, much of which will go toward taxpayer service, although the funding increase is only about half of what the House had approved last summer. As of May 18, 2021, the IRS had a hiring shortfall of 814 individuals it estimated were needed to meet demand in the Kansas City and Ogden tax processing centers, according to the report, and the IRS achieved just under 67% of the hiring goal for submission processing of tax returns.

As of Oct. 14, 2021, the IRS has issued more than 13.5 million recovery payments totaling $6.3 billion for taxpayers who claimed unemployment compensation. As of May 28, 2021, taxpayers made 185 million total attempts to contact the IRS by calling the various customer service toll-free telephone assistance lines.

The IRS answered 25.6 million calls with automation, while IRS employees answered more than 11.4 million calls, providing a 15.5% level of service with a 19-minute average speed of answering the calls. Last week, the IRS and the Treasury said they were adding 2,000 contractors to respond to taxpayer calls about Economic Impact Payments and Child Tax Credits and expanded customer callback services to 70% of the IRS's toll-free lines.

"The backlog of unprocessed prior-year Form 1040 family returns affected the filing of electronic returns for the 2021 filing season and will also affect filing season 2022," wrote Kenneth Corbin, commissioner of the IRS Wage and Investment Division and chief taxpayer experience officer in response to the report, who also addressed another glitch revealed in the report.

March 14: House panel presses DOJ, Treasury to review drugmakers' opioid settlement tax breaks

The House Oversight and Reform Committee on Monday pressed the departments of Justice and the Treasury to look into the tax deductions of four U.S. drug companies that agreed to a multibillion-dollar settlement last month to end opioid-related lawsuits. In a letter to the Treasury Secretary and U.S. Attorney General, the panel said it had found four companies that agreed to the $26 billion settlement - Cardinal Health, McKesson Corporation, AmerisourceBergen, and Johnson & Johnson - are possibly trying to "put taxpayers on the hook for billions of dollars in settlement costs."

As the panel noted, all of the drug companies had indicated their plans of claiming tax deductions for their settlement agreement, with billions of dollars worth of such deductions possibly being claimed. "The Committee remains deeply concerned that these companies will be allowed to claim billions in tax benefits resulting from great harm to the American people," read the letter.

Cardinal Health had apparently informed the committee that it intended to claim emergency tax relief provided by the pandemic relief CARES Act. The House committee questioned this move, noting that the company was claiming 2020 losses, despite the settlement payments not being scheduled to start until April 2022.

In a statement, Cardinal Health told The Hill, "We have been forthright about our approach to opioid-related tax obligations. As we noted in our response to the Committee last year, we publicly disclosed in February 2021 that we recorded a net operating loss for tax purposes, which, as permissible under current federal law, will be carried back across previously paid federal taxes."

March 10: The I.R.S. plans to hire 10,000 workers to clear a tax return backlog

The Internal Revenue Service said on Thursday that it planned a hiring spree this tax season as it tries to clear a backlog of more than 20 million unprocessed tax returns from previous years. The I.R.S. described the blueprint as an "All hands on deck" approach to emerge from long-standing staffing shortages that were compounded by the pandemic.

Longstanding budget cuts and staff shortages collided with the pandemic, as the agency became the main distributor of stimulus relief, including direct checks and tax credits. The I.R.S. has suffered from tight budgets for decades, as Republicans sought to starve the agency.

A 2022 House spending bill that passed this week would give $12.6 billion to the I.R.S., the largest annual budget increase since 2001. The hiring goals will not necessarily be easy to accomplish, as the nation has been experiencing a labor shortage and many of the I.R.S. jobs pay $15 an hour, making them less competitive than many private-sector jobs. The I.R.S. expects to hold job fairs in Kansas City, Mo.; Austin, Texas; and Ogden, Utah, to beef up its processing centers in those cities. Officials from the Treasury Department, which oversees the I.R.S., said on Thursday that the goal was to have the inventory of old tax returns cleared by next year's tax season.

Build Back Better Act/Bill: 

March 12: House Democrats Push Biden to Build a Better Midterm Message

Democrats, Ms. Pelosi told Mr. Biden and a group of his aides, need a more succinct and consistent message. Some Democrats say they have been cheered by signs that the White House, and particularly Ron Klain, the chief of staff, are now focused on inflation after initially arguing last year that the increase was transitory.

During a recent meeting with a group of House Democrats, Mr. Klain resisted a request to spend more federal dollars aiding restaurants in part because it could be seen as adding to inflationary pressures, according to an official at the meeting. To the relief of Democrats in Congress, the White House is dropping the "Build back better" catchphrase.

Nowhere is there more alarm in the party ranks than among House Democrats, many of whom have long felt that Mr. Biden and his aides, with their decades of service in the Senate, were overly focused on the other chamber. Some of her colleagues are voting with their feet: 31 House Democrats have said they will not run for re-election, the highest number in the caucus since 1992. Not all of the ire is aimed at Mr. Biden. At a closed-door retreat for Senate Democrats that Mr. Biden attended on Wednesday, Senator Raphael Warnock of Georgia pressed the president to cancel student loan debt, according to Democrats in the room.

Economic News/Policy: 

March 14: The Inflation Hits Just Keep Coming, Raising Stakes for the Fed

For the Federal Reserve, the hits driving inflation keep piling up. Even before the war, business executives had planned to keep raising prices this year, after disrupted supply chains collided with strong consumer demand, sending inflation rising.

Central bank textbooks see supply shocks' effect on inflation as transitory so long as the public doesn't expect permanently higher future inflation.

Mr. Luzzetti has produced a model, based on research the Fed published last year, that suggests such underlying inflation has risen to around 2.8% in January, from 2.2% last June.

Mr. Mericle now expects the Fed to raise rates to around 3% next year but says the risk is growing of a more lasting increase in inflation that prompts the Fed to raise its benchmark rate to the 4% to 5% range.

All through last spring and summer, they remained confident that underlying inflation was still in the same 2% range that had prevailed since the 2008 financial crisis because they thought increases in actual inflation came from supply-chain bottlenecks. If inflation expectations were to move higher, Mr. Powell will face a difficult choice between tolerating sustained higher inflation or raising rates by enough to tip the economy into a recession.

March 13: Democrats divided over a proposal to suspend the federal gas tax 

A proposal to suspend the federal gas tax is gaining political momentum among Senate Democrats who are worried that high gas prices will hurt them in the midterm election. The measure sponsored by Sens. Mark Kelly (D-Ariz.) and Maggie Hassan (D-N.H.), who both face competitive reelection races, would suspend the federal gas tax of 18.4 cents per gallon until January. 

"At a time when people are directly impacted by rising prices on everyday goods, a federal gas tax holiday is a tool in the toolbox to reduce costs for Americans, and we urge you to give every consideration to this proposed legislation," they wrote.

Maryland Gov. Lary Hogan (R) is working with Democrats in the state legislature to adopt a one-month emergency suspension of his state's gas tax. Suspending the federal gas tax is getting pushback from Democratic senators worried about cutting off a key source of funding for roads and bridges.

"I'm skeptical of it, particularly since the domestic production costs for oil and gas don't seem to have skyrocketed, but the domestic oil and gas industry has taken advantage of the cartel-controlled world market prices to jack prices at the pump through the roof and pocket huge windfalls," said Sen. Whitehouse noted that major oil companies, including BP, Shell, ExxonMobil, and Chevron, are planning to buy back an estimated $38 billion in stock, according to media reports.

Democrats said the idea of suspending the gas tax was discussed at this past week's retreat but got pushback from several colleagues.

March 13: Economy Week Ahead: Retail, Central Banks, Home Sales

The Federal Reserve's monetary policy meeting takes center stage this week, with the central bank expected to raise its benchmark interest rate for the first time since 2018. Economists expect other key measures of activity to improve slightly: Fixed-asset investment and retail sales are both estimated to have advanced at a faster annual rate than in December.

Retail sales data for February are expected to show the second consecutive month of increased spending as households adapt to the crosscurrents of a strong labor market, falling coronavirus cases, and inflation running at the highest annual rate in 40 years. The central bank is navigating an unusually complicated environment of a tight labor market, supply disruptions, spiraling inflation, and now Russia's invasion of Ukraine, which has clouded the outlook and worsened price and supply-chain pressures that many had hoped would soon ease.

The Bank of England has raised interest rates twice since December in an effort to tame accelerating inflation. Many economists expect another increase this week, though Russia's invasion of Ukraine has spurred sweeping sanctions, further disrupted supply, and sent commodity prices soaring-threatening both slower economic growth and even higher inflation, and leaving the policy outlook less certain. The Bank of Japan is expected to keep its ultra-easy monetary policy in place, given concerns over how the war in Ukraine will affect the global economy.

Ukraine Crisis/Russia’s Economic Impact: 

March 11: Senator proposes to eliminate U.S. tax breaks for Russians

Senate Finance Committee Chair Ron Wyden, D-Oregon, said Friday he is developing policies that could remove some tax benefits available to Russian and Belarusian individuals and entities that earn income from the U.S., as well as U.S.-based multinational companies that do business in those countries.

For individuals, he noted that a number of tax provisions provide benefits to foreign persons with income connected to the U.S., such as tax treaties that offer lower withholding tax rates on dividends, interest, and other payments. Under Wyden's proposal, some of these tax benefits would be eliminated, subjecting any recipient to the full U.S. tax rate on the income, typically a 30% withholding tax on payments.

Individuals and entities listed by the Office of Financial Assets Control would initially lose their tax breaks, and the proposal gives Treasury Secretary Janet Yellen the authority to list more individuals and entities subject to the penalty, including the governments of Russia and Belarus.

If a U.S. corporation earns income and pays taxes to Russia or Belarus, they currently receive two significant tax benefits: the preferential Global Intangible Low-Taxed Income tax rate of 10.5%, and a foreign tax credit that offsets U.S. taxes dollar-for-dollar. Section 901(j) of the Tax Code eliminates the lower GILTI rate and disallows FTCs for income earned in countries supporting terrorism or without diplomatic relations with the United States.

"We need a comprehensive response that turns up the financial pressure from every angle. Russian oligarchs and companies supporting Putin shouldn't be getting tax breaks in the United States. We should take away every special tax benefit for all sanctioned individuals, as well as give Secretary Yellen the authority to identify other individuals, companies, or governments supporting the invasion that should lose their tax goodies." The removal of corporate tax breaks could potentially provide some extra leverage, at least economically, to help end the conflict.

March 10: The war in Ukraine is likely to slow global growth, the I.M.F. warns

The economic fallout from Russia's invasion will depend on the outcome of the war and the duration of the sanctions. The war in Ukraine and the associated sanctions that countries around the world have imposed on Russia are likely to cause a downgrade of the International Monetary Fund's global economic growth forecast, Kristalina Georgieva, the I.M.F.'s managing director, said on Thursday.

Ukraine's top economic adviser said earlier on Thursday that Russia had already destroyed $100 billion worth of the country's assets.

The fund is also assessing the impact of the sanctions on the economy of Russia.

"The Russian economy is contracting, and the recession in Russia is going to be deep," Ms. Georgieva said. The I.M.F. has halted operations and programs in Russia. Ms. Georgieva said there had been no discussions about ending Russia's membership in the fund.

March 11: Soaring Oil Prices Will Hurt Global Economy As Ukraine War Disrupts Russian Supplies

The highest oil prices since the 2008 financial crisis are dealing a heavy blow to the global economy, slowing Europe's pandemic recovery to a near stall and complicating the fight against inflation in the United States.

After falling Wednesday on hopes for a negotiated settlement in Russia's war on Ukraine, Brent slid further Thursday, closing just shy of $110. But the likelihood that oil prices will remain elevated for the rest of the year is expected to reshape consumer spending, weigh on financial markets, and strain government budgets in dozens of countries.

The shale oil revolution has made the United States one of the world's largest oil producers, so higher prices boost oil company profits and investor returns. Russian wells supply 11 percent of global oil consumption and 17 percent of natural gas usage, according to Goldman Sachs.

Predicting the future of Russian oil sales - and global prices - is especially hazardous. If U.S. allies in Europe overcome their economic worries and agree to a complete embargo on Russian energy, oil prices could hit $160 a barrel, according to Capital Economics. In the coronavirus pandemic's first months, prices actually turned negative as a glut of oil left traders offering to pay storage facilities to take supplies.

March 9: Over 300 Companies Have Withdrawn from Russia - But Some Remain 

Since Putin's devastating invasion of Ukraine began, over 320 companies have announced their withdrawal from Russia in protest. Some western companies have continued to operate in Russia undeterred; we identify several dozen companies with particularly significant exposure to Russian markets.

In the days since we initially published our list, many of the "Remain" companies have responded to public backlash and decided to withdraw, and we are continuously revising our list to reflect these decisions as they are made.

Spending Bill: 

March 9: House Passes $1.5 Trillion Spending Bill as Democrats Drop Covid Aid

The House on Wednesday passed a sprawling $1.5 trillion federal spending bill that includes a huge infusion of aid for war-torn Ukraine and money to keep the government funded through September, after jettisoning a package to fund President Biden's new Covid-19 response effort. Officials had initially suggested they needed as much as $30 billion before requesting $22.5 billion, an amount that got whittled down in negotiations with Republicans, who resisted spending any new federal money on the pandemic.

In response, top Democrats had agreed to take the funding from existing programs, including $7 billion set aside under last year's $1.9 trillion coronavirus aid law to help state governments. Lawmakers more than doubled what the Biden administration requested in emergency aid for Ukraine, sending about $6.5 billion to the Pentagon for military assistance and about $6.7 billion in humanitarian and economic aid to help both refugees and those who remained in the country.

Overall, the measure would significantly increase federal spending, setting aside $730 billion for domestic programs and $782 billion for the military. Billions of dollars for long-term goals of building additional ships and aircraft would be funded, including 13 new Navy vessels, a dozen F/A-18 Super Hornets, and 85 F-35 Joint Strike Fighters.

In anticipation of another year of high migrant traffic at the southwestern border, lawmakers designated an additional $1.45 billion for Customs and Border Protection, Immigration and Customs Enforcement, and the Federal Emergency Management Agency to help with personnel overtime costs, medical care for migrants, and funding for nonprofit groups that shelter migrants once they are released from border custody.

March 9: House prepares to vote on $1.5 trillion omnibus spending package, with $13.6 billion in Ukraine aid

The House is moving closer to a vote Wednesday on a $1.5 trillion omnibus spending bill to keep the federal government open and provide $13.6 billion in aid for Ukraine and Eastern European countries, while $15.6 billion for the response to COVID-19 fell by the wayside as Democrats worked to pass the legislation.

A dispute over how to pay for the COVID-related provisions prompted House Speaker Nancy Pelosi to remove the pandemic money from the bill Wednesday afternoon, a move she called "Heartbreaking." Republicans had demanded the $15.6 billion be offset by cuts elsewhere, and Democratic leaders agreed to cover half the cost by using leftover money from previous pandemic aid.

The $13.6 billion in support for Ukraine is more than the $10 billion the White House requested from Congress last week to assist Ukraine and European allies in the wake of Russia's invasion. The U.S. Agency for International Development will also receive nearly $2.8 billion to provide aid for vulnerable populations in Ukraine and Eastern Europe, while the Justice and Commerce Departments will get smaller sums.

The White House had asked Congress to add $22.5 billion in new spending for the COVID-19 response, though Senate Republicans questioned the need for more money. As the House convened Wednesday morning to move toward taking up the sweeping spending package with procedural votes, Pelosi issued a letter to her Democratic colleagues that seemingly sought to assuage concerns about how the $15.6 billion for pandemic response will be paid for.

The sweeping spending packing reauthorizes the Violence Against Women Act, which expired in late 2018, and increases the maximum Pell Grant award by $400. The bill includes $1 billion for Mr. Biden's new cancer research initiative, known as Advanced Research Projects Agency for Health, or ARPA-H, and provides $3.9 billion in grants to state and local law enforcement, an increase of $506.4 million above the fiscal year 2021.

March 9: Democrats yank COVID relief after revolt by own members

Facing a revolt from rank-and-file Democrats, party leaders on Wednesday yanked billions of dollars in emergency funding from a $1.5 trillion government funding package - a move that will allow for the passage of the larger package but leaves the fate of the pandemic relief up in the air.

Speaker Nancy Pelosi (D-Calif.) confirmed the news in a "Dear Colleague" letter on Wednesday afternoon, largely blaming Republicans for the impasse that sparked the stunning last-minute revision to the larger spending package. "Because of Republican insistence - and the resistance by a number of our Members to making those offsets - we will go back to the Rules Committee to remove COVID funding and accommodate the revised bill," she wrote.

"We must proceed with the omnibus today, which includes emergency funding for Ukraine and urgent funding to meet the needs of America's families.". "It is heartbreaking to remove the COVID funding, and we must continue to fight for urgently needed COVID assistance," she continued, "But unfortunately that will not be included in this bill."

“This deal was cut behind closed doors. Members found out this morning, this is completely unacceptable,” Rep. Annie Craig (D-Minn.) said shortly after leaving Pelosi’s office earlier on Wednesday. Craig told reporters her state was one of roughly 30 that would see the previously appropriated funds pulled, before adding more than $250 million to her state was "What is at risk here today."

Removal of the COVID-19 funding paves the way for passage of the omnibus bill Wednesday afternoon when Democrats are scheduled to begin their annual issues conference in Philadelphia - a trip that was postponed slightly by the last-minute objections. Republicans balked at that idea and Democratic negotiators responded by proposing to offset the $15.6 billion with funding sent to states last year, as part of the American Rescue Plan, but not yet spent.

For Fun: 

March 15: NASA astronauts conduct spacewalk to provide space station power upgrades

Astronauts Kayla Barron and Raja Chari suited up and exited the space station to begin some installations around 8:12 a.m. ET. Live coverage began on NASA's TV channel and website at 6:30 a.m. ET and the spacewalk are expected to last for six hours and 30 minutes. Capturing the heritage of the International Space Station before it crashes into the ocean Capturing the heritage of the International Space Station before it crashes into the ocean During the spacewalk, Barron will be extravehicular crewmember 1 wearing the suit with red stripes and Chari will be identifiable as extravehicular crew member 2 in the suit with no stripes.

While the current solar arrays on the space station are still functioning, they have been supplying power to the space station for more than 20 years and are showing some signs of wear after long-term exposure to the space environment. International cooperation in space The space station is about to be a hub of activity, with a new Russian crew set to launch to the ISS on Friday, joining the four Americans, one European, and two Russians already aboard.

The space agency sought to reaffirm Monday that it's still working closely with Russian space agency Rocosmos on the International Space Station, despite mounting geopolitical tensions. NASA says American aboard International Space Station will come back on Russian rocket 'for sure' NASA says American aboard International Space Station will come back on Russian rocket 'for sure' Vande Hei, who launched to the ISS in April 2021, will land aboard the Russian Soyuz spacecraft in Kazakhstan, as is customary. Joint operations between NASA and Roscosmos at the Russian facilities at Baikonur, Kazakhstan, "Continue to go well," according to Joel Montalbano, the manager of NASA's International Space Station program.