The Employee Retention Credit, Rising Interest Rates, and IRS Budget Increases
Tax Policy:
March 17: IRS plans to improve taxpayer service with the budget increase
Through March 11, the IRS received more than 63 million individual federal tax returns and issued more than 45 million refunds totaling more than $151 billion, he noted. IRS Commissioner Charles Rettig However, the IRS is still catching up with a backlog of millions of tax returns from last year.
"The IRS continues to focus on working to reduce paper correspondence inventory and process paper tax returns from 2021 as well as improve our response to an unprecedented level of phone demand - situations that have been compounded by the pandemic and related issues." He noted that in the fiscal year 2021, the IRS received more than 15 million individual paper returns. "Similarly, more than 10 million individuals reported unemployment compensation on their return that was subject to the exclusion enacted during the 2021 filing season. In addition, millions of taxpayers elected to use 2019 rather than 2020 as the base year for determining their EITC. Each of these returns required a manual review and resolution by an IRS employee." While the $675 million funding boost approved by Congress last week should help the IRS deal with such matters, it was only about half the amount the House had approved last summer.
"We can do it and I know there are members on both sides of the aisle dedicated to working together on those issues." The IRS recently announced plans to hire an additional 10,000 employees to help it deal with its backlog of millions of unprocessed tax returns over the coming year.
In contrast, the IRS more routinely audits taxpayers claiming refundable tax credits, such as the Earned Income Tax Credit and the Child Tax Credit.
"Nothing is off the table for us to consider." He noted that he and other IRS officials regularly meet with the AICPA and other groups to hear their concerns, and he considers them friends, having worked as a tax attorney before joining the IRS. "The people that provide the letters and lobby you hardly know the answers to the questions they have you ask me," he said.
Employee Retention Credit:
March 18: Congress presses IRS on ERTC processing and tax penalty relief
Lawmakers are asking the Internal Revenue Service to expedite the processing of Employee Retention Tax Credits and not to penalize small businesses for incorrectly paying their estimated quarterly taxes as they await their claims. Many small businesses have been waiting for their ERTC claims to be processed from last year, even those dating back before the fourth quarter.
"Can you commit to the committee today that the IRS will prioritize the ERTC processing, including creating a dedicated mailbox, phone line, and updated timeline as to when to expect these refunds, specifically for the small businesses and nonprofits that are attempting to claim the credit?" Representative Carol Miller asked.
"My dad had a truck. I am very committed to helping small businesses, all taxpayers. Small business taxpayers in many senses are the backbone of the country." He noted that many of them previously didn't face the challenges that the pandemic presented to them when they needed to turn to the IRS for help.
Miller pressed her case, pointing out the delays at the IRS were hurting small businesses.
"It's H.R. 6161 and it will deliver our promise of relief to the small businesses and nonprofits in your communities." Another congressman, Rep. Kevin Hern, R-Oklahoma, followed up by asking Rettig further about the ERTC. "I was in small business for 35 years and certainly understand the importance of the relief that Congress gave and unfortunately much of that relief didn't get to the businesses that had exposure to the tax," he said.
Many accounting firms have found the ERTC to be a lifeline for both small businesses and nonprofits during the pandemic.
Economic News/Policy:
March 21: With Inflation Surging, Biden Targets Ocean Shipping
Shipping prices have soared since the pandemic, as rising demand for food, couches, electronics, and other goods collided with shutdowns at factories and ports, leading to a shortage of space on ocean vessels as countries competed to get products from foreign shores to their own. Shipping rates typically take 12 to 18 months to fully pass through to consumer prices, said Nicholas Sly, an economist at the Federal Reserve Bank of Kansas City."The goods that are being affected by shipping costs today are really the goods that consumers and American households are going to be buying many months from now, and that's why those costs tend to show up later," he said.
Shipping prices have already skyrocketed so high that, for some products, they have erased companies' profit margins. The White House has pointed to rapid consolidation in the industry over the past decade as a driver of higher prices, saying that three global shipping alliances now control 80 percent of global container ship capacity, and increased shipping costs would continue to fuel inflation.
John Butler, the chief executive of the World Shipping Council, which represents the biggest container ship operators, including Maersk, Hapag-Lloyd, and Ocean Network Express, said the White House arguments were "Simply inaccurate." The industry is not particularly concentrated by measures that antitrust authorities use, he argued, and leading into the pandemic, there was plenty of capacity and rates had been declining.
Daniel B. Maffei, the chair of the Federal Maritime Commission, said in an interview that there was "no question" that changes in consumer demand as a result of Covid had driven a rapid increase in shipping prices. Some logistics experts say that cooperation between shipping companies has ended up reducing competition and concentrating market power, indirectly giving them more free rein to dictate prices and schedules.
March 21: Powell Says Fed Could Raise Rates More Quickly to Tame Inflation
Jerome H. Powell, the Federal Reserve chair, said on Monday that the central bank was prepared to more quickly withdraw support from the economy if doing so proved necessary to bring rapid inflation under control. Mr. Powell signaled that the Fed could make big interest rate increases and push rates to relatively high levels in its quest to cool off demand and temper inflation, which is running at its fastest pace in 40 years.
"There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level, and then to move to more restrictive levels if that is what is required to restore price stability," Mr. Powell said during remarks to a conference of business economists.
"If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so," Mr. Powell said.
Asked what would keep the Fed from raising interest rates by half a percentage point at its next meeting in May, Mr. Powell replied, "Nothing." He said the Fed had not yet made a decision on its next rate increase but noted that officials would make a supersized move if they thought one was appropriate.
The yield on the benchmark 10-year Treasury note rose as high as 2.3 percent as Mr. Powell was speaking, and the yield on two-year Treasurys rose above 2 percent for the first time since 2019. Rising rates can especially hurt share prices if they tank economic growth or cause the economy to contract. Getting price gains under control is the Fed's priority, and while the central bank had been hoping for inflation to fade as pandemic disruptions abate, Mr. Powell was adamant that it could no longer watch and wait for that to happen.
March 20: Economy Week Ahead: Powell, Housing, Factories
Reports on factory activity and the housing market highlight this week's slate of economic data.
Federal Reserve Chairman Jerome Powell speaks at a National Association of Business Economists conference on "Sustainable and inclusive growth." That topic is likely to include Mr. Powell's thoughts on interest rates and inflation less than a week after the Fed raised rates and signaled several more increases through the year in an effort to tamp down on consumer prices, which are climbing at the fastest pace in four decades.
U.K. consumer prices rose at their fastest pace in three decades in January.
Surveys of purchasing managers at businesses in the U.S. and Europe are expected to record a modest slowdown in activity during the early weeks of March as an early response to Russia's invasion of Ukraine and may also indicate that inflationary pressures have increased as supply chains face fresh disruption.
U.S. factories during the pandemic have had to contend with shortages of materials, shipping delays, and trouble keeping enough workers on shop floors.
U.S. consumer confidence has soured in recent months amid four-decade-high inflation and a bleak assessment of long-term prospects for the economy.
Add in new uncertainty generated by Russia's invasion of Ukraine and the University of Michigan's consumer sentiment index for the opening weeks of March is expected to post its worst reading since 2011.
March 16: Fed hikes interest rates to fight record inflation
The Federal Reserve on Wednesday increased its baseline interest rate range, launching the first in what will likely be a series of rate hikes meant to fight inflation. Fed officials signaled for months that they would hike rates and begin pulling back stimulative interest rates in March after two years of rapid economic growth and high inflation. The hike comes almost exactly two years after the Fed slashed rates to near-zero levels and began buying billions of dollars of Treasury bonds and mortgage-backed securities each month to stimulate the economy through the COVID-19 recession.
While high inflation was limited to a few sectors hit hard by specific supply shortages earlier in 2021, prices for food, energy, shelter and a wide range of services have begun to increase at faster rates in recent months. The Fed chief now expects inflation to continue rising, predominantly through higher oil prices, before rate hikes begin to have an effect on price growth.
Higher interest rates are likely to slow consumer spending and give businesses less room to boost wages. Some economists have expressed concerns the Fed could now be forced to hike rates high enough to seriously slow the economy in order to curb inflation.
March 16: U.S. Retail Sales Grew 0.3% in February
Americans increased retail spending in February, though at a slower pace than at the start of the year, as they faced higher prices and the economic fallout from Russia's invasion of Ukraine. Retail sales rose a seasonally adjusted 0.3% in February over the prior month, the Commerce Department said Wednesday, a slowdown from January's unusually strong 4.9% increase.
Higher gasoline prices caused by the war pushed up sales at service stations by 5.3%, the biggest jump since March of last year.
Excluding autos and gasoline, retail sales were down 0.4% in February.
Inflation rose 7.9% in February from the previous year, the fastest pace in 40 years, according to the Labor Department.
Retail sales were up 17.6% in February from the previous year, a faster pace of growth than inflation. The National Retail Federation in a report Tuesday forecast that annual retail sales would rise between 6% and 8% in 2022, down from 14% in 2021 but still well above pre-pandemic levels.
March 15: Prices of goods jumped a record 2.4 percent in February
Supplier prices for goods rose 2.4 percent in February, the biggest jump since data for the metric was first calculated more than a decade ago. Most of the increase was due to a spike in energy prices, according to the Labor Department, which noted a 14.8 percent rise in the index for gasoline.
Disregarding food and energy, supplier prices for goods rose 0.7 percent.
The overall producer-price index, which includes both goods and services, was up 0.8 percent in February, leveling off slightly from a 1.2 percent increase in January. The producer-price index measures inflation from the perspective of sellers, looking at the input prices that companies pay to produce their own goods and services.
The consumer-price index, which is a more direct gauge of the inflation experienced by consumers, hit a 40-year high of 7.9 percent in February, the Labor Department announced last week. While prices for diesel, electricity, automobiles, jet fuel, and dairy products all saw upward movement, indices for vegetables decreased 9.4 percent, with prices for beef and sheet metal also leveling off.
Global Trade:
March 20: US-Saudi tensions complicate push for more oil
Strained relations between Saudi Arabia and the United States are complicating efforts by the Biden administration to convince Riyadh to step up its oil production - which could provide some relief to consumers amid high prices exacerbated by the Russian war in Ukraine. The U.S. government has been increasingly critical of the Saudis since the 2018 killing of Washington Post journalist Jamal Khashoggi, who was lured to and killed in the Saudi Consulate in Istanbul.
Saudi Arabia's human rights record and tensions over Yemen's civil war, which have led to bipartisan criticism from Congress, have added to the strife. Saudi Arabia's control over strategic oil reserves may force the Biden administration, which is under pressure ahead of the midterms to provide some relief to consumers amid inflation and high gas prices, to reassess its strategy towards Riyadh.
Saudi Arabia and the UAE can add more oil into play because they have "Spare capacity," barrels that can be quickly moved onto the market and sustained for a period of time. Senior U.S. officials last visited Riyadh on Feb. 17 in a bid to get Saudi Arabia to increase its oil output ahead of the Russian invasion. Biden in his first month in office ended U.S. military support for offensive Saudi operations in Yemen, where human rights groups have documented thousands of civilian casualties caused by Saudi-led airstrikes, a layer of indiscriminate violence on top of the war-torn country being classified as the worst humanitarian crisis in the world.
March 18: Toyota and semiconductor suppliers suspend operations following the earthquake in Japan
Toyota and other semiconductor-using companies are suspending operations in Japan after a massive earthquake hit the country this week. "Due to the parts shortage resulting from suppliers affected by the earthquakes, additional adjustments will be made to production operations in some plants in Japan," Toyota announced on Friday.
A Tokyo-based semiconductor supplier, Renesas, is attempting to get its three plants back to volume production seen before the earthquake hit by Wednesday, CNBC reported. The plants were close to the epicenter of the 7.3-magnitude earthquake, the company said.
One Japanese automobile company, Subaru Corporation, said they have to cut production for the next few days due to supply issues caused by the earthquake, according to CNBC. "Subaru Corporation will temporarily suspend production at its automobile manufacturing facilities due to interruptions in the supply of certain parts, as operations of the supplier factories for those parts have been affected by the earthquake," Subaru said.
The natural disaster and suspension of operations come as the globe has already been suffering from a semiconductor shortage for months. The problem will continue to hit automobile companies that have struggled with their supply chains throughout the pandemic.
March 15: Producer Price Increases Leveled Off in February
U.S. suppliers' price increases moderated in the first two months of the year ahead of the Ukraine crisis and new Covid-19 related lockdowns in China that threaten to add to inflationary pressures. The overall trend in producer prices signals that supply-chain problems continued to push up prices, even before gyrating energy and commodities prices caused by Russia's invasion of Ukraine had time to flow through to suppliers.
Higher energy and commodity prices have contributed to supplier-price increases. Goods prices have pushed producer inflation higher over much of the past year, fueled by Covid-19-related disruptions to supply. Excluding energy and food prices, goods prices rose 0.7% in February from January, about the same as the average monthly increase in 2021, and up from an average of 0.1% in the decade before the pandemic.
"The rise in food prices is likely to feed through to the CPI over the next month or two, as meat and dairy prices surged at the wholesale level," said Stephen Stanley, chief economist at Amherst Pierpont.
The so-called core price index-which excludes the often-volatile categories of food, energy, and supplier margins-climbed 0.2% in February from a month earlier, down sharply from 0.8% in January.
Ukraine Crisis/Russia’s Economic Impact:
March 18: An economic decline is coming, Russia’s central bank chief says
Russia's central bank governor, Elvira Nabiullina, said on Friday that the country's economy would decline in the coming quarters and that inflation would jump further as sanctions imposed after the invasion of Ukraine took their toll. Earlier, the bank's board of directors held interest rates at 20 percent.
The bank said the doubling in interest rates on Feb. 28, from 9.5 percent, and capital controls curbing the movement of money had helped sustain financial stability in Russia and stop uncontrolled price increases.
The latest inflation data shows that, as of March 11, prices in Russia had risen 12.5 percent from a year earlier. Russia's war against Ukraine has led to strict economic sanctions by the United States and Europe, encouraged a large number of Western companies and banks to retreat from the country, and isolated Russia from much of the global financial system.
"The Russian economy is entering the phase of a large-scale structural transformation, which will be accompanied by a temporary but inevitable period of increased inflation," the Russian central bank said in a statement Friday.
President Vladimir V. Putin put Ms. Nabiullina forward for another term as central bank governor on Friday.
March 18: India buys Russian oil despite pressure for sanctions
The state-run Indian Oil Corp. bought 3 million barrels of crude oil from Russia earlier this week to secure its energy needs, resisting Western pressure to avoid such purchases, an Indian government official said Friday. The official said India has not imposed sanctions against buying oil and will be looking to purchase more from Russia despite calls not to from the U.S. and other countries.
The United States, Britain, and other western countries are urging India to avoid buying Russian oil and gas. Indian media reports said Russia was offering a discount on oil purchases of 20% below global benchmark prices. Such prices have surged in recent weeks, posing a huge burden for countries like India, which imports 85% of the oil it consumes.
The White House press secretary Jennifer Psaki said earlier this week that Indian purchases of Russian oil wouldn't violate U.S. sanctions, but urged India to "Think about where you want to stand when history books are written."
"India imports most of its oil requirements. We are exploring all possibilities in the global energy market. I don't think Russia has been a major oil supplier to India," Bagchi said.
March 17: Republican senators introduced a bill to ban Russian uranium imports
Sen. John Barrasso (R-Wyo.) and several other Republican senators introduced legislation on Thursday that would ban imports of Russian uranium as an additional way to economically isolate Russia over its invasion of Ukraine. The legislation would further steps were already taken by the U.S. to prohibit Russian energy imports after last week announced a ban on imports of oil, natural gas, and coal from the country.
"The time is now to permanently remove all Russian energy from the American marketplace," Barrasso, who is the top Republican on the Senate Energy and Natural Resources Committee, said in a statement. "While banning imports of Russian oil, gas, and coal is an important step, it cannot be the last. Banning Russian uranium imports will further defund Russia's war machine, help revive American uranium production, and increase our national security."
Russian President Vladimir Putin and the country's foreign minister have been sanctioned, along with the parent company of the Nord Stream 2 pipeline and its corporate officers. The U.S. has also banned Russian imports of seafood, spirits, and diamonds in addition to energy imports. U.S. officials have also stepped up their rhetoric against Russia and its president, with President Biden on Wednesday calling Russian President Vladimir Putin a "War criminal." He furthered those remarks on Thursday, saying Putin was a "Pure thug" and "Murderous dictator."
March 17: House passes bill to end normal trade relations with Russia, Belarus
To end normal trade relations with Russia and Belarus as the U.S. and its allies tighten the economic vice on the Kremlin. The bill also sets up strict guidelines for when the president can restore normal trade relations with Russia and Belarus based on the state of the Ukraine war.
The Biden administration will additionally be obligated to push for Russia's removal from the World Trade Organization and oppose Belarus joining the group, which would subject both to higher tariffs and steeper trade barriers.
The House vote comes less than a week after Biden announced the U.S. and Group of Seven nations would end normal trade relations with Russia and Belarus.
"I'm pleased that the White House now feels comfortable moving forward with this legislation, and it is important that we are moving in concert with our allies. But I think we need that sense of urgency based on what we heard again yesterday from President Zelensky," said Rep., who co-sponsored an earlier bill to end normal trade relations with Russia and Belarus and ban Russian energy imports.
Ending normal trade relations with Russia and Belarus means exports from those countries will no longer receive the lower tariff rates the U.S. imposes on goods from friendly countries. The White House would also need to certify that Russia and Belarus agreed to end the occupation of Ukraine, that the two countries would pose no immediate threat to NATO countries, and that Ukraine is able to freely elect its government.
March 17: Top Senate Democrats mull bill to nix credits for companies paying Russian taxes
Two top Senate Democrats said Thursday they are mulling legislation to nix the credits American companies currently get for paying taxes in Russia after Koch Industries said it would continue its operations in the country.
Senate Majority Leader, Charles Schumer (D-N.Y.) and Finance Committee Chairman Ron Wyden (D-Ore.) said that they were "Exploring legislation" to eliminate the tax credits that U.S. companies get for paying taxes in Russia, which would put Russia on a list with Iran, North Korea, Sudan, and Syria. "Senate Democrats are exploring legislation to add Russia to existing laws that already deny foreign tax credits for taxes paid to North Korea and Syria. American companies that continue to do business in Russia should not receive U.S. tax benefits that offset taxes paid to Putin's regime," the two Democrats said in a joint statement.
Robertson, in his statement, pointed to a Wall Street Journal article reporting that Russia could seize assets of companies that have pulled their business operations in the wake of Russia's invasion of Ukraine. Roughly 400 companies have withdrawn or suspended their operations in Russia, according to a list spearheaded by the Yale Chief Executive Leadership Institute's Jeffrey Sonnenfeld.
The statement from Koch Industries, and the pushback from the top Senate Democrats, comes after Wyden said last week that he was working on a plan to penalize Moscow and Russians who have been hit with sanctions and who have assets in the United States. Wyden also floated at the time nixing U.S. tax credits and deductions for taxes paid to Russia, saying that "Russian oligarchs and companies supporting Putin shouldn't be getting tax breaks in the United States."
For Fun:
NASA has confirmed that there are more than 5,000 known planets outside our solar system, known as exoplanets. The US space agency has added another 65 exoplanets to the online NASA Exoplanet Archive, bringing the grand total to 5,005. Exoplanets found so far include small, rocky worlds like Earth, gas giants many times larger than Jupiter, and 'hot Jupiters' in scorchingly close orbits around their stars.
HOW MANY EXOPLANETS ARE THERE? An exoplanet is any planet beyond our solar system.
Another way to detect exoplanets, called the Doppler method, measures the 'wobbling' of stars due to the gravitational pull of orbiting planets.
A further planet was discovered in the system in 1994. Finding just three planets around this spinning star essentially opened the floodgates for exoplanets, said Wolszczan, who still searches for exoplanets as a professor at Penn State.
EXOPLANETS HAVE 'EXOTIC' ROCKS THAT CAN'T BE FOUND IN OUR SOLAR SYSTEM Rocky planets outside our solar system, known as exoplanets, are composed of 'exotic' rock types that don't even exist in our planetary system, a 2021 study shows.
Roughly 98 percent of all the stars in the universe will ultimately end up as white dwarfs, including our own Sun. The experts found that some exoplanets have rock types that don't exist, or just can't be found, on planets in our solar system.