Fair Tax Act, Tax Year 2022 Refunds, and Tech Job Cuts

Tax Policy/News:

Jan 24: Here’s what you need to know about the GOP bill to abolish the tax code

The Fair Tax Act introduced by Rep. Buddy Carter and supported by 30 other Republicans would institute a massive 30 percent sales tax on all purchases in exchange for doing away with income, Social Security, and Medicare taxes.

The plan would increase the tax burden on the middle class. Having a sales tax as the only source of public revenue would put a higher tax burden on people making less money. That’s because those with lower incomes tend to spend more of what they make while richer people tend to save more of their incomes, investing in retirement accounts, securities, and other types of assets.

"Let's say you're a family of four. You need at least $50,000 a year to live before you can save a dime. Under this proposal, every dollar of that income is going to be taxed. On the other hand, if you're making $1 million a year and you're saving a portion of that, not all of that income is going to end up being taxed as a sales tax," Frank Clemente, director of tax advocacy organization Americans for Tax Fairness, said in an interview.

"Basically, a big challenge with the Fair Tax is you end up with higher taxes paid by incomes on the low and middle parts of the income scale under consumption taxes than higher earners," policy analyst Garrett Watson of the Tax Foundation said in an interview.

"If we optimistically assume that the Fair Tax brings in roughly the same amount of revenue as the current tax code, annual collection fees per year for states would approach $10 billion. By comparison, the IRS spent about $13 billion per year over the last decade," John Buhl, an analyst with the Urban-Brookings Tax Policy Center in Washington, wrote in an analysis of the measure.

Doing away with income and payroll taxes in favor of a large and pervasive sales tax would be a fundamental shift in the way the American tax system works and would likely have unforeseen economic consequences.

"The proponents of the bill are saying, 'Hey, we're going to abolish the IRS.' But I look at it more as they're actually just outsourcing tax enforcement and compliance to the state level, and so it's not going to go away," Buhl, of the Tax Policy Center, said.

Jan 23: IRS opens 2023 tax filing season

"Following months of hard work, we successfully opened our processing systems today to start this year's tax season," said IRS acting commissioner Doug O'Donnell in a statement.

"We continue to increase IRS staffing to help provide taxpayers with the information and assistance they need," O'Donnell stated. "The IRS reminds taxpayers to take some important steps when filing their tax returns for a smoother process. They should gather their necessary tax records, file an accurate return electronically and choose direct deposit to get their refunds faster." The IRS is also reportedly speeding up its Practitioner Priority Service as well.

IRS chief taxpayer experience officer Ken Corbin reportedly told an audience at a California Society of Enrolled Agents event last week that tax practitioners could now reach the service in under 10 minutes, after a pilot program in which the IRS restricted the use of robocalling and auto-dialing services like enQ. "We did fix the voice bots," Corbin said, according to Tax Notes Today.

"The IRS answered too small a share of the total number of calls they received last year. These 5,000 new hires will ensure that changes and help address the continued elevation of call volumes we've experienced over the past two years. Ultimately, when it comes to customer service, our goal is to ensure that taxpayers can get their questions answered by the IRS as quickly as possible." House Republicans voted this month to repeal much of the extra $80 billion in funding for the IRS and abolish the agency, but Matthews doubts the bill would get passed by the Senate, which is still controlled by Democrats.

"While the tax season starts today, IRS employees have been working diligently for months to ensure its success," said Chad Hooper, executive director of the Professional Managers Association, a national membership association of managers from the IRS and other parts of the federal government.

"The Service has been onboarding staff, working through the backlog, and improving its technology. As the most recent National Taxpayer Advocate report illustrates, these efforts have resulted in notable improvements to taxpayer services. But we all know issues persist." He asked that Congress not pile on more work for the IRS, especially in the form of retroactive tax extenders, while it works to improve service, and for the Senate to approve the new commissioner, Daniel Werfel, who was nominated last November to succeed former commissioner Charles Rettig.

"At this time, it is most critical that Congress does not pass retroactive tax changes, which would require the IRS to halt operations and retrain its staff on new legal developments and continues to fund the IRS adequately," Hooper said in a statement. "While some lawmakers continue pursuing deep cuts to IRS funding, they must recognize this will only worsen the taxpayer experience and hamper the IRS's ability to go after high-income tax cheats - who make up most of the $600 billion annual gap between taxes owed and collected. Finally, a successful filing season is driven by stable leadership. We urge the Senate to take up the nomination of the IRS commissioner expeditiously."

Jan 18: Why you may receive a much lower income tax refund this year

It’s officially tax season. Before you get excited, the Internal Revenue Service says your refund check could be much smaller this season.

“Refunds are going to be drastically reduced,” Paula Harper, office manager for Jackson Hewitt, said. That’s because many of the benefits provided during the pandemic have reached their conclusion. For example, Harper explained that this year, the child tax credit will return to pre-pandemic numbers.

Harper said, "Last year they were giving it as a refundable credit. So, if you didn't have a tax liability, you got the full $3,000 for children. So, this year it's going back to $2,000, not fully refundable."

“You’re going back to the normal where you’re not going to get the extra credit,” explained Harper. Along those lines, tax incentives for charitable donations are also going away.

In addition to smaller refunds, filers should expect a longer turnaround time. If you are planning to use your refund for a big purchase or to pay off a bill, experts encourage planning ahead and filing as early as possible.

Economic News/Policy:

Jan 22: Economy Week Ahead: U.S. GDP, Household Spending in Focus

Tuesday: S&P Global releases January business-activity surveys from around the world. The data firm’s December surveys showed that demand for goods and services softened across the globe—and that price pressures eased.

Wednesday: The Bank of Canada announces its latest monetary-policy decision after it delivered a half-percentage-point increase for its main interest rate at its previous meeting. The central bank has signaled that it is at or near the end of its tightening campaign with Canada’s economy showing signs of slowing growth and easing inflation. 

Thursday: The U.S. Commerce Department releases fourth-quarter gross domestic product—a broad measure of the goods and services produced in an economy. The U.S. economy grew at a 3.2% annual rate in the third quarter after contracting in the first half of the year, according to the department’s most recent revision.

The Commerce Department also releases December figures on orders of long-lasting goods. Overall new orders for durable goods fell sharply in November from the prior month.

The U.S. Labor Department reports the number of worker filings for unemployment benefits in the week ended Jan. 21. Initial jobless claims, a proxy for layoffs, declined in the week ended Jan. 14 to the lowest level since September, suggesting the labor market remained tight.

Friday: The Commerce Department releases figures on U.S. household spending and income in December. Consumer spending rose 0.1% in November from the prior month, a pullback from the robust 0.9% gain in October. The department also releases its personal-consumption expenditures price index, a gauge of inflation closely watched by the Fed. The PCE-price index rose 5.5% in November from a year earlier.

The University of Michigan publishes its final reading of consumer sentiment for January. A reading earlier this month showed that sentiment reached its highest level in nine months due to easing concerns over the possibility of a recession and inflation.

The National Association of Realtors reports December pending sales of U.S. homes based on contract signings. Pending home sales fell in November for the sixth consecutive month as the housing market buckled under high mortgage rates and weakened demand.

Debt Ceiling:

Jan 23: McConnell is a key player in approaching debt ceiling fight

Sen. Mitch McConnell is set to play a pivotal role in a debt ceiling fight expected to consume Washington in the coming weeks and months. The Republican leader is a central figure in a fight between conservative House Republicans determined to win huge cuts to domestic spending and a White House that, at this stage in the game, is refusing to negotiate spending cuts for a debt ceiling hike.

Any debt ceiling increase must pass both the Senate and House, meaning McConnell likely will need to deliver GOP votes behind some kind of compromise if the government is to avoid defaulting on its payments - something that would rupture stock markets, threaten the U.S. credit rating and shake the underlying economy.

"McConnell might as well be on a tightrope hovering over Niagara Falls at this point," one former Senate GOP leadership aide said of the challenges ahead for McConnell, who has been at the center of a number of past negotiations and deals that allowed the debt ceiling to be raised by a Democratic president and Republican House.

McConnell gave the first signals of how he will handle the crisis on Thursday, insisting the U.S. would not default on its debt and that he "Would not be concerned about a financial crisis" coming to fruition.

In October 2021, McConnell swung a two-month extension of the debt ceiling to ward off the possibility that Democrats might do so by nullifying the filibuster.

McConnell also noted at the time that Republicans would not allow a routine debt limit increase to take place as long as Democrats pursued the Build Back Better agenda, which was being pursued under a legislative process that prevented Republicans in the Senate from blocking it.

Jan 19: Treasury resorts to ‘extraordinary measures’ after US hits the debt limit

Treasury Secretary Janet Yellen on Thursday notified congressional leaders that her office will begin to implement "Extraordinary measures" to keep the U.S. government from defaulting on its debt.

To avoid default, Yellen previously detailed emergency measures her department would prepare in order to stave off a default. 

Those measures include temporarily redeeming existing and suspending new investments of the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund.

While it's unclear how long the Treasury Department will be able to utilize the measures to prevent a default, Yellen told leaders on Thursday that a "Debt issuance suspension period" would last through June 5.

The measures buy time for Congress to hash out a bipartisan plan to address the limit, which caps how much outstanding national debt the government can hold to fulfill its financial duties.

Thursday's letter comes as Congress remains divided on how to handle the issue, with Republicans pressing to use the debt limit as leverage to obtain spending cuts in talks with Democrats, many of whom have pressed for a clean bill to address the debt ceiling.

"With extraordinary measures now in effect, the debt ceiling is officially a ticking time bomb we can't diffuse soon enough," Rep. Brendan Boyle, top Democrat on the House Budget Committee, said in a statement on Thursday, accusing Republicans of "Pushing for default and start governing in Americans' best interest."

Experts are raising concerns about the debt limit being ensnared in another partisan spending tug-of-war, noting the potentially catastrophic consequences the economy could face if the nation were to see its first default later this year.

"If we hit the debt ceiling, and the Treasury runs out of extraordinary measures, and they really can't meet their obligations, somebody's not going to get paid," David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, told The Hill in a recent interview.

ICYMI: 

Jan 24: Classified documents found at Pence’s Indiana home

Documents with classified markings were found at former Vice President Mike Pence's Indiana home last week, officials confirmed Tuesday. Pence's team notified the National Archives last Wednesday that a small number of documents were "Inadvertently boxed and transported" to the former vice president's home at the end of the last administration.

Pence was "Unaware of the existence of sensitive or classified documents at his personal residence," his lawyer wrote to the Archives.

The findings at Pence's residence come as President Biden faces mounting criticism, which had also come from Pence, over the discovery of classified materials at Biden's old office at a Washington, D.C., think tank and at his Delaware home.

Greg Jacob, the attorney representing Pence, wrote to the Archives that Pence used outside counsel with experience handling classified documents to review records stored at his personal home after several classified documents were found at Biden's home earlier this month.

CNN first reported that documents with classified markings were found at Pence's home.

Pence has been among the Republicans criticizing Biden in recent weeks over the discovery of classified documents at his old office and his Wilmington home from Biden's time as vice president and as a Delaware senator.

Jan 19: Job cuts in tech sector spread, Microsoft lays off 10,000

Microsoft is cutting 10,000 workers, almost 5% of its workforce, joining other tech companies that have scaled back their pandemic-era expansions. Microsoft is cutting far fewer jobs than it had added during the COVID-19 pandemic as it responded to a boom in demand for its workplace software and cloud computing services with so many people working and studying from home.

Other tech companies have also been trimming jobs amid concerns about an economic slowdown. Amazon and business software maker Salesforce earlier this month announced major job cuts as they prune payrolls that rapidly expanded during the pandemic lockdown.

Amazon said that it will be cutting about 18,000 positions and began notifying affected employees Wednesday in the U.S., Canada, and Costa Rica, with other regions to follow, according to emails from executives. The job cuts, which began in November, are the largest set of layoffs in the Seattle company's history, although just a fraction of its 1.5 million global workforces.

White, the Vanderbilt professor, said all industries are looking to cut costs ahead of a possible recession but tech companies could be particularly sensitive to the rapid rise in interest rates, a tool that has been used aggressively in recent months by the Federal Reserve in its fight against inflation. "This hits tech companies a little harder than it does industrials or consumer staples because a huge portion of Microsoft's value is on projects with cash flows that won't pay off for several years," he said.

For Fun: 

Jan 24: Earth's inner core may have started spinning in the other direction, study says

Earth's inner core, a hot iron ball the size of Pluto, has stopped spinning in the same direction as the rest of the planet and might even be rotating the other way, research suggested on Monday. What little we know about the inner core comes from measuring the tiny differences in seismic waves - created by earthquakes or sometimes nuclear explosions - as they pass through the middle of the Earth.

The study's authors, Xiaodong Song and Yi Yang of China's Peking University, said they found that the inner core's rotation "came to a near halt around 2009 and then turned in an opposite direction." "We believe the inner core rotates, relative to the Earth's surface, back and forth, like a swing," they told AFP. "One cycle of the swing is about seven decades," meaning it changes direction roughly every 35 years, they said.

The researchers said they believed there are physical links between all of Earth's layers, from the inner core to the surface.

John Vidale, a seismologist at the University of Southern California published research last year suggesting the inner core oscillates far more quickly, changing direction every six years or so.

Hrvoje Tkalcic, a geophysicist at the Australian National University, has published research suggesting that the inner core's cycle is every 20 to 30 years, rather than the 70 proposed in the latest study.

Lacking something like a CT scan, "Our image of the inner Earth is still blurry," Vidales said, predicting more surprises ahead. That could include more about a theory that the inner core might have yet another iron ball inside it - like a Russian doll.