$5.8 Trillion Budget Proposal, Stimulus Payment Mistakes, Economic Impact Payments

Tax Policy:

March 29: White House 'billionaire tax' shadows other more powerful tax changes

As the Biden administration touted its new proposal of a minimum income tax for households worth more than $100 million, estate lawyers Monday were paying attention to a more technical but also more powerful set of proposed revisions to estate and gift taxes that would go after inherited caches of wealth that have long stood beyond the reach of tax collectors. While the fiscal 2023 revenue provisions in the Treasury's so-called green book will be debated by lawmakers over the next several months and may not make it into law, tax attorneys are describing the proposals as much more expressly targeted than similar measures put forward last year.

“It’s very subtle in the green book, and it doesn’t seem to be what [the Biden administration] is promoting, but I’ve seen the language, and it’s serious,” Daniel Hemel, a law professor at the University of Chicago, said in an interview. "These changes would take the juice out of estate tax planning."

Once an exempt trust is set up, it can acquire more assets, such as stocks or other forms of equity, which can then accumulate value while preserving the tax exemption.

According to a February report from Florida-based advocacy group Americans for Tax Fairness, "a dynasty trust established in 2021 in Nevada with the full $11.7 GST exemption allowed that year would after 75 years grow to over $454 million."

These employ a similar tax-avoidance mechanism to the generation-skipping tax exemption by locking in low tax liabilities and then allowing for a rapid accumulation of nontaxable wealth. The various fine-print initiatives announced Monday by the Treasury follow in the wake of a more high-profile tax reform plan by the Biden administration to increase taxes on households worth more than $100 million.

March 28: Biden unveils $5.8 trillion budget proposal with tax hikes, spending boosts

President Biden on Monday unveiled ambitious proposals to reduce the nation's deficit over the next decade with tax hikes targeting the wealthy, while outlining boosts for military and domestic programs as part of a $5.8 trillion plan to fund the government for fiscal year 2023. Includes a tax hike on billionaires and other reforms, would reduce the deficit by over $1 trillion over the next 10 years.

"Budgets are statements of values, and the budget I am releasing today sends a clear message that we value fiscal responsibility, safety and security at home and around the world, and the investments needed to continue our equitable growth and build a better America," Biden said in a statement on the budget's release.

"Because those discussions with Congress are ongoing, the budget does not include specific line items for investments associated with that future legislation," Office of Management and Budget director told reporters on a call Monday morning previewing the president's request.

Biden is proposing a minimum 20 percent tax on American households worth more than $100 million that would target their "Full income," including standard taxable income as well as unrealized income like gains from stocks, as part of the plan to reduce the deficit over time. The budget also includes a corporate tax rate hike from 21 percent to 28 percent, which could prove a tough sell in the Senate given previous resistance from key moderates like Manchin and Sen.The push comes as top Democrats have continued to press for tax reform targeting wealthy Americans and corporations, as government data has underscored growing income inequality in the nation in recent years, including during the pandemic.

The new request released early Monday marks Biden's second since assuming office in 2021, and comes weeks after Congress passed a $1.5 trillion spending omnibus package to fund the government for fiscal year 2022.The measure's passage earlier this month capped of months bruising, partisan fights over parity between increases in defense and non-defense spending levels, coronavirus relief funding and a number of thorny legacy riders in areas like abortion and marijuana.

March 27: IRS faces steep climb in clearing old tax returns

Former IRS officials and experts are casting serious doubt on the agency's ability to clear by the end of this year tens of millions of unprocessed tax returns delayed by the pandemic. "The commissioner said that he commits [the IRS is] going to get through all of the returns by December of 2022, and I would love to see that, but I will be circumspect in thinking that that's actually going to happen," Nina E. Olson, who served as the national taxpayer advocate in the Treasury Department from 2001 to 2019 and is now the executive director of the nonprofit Center for Taxpayer Rights, said in an interview. "What will happen to taxpayers - and this will put pressure on preparers - is that their returns are going to be held up. They will be stopped by any number of things that happen in the IRS return processing system," she continued.

The root cause of the backlog, analysts say, is the administrative workload the IRS has had to take on, in addition to being a tax collector, to distribute economic stimulus payments in response to the pandemic.

"It would make sense to stop using the tax system as a benefit administration tool, given that the IRS is already stretched with its baseline responsibilities," Alex Muresianu, an analyst with the Tax Foundation, a Washington think tank, said in an interview.

The IRS also repurposed an additional 900 employees to work specifically on the tax return backlog.

"You could have new technology that would allow the IRS to scan the paper returns when they come in. But they don't. Their technology is way behind."

March 27: Biden to propose minimum tax on billionaires as part of 2023 budget

US President Joe Biden will propose a minimum tax on billionaires as part of the fiscal 2023 budget that is expected to be introduced on Monday, according to reports. Biden's "Billionaire Minimum Income Tax" would set a 20 percent minimum tax rate on households worth more than $100 million, in a plan that would mostly target the country's over 700 billionaires, according to a White House fact sheet released on Saturday, Reuters reported.

The fact sheet said Biden's budget plan would require them to pay the minimum tax of 20 percent on all of their income including unrealized investment income that is now not taxed. The tax will help reduce the budget deficit by about $360 billion in the next decade, the fact sheet added.

Democrats in the US Senate had proposed a billionaires tax to help pay for Biden's social and climate-change known as "Build Back Better" although the spending package did not move forward due to lack of support in the Senate.

The plan aims to clamp down on some billionaires who find loopholes to avoid or significantly lower their tax payments. The congressional sources said the tax would apply to taxpayers with more than $1 billion in assets or over $100 million in income for three consecutive years.

Biden has backtracked on a promise to increase taxes on wealthy and corporations, according to reports. The White House has reportedly told Democratic lawmakers that a proposed hike in US corporate taxes is unlikely to make it into their signature social spending bill.

Bernie's bump bedevils Biden's billionaires – Big boys bite back The US is not a democracy, and woe betide any who dare challenge the status quo, as Bernie Sanders

The White House disclosed in the private meeting with top Democrats that Biden's plans to hike the corporate tax rate to 28 percent from 21 percent, a key campaign promise, are likely to be one of the steep concessions he makes to steer his economic revival package through Congress.

"There is an expansive menu of options for how to finance the president's plan to ensure our economy delivers for hardworking families, and none of them are off the table," said White House spokesperson Andrew Bates. The "Build Back Better" and infrastructure bills are at the heart of Biden's domestic agenda and could provide signature legislation to bolster both his presidency and Democratic hopes of retaining control of the House and Senate in the November 2022 elections..

March 26: IRS Delays, Sudden End to Tax Break Leave Employers Frustrated With Covid Credits

IRS delays and federal policy changes are causing the waits, forcing employers trying to claim the employee-retention tax credit to dig deeper into reserves and slowing their recovery, according to business owners, accountants and payroll providers. Employee-retention tax credits were among a series of policies Congress passed in 2020 and 2021 to help businesses and workers weather the impacts of the virus on the economy.

Congress aimed the credit at employers that faced mandatory closures or suffered steep revenue losses. Congress created the employee-retention tax credit in 2020 as a companion to the Paycheck Protection Program, which provided forgivable loans to employers meeting certain requirements. Originally, employers who received PPP loans couldn't get the credit; ultimately, they could, but just not for the same expenses.

Claims continue increasing as business owners realize they are eligible or respond to pitches from consulting and accounting firms who check eligibility and help employers claim the credit for a fee.

March 25: IRS revises tax guidance on third round of Economic Impact Payments

The revised fact sheet includes a number of areas where the IRS amended the FAQs, including general information, eligibility and calculation of the third payment; plus-up payments and EIP cards. The IRS started sending the third-round Economic Impact Payments to eligible individuals in March 2021 and continued sending the payments throughout the year as tax returns were processed.

The IRS later issued so-called "Plus-up payments" for those whose initial stimulus payments fell short of what was later calculated.

To find information regarding any missing EIPs, taxpayers should access their individual IRS online accounts and look under "Tax Records." The IRS has also been sending Letter 6475 through March 2022 to the address it has on file for taxpayers, confirming the total amount of their third-round EIP, including any plus-up payments they received for tax year 2021.

"Economic Impact Payments can't be counted as income when determining if you or anyone else is eligible for benefits or assistance, or how much you or anyone else can receive, under any federal program or under any state or local program financed in whole or in part with federal funds," said the IRS. "These programs also can't count Economic Impact Payments as a resource for purposes of determining eligibility for a period of 12 months from receipt." The IRS also urged everyone to be on the lookout for scammers trying to use the EIPs as a cover for schemes to steal their personal information and money.

While the IRS is no longer sending out EIPs or plus-up payments, taxpayers can still claim the funds on their tax returns.

"If your 2019 or 2020 return was not fully processed in time to issue your third payment by the statutory deadline of Dec. 31, 2021, you may be eligible to claim the 2021 Recovery Rebate Credit and must file a 2021 tax return to claim the 2021 Recovery Rebate Credit," said the IRS. "If you need to file a federal tax return for 2021 and have income of $73,000 or less, you can file your tax return electronically for free with the IRS Free File Program."

March 25: As many as 1.2M stimulus payments may have been mistakes

Of the 175 million advance Recovery Rebate Credits issued by the Internal Revenue Service in 2021, more than 1.2 million payments worth $1.9 billion may have gone to ineligible people, according to a new report. The report from the Treasury Inspector General for Tax Administration also found that as many as 644,705 individuals who are eligible for payments worth a total of $1.6 billion haven't received them.

The payments were mandated by the American Rescue Plan Act that was passed in March 2021, and required the IRS to send out payments of up to $1,400 to eligible taxpayers by Dec. 31, 2021, and to make "Plus-up" payments to those whose initial payments, based on their 2019 tax returns, were insufficient based on the 2020 returns they later filed.

An audit conducted by TIGTA found that the overwhelming majority of the 167.4 million recipients got the correct amount, but also found many of the relatively few erroneous payments this time around were based on deficiencies that it had uncovered in an audit of the Economic Impact Payments issued under the CARES Act in 2020.

Of the 1.2 million potentially incorrect RRC payments issued, TIGTA found: 544,323 worth $856 million went to people who were claimed as dependents on others' tax returns; 342,173 worth $579 million went to nonresidents and people living in U.S. territories; 191,768 individuals received duplicate payments worth $271 million due to changes in filing status or their partner; 60,824 payments worth $109 million were issued because of programming errors; and, 26,468 payments were made to dead people.

As part of its audit, TIGTA made seven recommendations to IRS management, including making payments to all those who were eligible but hadn't been considered for them, and letting everyone who didn't receive a payment know that they may be able to claim the credit on their 2021 tax return. IRS management agreed with all seven of the recommendations, and the service has begun work on the necessary programming changes, and on both traditional and social media campaigns to alert taxpayers who may be eligible for payments.

March 24: Inadequate tax account help is contributing to IRS backlog

Internal Revenue Service headquarters in Washington, D.C.Samuel Corum/Bloomberg The TIGTA report examined the workings of the Accounts Management function, which is responsible for helping both individual and business taxpayers with questions about tax laws and tax accounts, making adjustments to taxpayer accounts when necessary. Input a lease in as little as 3 minutes with LeaseCrunch. The report recommended that the IRS redirect some of the tax account correspondence and replies to IRS letters to the IRS's Accounts Management campus support sites as a way to improve taxpayer service.

"The IRS's Taxpayer Experience Strategy includes plans to expand services to allow taxpayers to provide documents to the IRS digitally. However, IRS management indicated there is no planned implementation date within Accounts Management." To deal with the backlog this tax season, the IRS has been setting up so-called "Surge teams" from other parts of the agency to help with tax return processing and phone calls.

The TIGTA report noted that many Accounts Management employees split their time between working Accounts Management cases and answering IRS toll-free telephone calls. Another problem TIGTA found is that Accounts Management inventory reporting among the Accounts Management sites is incomplete and inconsistent.

IRS management took actions to address four of TIGTA's alerts, including providing additional resources to help with the scanning backlogs at the tax processing centers, increasing staffing at a new campus support site in Fresno, California, implementing processes to provide timely screening of correspondence, and verifying inventory reporting for all 10 of the Accounts Management sites to spot any inventory reporting inconsistencies and errors. 

TIGTA made 19 recommendations in the report to the IRS, including that the service redirect the receipt of correspondence to its campus support sites, prioritize the implementation of tools that enable taxpayers to directly upload documents into Accounts Management's inventory, consider establishing a separate program that only works Accounts Management inventory, and modify and improve the reporting of Accounts Management inventories.

March 17: Commissioner to Congress: IRS will clear backlog by year’s end

IRS Commissioner Charles Rettig told House members in a hearing Thursday that the Service will process its backlog of unprocessed work - some of it dating back to 2020 - by the end of 2022. Acting Committee Chair Rep. Judy Chu, D-Calif., noted the IRS's recent implementation of "Surge teams" of employees reassigned to its accounts management and submission processing functions and asked Rettig directly whether the backlog would be cleared by December.

The IRS has sought direct-hire authority for more than two years, Rettig said.

"We compete with the private sector, who can bring somebody on board next week, and with us, it's been a six- to eight-month process," Rettig said.

Rettig later said that with the direct-hire authority, the IRS expects to cut that timeline to a month to 45 days. The IRS on Feb. 9 identified 10 notices, plus their Spanish-language versions, that it had suspended because in some cases it had issued them where it did not have a record of a corresponding return, which could have been in its unprocessed backlog.

The congressional letter asks Rettig to identify which notices it lacks such authority to suspend and which others besides the ones it has already suspended it has authority to suspend.

Economic News/Policy: 

March 28: The budget focuses on fighting inflation, but that’s mainly a Fed project

Soaring consumer prices are undermining President Biden's economic approval ratings, making inflation a critical topic for the White House headed into midterm elections - and making fighting it a focus of the administration's budget, even though the Federal Reserve plays the primary role in countering rapid price increases.

There is not much the White House can do quickly to ease rapid price increases, which have been running at the fastest pace in 40 years. Doing so will make financing big purchases more expensive in a bid to cool off demand, slow down the economy and temper price increases. The Fed's preferred inflation measure is expected to show that prices climbed by 6.4 percent in the year through February, based on estimates from a Bloomberg survey, when it is released later this week.

Angst over high prices is also becoming palpable in daily life.

Russia's invasion of Ukraine has sent fuel prices sharply higher, something neither the administration nor the Fed can immediately or fully counteract. America's price burst has been especially pronounced, even compared to global peers.

March 27: Economy Week Ahead: Key Inflation, Jobs Numbers Highlight Week’s Data

With global supply chains already strained, a setback in production or delays in shipping could add to already high inflationary pressures outside the country. Economists surveyed by The Wall Street Journal forecast consumer spending on goods and services rose for the second consecutive month in February, fueled in part by higher prices.

The Federal Reserve's preferred measure of inflation is expected to reach a new multi decade high in February, underscoring challenges for the central bank as it seeks to tamp down rising prices without causing a recession. The Commerce Department's personal-consumption expenditures price index excluding food and energy has been pushed higher as strong consumer demand runs up against pandemic-related supply constraints.

U.S. employers have been adding jobs at a rock-solid pace in recent months as the labor market pivots toward a post-pandemic world. Economists are forecasting another strong month of employment gains in March but will be watching closely to see if a tight labor market-marked by more job openings than available workers-is pushing up wages and fueling inflation.

March 23: More Americans are buying electric vehicles, as gas car sales fall, report says

More Americans are making the switch to electric, moving away from gas-powered cars to electric vehicles. Alliance for Automotive Innovation found more than 187,490 electric vehicles were sold in the fourth quarter across the U.S., marking an 11 percent increase in the total volume of all electric vehicle sales compared to the third quarter.

Electric vehicles are steadily increasing their market share, accounting for about 4 percent of all car sales in 2020 and growing to about 6 percent in 2021. To make additional investments of up to $20 billion over the next decade as the company reorganizes to produce electric vehicles. Electric vehicles are an integral piece to President Biden's bipartisan infrastructure plan as his administration unveiled its National Electric Vehicle Infrastructure Formula Program.

The goal is to establish a nationwide network of 500,000 electric vehicle charging stations, which the president hopes will help support his goal of getting electric car sales up to 50 percent of all car sales by 2030. California is leading the country in electric vehicle adoption, with the alliance's report noting in 2021 the state accounted for nearly 40 percent of all registered light-duty electric vehicles in the U.S. Florida followed at nearly 6 percent, Texas at about 5 percent and New York at 4.4 percent.

Ukraine Crisis/Russia’s Economic Impact: 

March 25: US, EU announce effort to reduce European reliance on Russian energy

The United States and European Commission on Friday announced measures to wean European nations off of Russian gas, the latest effort to deal a blow to Russia's economy amid its invasion of Ukraine. The two sides announced a task force "To reduce Europe's dependence on Russian fossil fuels and strengthen European energy security" following a meeting in Brussels between European Commission President Ursula von der Leyen.

The goal is to prepare European countries for next winter and beyond so that they can maintain a steady flow of energy without relying heavily on natural gas provided by Russia, which has given Moscow significant leverage and has been a key sector of Russia's economy.

The European Commission also committed to working with European Union member states to ensure demand of roughly 50 billion cubic meters of LNG from the U.S. until at least 2030. The task force will also focus on steps to reduce reliance on greenhouse gases and build renewable energy infrastructure in the European Union.

The task force will separately focus on reducing the demand for natural gas in Europe through improving infrastructure that decreases reliance on natural gas in favor of solar and wind power and other forms of renewable energy.

"Madame President, I know that eliminating Russian gas will have costs for Europe. But it's not only the right thing to do, from a moral standpoint. It's going to put us on a much stronger strategic footing," Biden said during a joint appearance with von der Leyen in Brussels.

March 24: Multinationals find quickly exiting Russia isn't so easy

Hundreds of multinational companies are fleeing Russia following the nation's violent invasion of Ukraine, but for some, fully exiting the country will be a complicated and lengthy process. Manufacturers, oil producers and others can't find buyers for their Russian facilities due to severe Western sanctions.

Burger King says it cannot legally close its 800 restaurants in Russia because its Russian business partner refuses to do so. Leaving won't be easy, as Russia has blocked firms from pulling their funds, and Citigroup has struggled to find buyers for its retail banking business.

Putin has pledged to seize assets of companies that leave Russia and allow Russian companies to steal intellectual property from companies home to "Unfriendly" nations, moves that have led firms to scramble to recover what assets they can from Russia.

Yale's list found that 54 companies are freezing new investments in Russia while continuing their operations, while 38 companies are refusing to reduce or end their Russian operations. Some of the other companies refusing to leave Russia are drugmakers and food processing companies that say that they cannot wind down their operations without harming the general Russian population that relies on their products.

March 23: Biden seeks new sanctions, help for Ukrainians in Europe

I think it's a real threat," Biden said of the possibility of Russia deploying chemical weapons. Secretary of State Antony Blinken, traveling with Biden, said in a statement the assessment was made on a "Careful review" of public and intelligence sources since Russia launched its invasion of Ukraine a month ago.

Jake Sullivan, Biden's national security adviser, said the president would coordinate with allies on military assistance for Ukraine and new sanctions on Russia during meetings Thursday with NATO officials, Group of Seven leaders and European Union allies. One new sanctions option that Biden is looking at is to target hundreds of members of the Russian State Duma, the lower house of parliament, according to a U.S. official who spoke on the condition of anonymity to discuss the potential move.

U.S. concerns about China are expected to be on the agenda when Biden attends a meeting of the European Council, where he will also discuss the worsening refugee and humanitarian crises that have developed over the past month. Sullivan's description of Biden's trip was another sign that the crisis is entering a new and uncertain phase. Biden's press secretary, Jen Psaki, announced on Tuesday that she would not travel with Biden after testing positive for the virus for the second time in five months.

For Fun: 

March 22: Space-grown lettuce could help astronauts avoid bone loss

Astronauts could grow the lettuce in space and help guard against bone loss - simply by eating a big bowl of salad. In addition, the lettuce might help stave off osteoporosis in resource-limited areas here on Earth, the researchers say. "Astronauts can carry transgenic seeds, which are very tiny - you can have a few thousand seeds in a vial about the size of your thumb - and grow them just like regular lettuce," Nandi says.

The researchers introduced a gene encoding PTH-Fc to lettuce by infecting plant cells with Agrobacterium tumefaciens - a species of bacteria used in the lab to transfer genes to plants. According to Yates, this means that astronauts would need to eat about 380 grams, or about 8 cups, of lettuce daily to get a sufficient dose of the hormone, assuming about 10% bioavailability, which he acknowledges is a "Pretty big salad." "One thing we're doing now is screening all of these transgenic lettuce lines to find the one with the highest PTH-Fc expression," McDonald says.

"We've just looked at a few of them so far, and we observed that the average was 10-12 mg/kg, but we think we might be able to increase that further. The higher we can boost the expression, the smaller the amount of lettuce that needs to be consumed." The team also wants to test how well the transgenic lettuce grows on the International Space Station and whether it produces the same amount of PTH-Fc as on Earth.

Although the researchers haven't tasted the lettuce yet because its safety hasn't been established, they anticipate that it will taste very similar to its regular counterpart, like most other transgenic plants. Before the transgenic lettuce can grace astronauts' plates the researchers must optimize the PTH-Fc expression levels, and then they will test the lettuce for its ability to safely prevent bone loss in animal models and human clinical trials.