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  • U.S. stocks close sharply higher, with tech shares rallying on hopes for debt-ceiling deal

    U.S. stocks close sharply higher, with tech shares rallying on hopes for debt-ceiling deal

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    U.S. stocks ended sharply higher Friday, with the technology-heavy Nasdaq Composite leading the way up, as hopes rose for a debt-ceiling deal in Congress.

    The Nasdaq and S&P 500 also closed at their highest levels since August 2022.

    How stock indexes traded

    • The Dow Jones Industrial Average
      DJIA,
      +1.00%
      rose 328.69 points, or 1%, to close at 33,093.34, snapping a five-day losing streak.

    • The S&P 500
      SPX,
      +1.30%
      gained 54.17 points, or 1.3%, to finish at 4,205.45.

    • The Nasdaq Composite
      COMP,
      +2.19%
      jumped 277.59 points, or 2.2%, to end at 12,975.69.

    For the week, the Dow fell 1%, while the S&P 500 edged up 0.3% and the Nasdaq advanced 2.5%. The tech-heavy Nasdaq booked a fifth straight week of gains for its longest win streak since the stretch ending in early February, according to Dow Jones Market Data.

    What drove markets

    Stocks rose ahead of Memorial-Day weekend as investors were encouraged by reports suggesting that Congress was close to a deal to raise the U.S. debt ceiling.

    “It’s a little bit of a relief rally on the debt ceiling,” said Ryan Belanger, founder and managing principal at Claro Advisors, in a phone interview Friday.

    While Treasury Secretary Janet Yellen says the U.S. could run out of money as soon as June 1 if the debt ceiling is not raised, other projections estimate the federal government may have until the middle of the month.

    “I think we’ll all be able to exhale by mid-June, although it will likely be an increasingly volatile market environment between now and then,” said Kristina Hooper, chief global market strategist at Invesco. “Once that drama recedes, I think all eyes will be back on central banks.”

    Belanger said that he’s expecting the Federal Reserve may raise its benchmark interest rate by another quarter percentage point in June to battle high inflation.

    The Bureau of Economic Analysis said Friday that the personal-consumption-expenditures-price index showed core inflation, which excludes food and energy, rose 0.4% in April. That’s more than the 0.3% increase that economists had expected, as core inflation rose 4.7% year over year from a rate of 4.6% in March.

    Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said inflation appeared to be moving “in the wrong direction” at the start of the second quarter.

    Fed-funds-futures traders now see a 65.9% chance of the Fed hiking its rate by a quarter percentage point in June, and a 34.1% probability of a pause, according to the CME’s FedWatch Tool, at last check. In the bond market, two-year Treasury yields
    TMUBMUSD02Y,
    4.563%
    rose 7.9 basis points Friday to 4.587%, according to Dow Jones Market Data.

    PCE data also showed consumer spending sprang back to life in April, rising 0.8%, the largest gain in three months to surpass expectations, as Americans bought more cars and spent more on services.

    “The consumer is hanging in there,” said Victoria Fernandez, chief market strategist at Crossmark Global Investments, in a phone interview Friday. “I don’t think we want to underestimate the ability of the consumer to continue spending, even if they’re spending a little bit less.”

    Meanwhile, the U.S. Census Bureau said Friday that orders for manufactured durable goods in the U.S. jumped 1.1% in April. The gain was largely driven by military spending, but business investment rose sharply as well.

    Updated GDP data released earlier this week showed the U.S. economy grew at annual pace of 1.3% during the first quarter, above previous estimates.

    For now, debt-ceiling optimism and enthusiasm surrounding artificial intelligence are outweighing concerns about the potential for another Fed rate hike, according to Fernandez. “I just don’t think there is the demand destruction that the Fed is looking for at this point in time,” she said, as the unemployment rate remains low.

    Fernandez said she anticipates the Fed could pause its interest-rate hikes in June to asses the economy before potentially raising its policy rate again in July.

    Technology stocks have helped propel gains this week in the U.S. equities markets, with Nvidia’s stock
    NVDA,
    +2.54%
    surging Thursday on optimism surrounding its AI-fueled outlook for sales in the second quarter.

    The tech-heavy Nasdaq Composite has soared 24% this year through Friday. “I would be taking profits on the Nasdaq,” said Belanger, suggesting some stocks in the index have become frothy amid the AI buzz.

    Companies in focus

    —Steve Goldstein contributed to this report.

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  • Could bitcoin and gold be haven buys as debt-ceiling fears mount? Here’s what recent trading patterns suggest.

    Could bitcoin and gold be haven buys as debt-ceiling fears mount? Here’s what recent trading patterns suggest.

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    Welcome back to Distributed Ledger. This is Frances Yue, reporter at MarketWatch.

    Fears are brewing in financial markets that the U.S. lawmakers won’t be able to reach an agreement to raise the country’s debt limit by X date, or the date that the U.S. government is unable to meet its debt obligations.  

    Analysts at JPMorgan Chase & Co.
    JPM,
    +0.94%
    on Wednesday said they see the odds of debt ceiling negotiators failing to reach a deal by early June at “around 25% and rising.” 

    Concerns around a technical default of U.S. government debt have contributed to volatility across financial markets, sending Treasury bills maturing in the first eight days of June above 6%. Yields on such bills briefly topped 7% on Thursday. 

    As investors search for havens from such tumult, gold and bitcoin are often cited as potential refuges. 

    Still, gold futures have been retreating since the most-active contract reached its second-highest settlement on record on May 4. 

    Bitcoin, which rallied almost 60% so far this year, have also posted lackluster performance for the past few weeks, down 5.8% over the past month. 

    Are gold and bitcoin effective hedges against a technical default of U.S. government debt? Why are we not seeing a rally as the X date approaches? I caught up with several analysts to ask their views.

    Find me on Twitter at @FrancesYue_ to share any thoughts on crypto, gold, or this newsletter.  

    Is gold the haven?


    FactSet

    “Generally speaking, gold thrives when there are periods of uncertainty,” said Rhona O’Connell, analyst at StoneX Group. “But if you take that uncertainty too far, then we get to stages where people are sitting on their hands and not really doing very much and that’s what’s happened here.”

    Gold futures for June delivery 
    GC00,
    +0.09%
    GCM23,
    +0.09%
     on Thursday declined by $20.90, or 1.1%, to $1,943.70 per ounce on Comex, with prices for the most-active contract posting their lowest finish since March 21, according to FactSet data.

    As gold futures price retreat to below $2,000, “I suppose it’s arguable that the bulls might be a bit disappointed,” said O’Connell.  But there’s “bound to be a retreat” with gold’s price premium building over the past few weeks, according to O’Connell. 

    “The fact that gold hasn’t managed to climb any higher given the potential seriousness of the economic consequences should no agreement be reached before the June deadline reflects a prevailing view that ultimately the markets believe some middle ground can be found in time,” Rupert Rowling, analyst at Kinesis Money, wrote in a recent note.

    Still, gold’s price stays elevated at levels that were not seen many times in history.

    What about bitcoin?

    Considering the rally bitcoin had so far this year, it’s “not crazy to see a little bit of pullback, according to Steven Lubka, a managing director at Swan Bitcoin. 

    Bitcoin gained almost 60% so far this year while still down over 60% from its all-time high in 2021.

    Still, if the U.S. ends up defaulting on its debt, and “everyone freaks out, bitcoin could do very well in that scenario,” Lubka said, citing bitcoin’s limited supply, decentralized and non-sovereign properties.

    However, not everyone agrees. There is not enough evidence to support the claim that bitcoin could serve as a hedge against the debt ceiling tumult, according to Lapo Guadagnuolo, director at S&P Global Ratings. 

    “We can’t make that argument because we don’t see that in the data,” Guadagnuolo said. 

    A rising dollar

    The recent strength of the U.S. dollar have also weighed on bitcoin and gold.

    On Thursday, the ICE U.S. Dollar Index
    DXY,
    -0.02%    ,
     which measures the currency’s strength against a basket of six major rivals, climbed above 104 to its highest level since March 17, according to Dow Jones market data.

    Although a technical default of U.S. government debt could hurt the dollar’s reputation in the long term, it might have little bearing on the immediate reaction, which would resemble a knee-jerk move higher, as my colleague Joseph Adinolfi elaborated here. 

    As gold is mostly denominated in U.S. dollar and bitcoin’s main trading pairs are dollar-denominated stablecoins, a strong dollar could weigh on both assets. 

    Still, the debt ceiling debacle in the long term could strengthen the narrative around bitcoin and gold, as “the governance of the worlds fiat system comes into question,” according to Greg Magadini, director of derivatives at Amberdata.

    Crypto in a snap

    Bitcoin lost 2.8% in the past week and was trading at around $26,360 on Thursday, according to CoinDesk data. Ether declined 0.9% in the same period to around $1,805

    Biggest Gainers

    		 Price

    		 %7-day return
    marumaruNFT

    		 $0.26

    		 201%
    Render

    		 $2.70

    		 19.5%
    Kava

    		 $1.10

    		 14.3%
    TRON

    		 $0.08

    		 10.6%
    Huobi

    		 $3.12

    		 8.4%
    Source: CoinGecko
    Biggest Decliners

    		 Price

    		 %7-day return
    GMX

    		 $52.68

    		 -14.6%
    Sui

    		 $0.99

    		 -13.3%
    Fantom

    		 $0.33

    		 -10.1%
    Stacks

    		 $0.59

    		 -9.7%
    Optimism

    		 $1.62

    		 -9.7%
    Source: CoinGecko

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  • A debt-ceiling deal will spark a new worry: Who will buy the deluge of Treasury bills?

    A debt-ceiling deal will spark a new worry: Who will buy the deluge of Treasury bills?

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    When the U.S. debt-ceiling fight finally is resolved, the Treasury is expected to unleash a flood of bill issuance to help refill its coffers run low by the protracted standoff in Washington, D.C., over the government’s borrowing limit.

    Treasury bills are debt issued by the U.S. government that mature in four to 52 weeks. New bill issuance could reach about $1.4 trillion through the end of 2023, with roughly $1 trillion flooding the market before the end of August, according to an estimate from BofA Global strategists.

    They expect the deluge through August to be about five times the supply of an average three-month stretch in years before the pandemic.

    “The good news is that we have a high degree of confidence around who is going to buy it,” said Mark Cabana, rates strategist at BofA Global, in a phone interview with MarketWatch. “The bad news is that it’s not going to be at current levels. Things have to cheapen.”

    Cabana sees a key buyer of bill supply unleashed by a debt-ceiling deal in money-market funds, which have climbed to nearly $5.4 trillion in assets managed since the regional banking crisis erupted in March (see chart).

    So people who yanked billions of dollars in deposits from banks after the collapse of Silicon Valley Bank in March and parked them in money-market funds could end up playing an encore performance in this year’s debt-ceiling drama.

    Money-market funds swell since March, topping $5 trillion in assets


    BofA Global

    Related: Money-market funds swell to record $5.4 trillion as savers pull money from bank deposits

    $2 trillion at Fed repo facility

    Money-market funds have been the main reason why at least $2 trillion consistently sits overnight at the Federal Reserve’s reverse repo facility. The program was last offering a roughly 5% rate, a level Cabana said new Treasury bills might need to exceed by about 10-20 basis points.

    “It’s an unintended consequence of a debt-ceiling deal getting done,” said George Catrambone, head of fixed income Americas at DWS Group, about market expectations for heavy short-term Treasury bill issuance, but he also expects money-market funds, foreign buyers and other institutions auctions to continue as buyers in the market.

    “There’s always buyers. It’s a question of price.”

    President Joe Biden and House Speaker Kevin McCarthy, R-Calif. met Monday to talk about potential ways to raise the $31.4 trillion borrowing limit and to avoid a “doomsday” scenario in financial markets if the U.S. defaults. As talks resumed Wednesday, McCarthy said, “I think we can make progress today.”

    Congress has struck deals each time U.S. public debt has exceeded its debt ceiling in the past, including by suspending it eight times since 2016 (see chart).

    In the past when the U.S. debt-limit has been violated, Congress extended or suspended it


    Refinitive, RiverFront

    That doesn’t mean financial markets have been sitting by idly. The 1-month Treasury yield
    TMUBMUSD01M,
    5.616%
    rose to 5.6% on Wednesday, while the 3-month yield
    TMUBMUSD03M,
    5.350%
    was 5.3%, according to FactSet. Bill maturing around the “X-date,” which could come as soon as June 1, have even higher yields.

    Read: Debt-ceiling angst sends Treasury bill yields toward 6%

    “Those are obviously pretty heady yields,” Catrambone said. “But it also exemplifies the market having to price in potential market disruptions in the month of June,” even though his team, like many in financial markets, expect that eventually “cooler heads will prevail” in Washington as the debt-ceiling standoff heads down to the wire.

    Stocks were lower Wednesday, with the Dow Jones Industrial Average
    DJIA,
    -0.75%
    off almost 300 points, or 0.9%, on pace for a fourth day in a row of losses, according to FactSet. The S&P 500 index
    SPX,
    -0.83%
    was off 0.9% and the Nasdaq Composite Index was down 0.9%.

    How the money ran out

    The Treasury in January hit its borrowing limit and began operating under “extraordinary measures” to avoid a default.

    Cash balances at the Treasury Department have since dwindled to less than $100 billion, according to economists at Jefferies. Barclays strategists estimate its cash balance may fall below $50 billion between June 5-15.

    “Basically, we are just draining our cash account to fund operations while we wait to figure out the debt ceiling,” said Lindsay Rosner, senior portfolio manager at PGIM Fixed Income.

    But when the battle over the debt limit ends in a resolution, she expects longer-dated Treasury yields to increase, as haven buying on fears of potentially a full U.S. government default and a credit rating downgrade will have been taken off the table.

    “The Armageddon, whatever small probability people were pricing in of catastrophe, remove that,” she said. “And that means the worst economic outcome has been removed.”

    That’s also a reason why Rosner has been avoiding ultrashort Treasurys in the eye of the debt-ceiling fight in favor of 2, 3 or 4-year bonds offering some of the highest yields in years.

    “We’re being afforded good yield, good spread, a couple of years out the curve,” she said. “Play that game.”

    Read next: How will the Fed react to the debt ceiling breach? Here are some plays in the playbook.

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  • Debt-ceiling angst sends Treasury bill yields toward 6%

    Debt-ceiling angst sends Treasury bill yields toward 6%

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    Continued uncertainty about whether a debt-ceiling resolution can come together fast enough to avoid a government default pushed yields on Treasury bills maturing between early and mid-June toward 6% on Tuesday.

    The yield on Treasury bills maturing on June 6 touched that level before slipping slightly to 5.997% Tuesday afternoon, according to Bloomberg data. Meanwhile, the rate on T-bills maturing on June 8 was at 5.905%.

    In addition, the one-year T-bill issued in June 2022 and which matures on June 15 was yielding 6.141%, though analysts said that was likely being impacted by a government auction on Tuesday. That 6.141% yield was the highest of any government obligation maturing within two weeks after the so-called X-date of June 1 — when Treasury Secretary Janet Yellen said the government might be unable to pay all its bills if no action is taken on the debt ceiling.

    The Treasury bill market is where debt-ceiling angst has played out the most and Tuesday brought wild trading as investors questioned whether the government will be forced to miss payments after June 1. At the moment, the T-bill market is in a state of dislocation — one in which yields ranged from as little as 2.924% on the government obligation maturing on May 30 to as high as 6.141% on the 1-year bill maturing in three weeks.

    The higher the yield on a Treasury obligation, the more investors are demanding to be compensated for the risk of holding that bill. Yields also rise when investors are selling off or staying away from the underlying maturity. Tuesday’s moves suggest that investors and traders are factoring in at least some risk that the government could cross the X-date without a debt-ceiling resolution.

    Right now, the market regards bills maturing between June 6 and June 15 as “the most at risk for a delayed payment and no one wants to own” them, said Lawrence Gillum, the Charlotte, N.C.-based chief fixed income strategist at LPL Financial.

    “Ultimately, markets expect something to get done, but money managers who have to own those T-bills are not taking any chances,” he said via phone.

    For much of Tuesday, the broader financial market appeared to be relatively confident that a debt-ceiling agreement could be reached by June 1, a day after President Joe Biden and House Speaker Kevin McCarthy each described talks as “productive” on Monday. Then came word of McCarthy telling House Republicans on Tuesday that negotiators were nowhere near a deal yet, with Bloomberg citing Republican Representative Ralph Norman and another unidentified person in the room.

    All three major U.S. stock indexes
    DJIA,
    -0.69%

    SPX,
    -1.12%

    COMP,
    -1.26%
    finished lower, while Treasury yields beyond the 2-year rate slipped toward the end of Tuesday’s New York trading session — a sign of fading optimism in the outlook for the U.S. economy.

    Read: ‘Survival of the strongest’: How pandemic-era shifts may upend market’s recession narrative

    One of the financial market’s favorite indicators of impending U.S. recessions — the difference between the 2- and 10-year Treasury yields — has been persistently inverted since July 5, 2022. That’s the longest such streak since May 1980, and yet no recession has been declared so far by the only arbiters who matter, those at the National Bureau of Economic Research.

    On Tuesday, fed funds futures traders priced in a 28.1% chance of another quarter-point rate hike by the central bank in June, which would take the main policy rate target to between 5.25%-5.5%. They also factored in a slight 5.6% likelihood of another similar-size rate hike in July.

    Gillum and Greg Faranello, head of U.S. rates at AmeriVet Securities in New York, said they see a small chance of no debt-ceiling agreement by June 1. Under such a scenario, the Treasury market would fall into “disarray,” with T-bill yields spiking in a manner reminiscent of last year’s crisis of confidence in the U.K. bond market, they said. It would also make it harder for the Fed to hike rates on June 14, and likely lead to a flight-to-quality trade in longer-term Treasurys as equities sell off.

    See: ‘Doomsday machine’: Here’s what could happen if the debt ceiling is breached

    As of Tuesday, the T-bill market was “definitely showing some signs of stress, there’s no question about it,” Faranello said via phone. Meanwhile, “the economy is doing better than the narrative of recession,” even after the recent turmoil in regional banks, and a move toward 4% in the 10-year rate this year “can’t be ruled out.” However, that could change quickly based on the outcome of the debt-ceiling debate.

    Getting something done on the debt ceiling by June 1 “is going to be a challenge,” Faranello said. The risk of default “is small but not a zero-percent probability,” as is the prospect of chaos if negotiators come too close to the wire and create a period of confusion in the Treasury market.

    “At a minimum, there would be pretty severe economic damage” from a default or any confusion, it “could be chaotic,” and “you would see that impact on risk assets,” he said.

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  • Debt-ceiling talks: As Biden and McCarthy plan to meet today, analysts say deal is needed by Friday

    Debt-ceiling talks: As Biden and McCarthy plan to meet today, analysts say deal is needed by Friday

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    As President Joe Biden and House Speaker Kevin McCarthy prepare to meet Monday afternoon over the debt-ceiling standoff, it’s really getting to be crunch time.

    “We need to see a deal by Friday to have confidence that it can clear both
    chambers before the June 1 deadline,” Height Capital Markets analysts said in a note.

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  • Biden, McCarthy to meet in person Monday after ‘productive’ debt-ceiling talk

    Biden, McCarthy to meet in person Monday after ‘productive’ debt-ceiling talk

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    WASHINGTON — President Joe Biden will meet in person Monday with House Speaker Kevin McCarthy about averting an economy-wrecking federal default, and the Republican leader expressed cautious optimism about a possible debt ceiling compromise as Washington races to raise America’s borrowing limit before the funds could be depleted early next month.

    The leaders spoke by phone Sunday while the president was returning home on Air Force One after the Group of Seven summit in Japan. McCarthy, R-Calif., told reporters at the Capitol that the call was “productive” and that the on-again, off-again negotiations between his staff and White House representatives would resume in the evening.

    Both sides have said progress was being made but that they remain far apart, and talks had lapsed for part of the weekend. Biden’s Treasury Department has said it could run out of cash as soon as June 1, and Treasury Secretary Janet Yellen said Sunday, “I think that that’s a hard deadline.”

    Read on: Biden says in Hiroshima press conference that Republicans must ‘move from their extreme positions’ on debt limit

    McCarthy said after his call with Biden that “I think we can solve some of these problems if he understands what we’re looking at.” The speaker added, “But I’ve been very clear to him from the very beginning. We have to spend less money than we spent last year.”

    McCarthy emerged from that conversation sounding upbeat and was careful not to criticize Biden’s trip, as he had before, suggesting the president had used his time overseas to insist on Democratic positions that made compromise harder. He did caution, “There’s no agreement on anything.”

    The speaker also gently praised the White House’s negotiating team, saying the sides may have “philosophical” disagreements, but could reach “common ground.”

    “We’re looking at how do we have a victory for this country. How do we solve problems,” McCarthy said. He said he did not think the final legislation would remake the federal budget and the country’s debt, but at least “put us on a path to change the behavior of this runaway spending.”

    The White House confirmed the Monday meeting and late Sunday talks but did not elaborate on the leaders’ call.

    Earlier, Biden used his concluding news conference in Hiroshima, Japan to warn House Republicans that they must move off their “extreme positions” over raising the debt limit and that there would be no agreement to avoid a catastrophic default only on their terms.

    Biden made clear that “it’s time for Republicans to accept that there is no deal to be made solely, solely, on their partisan terms.” He said he had done his part in attempting to raise the borrowing limit so the government can keep paying its bills, by agreeing to significant cuts in spending. “Now it’s time for the other side to move from their extreme position.”

    Biden had been scheduled to travel from Hiroshima to Papua New Guinea and Australia, but cut short his trip in light of the strained negotiations with Capitol Hill.

    Even with a new wave of tax revenue expected soon, perhaps giving both sides more time to negotiate, Yellen said on NBC’s “Meet the Press” that “the odds of reaching June 15, while being able to pay all of our bills, is quite low.”

    GOP lawmakers are holding tight to demands for sharp spending cuts, rejecting the alternatives proposed by the White House for reducing deficits.

    Republicans want work requirements on the Medicaid health care program, though the Biden administration has countered that millions of people could lose coverage. The GOP additionally introduced new cuts to food aid by restricting states’ ability to waive work requirements in places with high joblessness. That idea, when floated under President Donald Trump, was estimated to cause 700,000 people to lose their food benefits.

    GOP lawmakers are also seeking cuts in IRS money and asking the White House to accept parts of their proposed immigration overhaul.

    The White House has countered by keeping defense and nondefense spending flat next year, which would save $90 billion in the 2024 budget year and $1 trillion over 10 years.

    “I think that we can reach an agreement,” Biden said, though he added this about Republicans: “I can’t guarantee that they wouldn’t force a default by doing something outrageous.”

    Republicans had also rejected White House proposals to raise revenues in order to further lower deficits. Among the proposals the GOP objects to are policies that would enable Medicare to pay less for prescription drugs and the closing of a dozen tax loopholes. Republicans have refused to roll back the Trump-era tax breaks on corporations and wealthy households as Biden’s own budget has proposed.

    Biden, nonetheless, insisted that “revenue is not off the table.”

    For months, Biden had refused to engage in talks over the debt limit, contending that Republicans in Congress were trying to use the borrowing limit vote as leverage to extract administration concessions on other policy priorities.

    But with the June 1 potential deadline looming and Republicans putting their own legislation on the table, the White House launched talks on a budget deal that could accompany an increase in the debt limit.

    Biden’s decision to set up a call with McCarthy came after another start-stop day with no outward signs of progress. Food was brought to the negotiating room at the Capitol on Saturday morning, only to be carted away hours later. Talks, though, could resume later Sunday after the Biden-McCarthy conversation.

    The president tried to assure leaders attending the meeting of the world’s most powerful democracies that the United States would not default. U.S. officials said leaders were concerned, but largely confident that Biden and American lawmakers would resolve the crisis.

    The president, though, said he was ruling out the possibility of taking action on his own to avoid a default. Any such steps, including suggestions to invoke the 14th Amendment as a solution, would become tied up in the courts.

    “That’s a question that I think is unresolved,” Biden said, adding he hopes to try to get the judiciary to weigh in on the notion for the future.

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  • Biden says in Hiroshima press conference that Republicans must ‘move from their extreme positions’ on debt limit

    Biden says in Hiroshima press conference that Republicans must ‘move from their extreme positions’ on debt limit

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    President Joe Biden on Sunday called for Republicans to agree to compromises in debt-ceiling negotiations, as he wrapped up a visit to Japan for a G-7 summit and prepared to fly back to Washington, D.C.

    “Now it’s time for the other side to move from their extreme positions, because much of what they’ve already proposed is simply, quite frankly, unacceptable,” Biden said during a news conference in Japan.

    “It’s time for Republicans to accept that there is no bipartisan deal to be made solely — solely — on their partisan terms. They have to move, as well,” he said.

    Biden’s comments on movement were similar to what House Speaker Kevin McCarthy said two days ago. The House Republican from south-central California told reporters on Friday that there needs to be “movement by the White House, and we don’t have any movement yet, so, yeah, we’ve got to pause.”

    Rep. Garret Graves, a Louisiana Republican deputized by McCarthy to lead the talks, had earlier Friday characterized Republicans as pressing a pause button after prior reports that a deal framework was coming into view, 

    The president’s remarks in Hiroshima came as investors are watching for fresh signs of a bipartisan deal that would lift the federal government’s borrowing limit and prevent a market-shaking default.

    Biden accused some Republicans of risking the economic damage of a default because of the 2024 White House race.

    “I think there are some MAGA Republicans in the House who know the damage that it would do to the economy, and because I am president and presidents are responsible for everything, Biden would take the blame, and that’s the one way to make sure Biden is not re-elected,” he said.

    During Sunday’s news conference, Biden, who cut short his trip because of the looming debt-ceiling crisis (leading to the cancellation of a Quad summit in Australia), said he and McCarthy will be talking later Sunday while he is flying back to the U.S.

    “My guess is he’s going to want to deal directly with me,” the president said, adding that it had to do with “making sure we’re on the same page.”

    “Our teams are going to continue working,” Biden also said.

    When asked about McCarthy’s call for government spending to be less next year than this year, Biden said his side is “willing to cut spending, as well as raise revenue,” referring to tax increases. He also said his team is waiting for a GOP response to the White House’s latest counterproposal.

    Graves, the Louisiana Republican, had, with his Friday-morning characterization of debt-ceiling negotiations as at a “pause,” suggested the Biden White House’s representatives were being “unreasonable.” Talks resumed Friday evening, but negotiators quickly called it quits for the night, and there was little progress reported Saturday, with McCarthy telling reporters that he didn’t think there would be an ability to “move forward until the president can get back.”

    Treasury Secretary Janet Yellen warned on May 1 and again last week that a U.S. default could happen as soon as June 1 if Congress doesn’t raise the debt ceiling. The Bipartisan Policy Center and Congressional Budget Office have each offered similar projections.

    Biden had for months called for a so-called clean increase of the $31.4 trillion cap on federal debt issuance, arguing that the time to address the levels of future government spending is instead during the annual budget-writing process.

    In August 2011, lawmakers approved an increase to the debt limit just hours before a potential government default. Within days, the U.S. lost its triple-A credit rating from S&P for the first time in history, with the ratings agency saying the American political system had become less stable. U.S. stocks 
    SPX,
    -0.14%

    DJIA,
    -0.33%
    plunged in August 2011 following that debt downgrade by S&P.

    Now read:

    Debt-ceiling standoff: Here’s what could go into a bipartisan deal

    Biden expresses confidence on achieving debt-ceiling deal: ‘America will not default’

    ‘Doomsday machine’: Here’s what could happen if the debt ceiling is breached

    Ukraine’s Zelensky takes part in G-7 summit n Hiroshima as world leaders sanction Russia

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  • Biden says in Hiroshima press conference that Republicans must ‘move from their extreme positions’ on debt limit

    Biden says in Hiroshima press conference that Republicans must ‘move from their extreme positions’ on debt limit

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    President Joe Biden on Sunday called for Republicans to agree to compromises in debt-ceiling negotiations, as he wrapped up a visit to Japan for a G-7 summit and prepared to fly back to Washington, D.C.

    “Now it’s time for the other side to move from their extreme positions, because much of what they’ve already proposed is simply, quite frankly, unacceptable,” Biden said during a news conference in Japan.

    “It’s time for Republicans to accept that there is no bipartisan deal to be made solely — solely — on their partisan terms. They have to move, as well,” he said.

    Biden’s comments on movement were similar to what House Speaker Kevin McCarthy said two days ago. The House Republican from south-central California told reporters on Friday that there needs to be “movement by the White House, and we don’t have any movement yet, so, yeah, we’ve got to pause.”

    Rep. Garret Graves, a Louisiana Republican deputized by McCarthy to lead the talks, had earlier Friday characterized Republicans as pressing a pause button after prior reports that a deal framework was coming into view, 

    The president’s remarks in Hiroshima came as investors are watching for fresh signs of a bipartisan deal that would lift the federal government’s borrowing limit and prevent a market-shaking default.

    Biden accused some Republicans of risking the economic damage of a default because of the 2024 White House race.

    “I think there are some MAGA Republicans in the House who know the damage that it would do to the economy, and because I am president and presidents are responsible for everything, Biden would take the blame, and that’s the one way to make sure Biden is not re-elected,” he said.

    During Sunday’s news conference, Biden, who cut short his trip because of the looming debt-ceiling crisis (leading to the cancellation of a Quad summit in Australia), said he and McCarthy will be talking later Sunday while he is flying back to the U.S.

    “My guess is he’s going to want to deal directly with me,” the president said, adding that it had to do with “making sure we’re on the same page.”

    “Our teams are going to continue working,” Biden also said.

    When asked about McCarthy’s call for government spending to be less next year than this year, Biden said his side is “willing to cut spending, as well as raise revenue,” referring to tax increases. He also said his team is waiting for a GOP response to the White House’s latest counterproposal.

    Graves, the Louisiana Republican, had, with his Friday-morning characterization of debt-ceiling negotiations as at a “pause,” suggested the Biden White House’s representatives were being “unreasonable.” Talks resumed Friday evening, but negotiators quickly called it quits for the night, and there was little progress reported Saturday, with McCarthy telling reporters that he didn’t think there would be an ability to “move forward until the president can get back.”

    Treasury Secretary Janet Yellen warned on May 1 and again last week that a U.S. default could happen as soon as June 1 if Congress doesn’t raise the debt ceiling. The Bipartisan Policy Center and Congressional Budget Office have each offered similar projections.

    Biden had for months called for a so-called clean increase of the $31.4 trillion cap on federal debt issuance, arguing that the time to address the levels of future government spending is instead during the annual budget-writing process.

    In August 2011, lawmakers approved an increase to the debt limit just hours before a potential government default. Within days, the U.S. lost its triple-A credit rating from S&P for the first time in history, with the ratings agency saying the American political system had become less stable. U.S. stocks 
    SPX,
    -0.14%

    DJIA,
    -0.33%
    plunged in August 2011 following that debt downgrade by S&P.

    Now read:

    Debt-ceiling standoff: Here’s what could go into a bipartisan deal

    Biden expresses confidence on achieving debt-ceiling deal: ‘America will not default’

    ‘Doomsday machine’: Here’s what could happen if the debt ceiling is breached

    Ukraine’s Zelensky takes part in G-7 summit n Hiroshima as world leaders sanction Russia

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  • Most Americans aren’t happy with how much income tax they paid this year

    Most Americans aren’t happy with how much income tax they paid this year

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    Americans’ discontent with the size of their federal income-tax bill is at a two-decade high, according to a new poll — even though Congress hasn’t passed any direct income-tax increases in recent years.

    One month after the 2023 tax season’s conclusion, 51% of respondents in a newly released Gallup poll said their income taxes were not fair. That’s up from 44% last year and marks a record high since 1997, when Gallup’s pollsters started asking how people felt about their income-tax bills.

    Meanwhile, 46% of people said they were paying a fair amount of income tax. That basically matched the dim mood over two decades ago, in in 1999, when 45% said that they were paying a fair amount.

    Six in 10 poll participants said their federal income taxes were “too high,” pollsters said. 2001 was the last time that share of people felt the same way, Gallup said.

    Feeling the squeeze: Grocery prices are rising more slowly, but food insecurity is surging among low-income Americans

    Gallup pollsters spoke with more than 1,000 people, doing their field work through most of April.

    The poll comes during a fierce debate about whether the wealthiest taxpayers, as well as corporations, are paying enough in taxes. The Biden administration has been pressing for higher tax rates on high earners. A Democratic-controlled Congress last year passed a law with an $80 billion funding infusion for the IRS over a 10-year span in part to launch more audits of rich individuals and corporations.

    Many Americans walked away from tax season with income-tax refunds that were smaller than a year ago. That’s due, at least in part, to the end of pandemic-era boosts to certain credits, tax experts have previously told MarketWatch.

    Both backdrops might be at play in the public mood on taxes, observers noted, and political affiliation could have something to do with these changes, Gallup said. Only one-third of Republicans said their income taxes this year were fair, for example — that’s down from 63% in 2020, the last full year of the Trump administration.

    The change in Republican sentiment could be why there was a heavy swing since 2020, when 59% said their taxes represented a fair number. In 2020, 56% of political independents said their taxes were fair, and that percentage fell to 45% a few years later. Among Democrats, meanwhile, the 63% saying their taxes were fair was virtually unchanged over that span.

    Republicans “are certainly more frustrated now with Biden in office,” said Jeff Jones, senior editor of the Gallup poll. “But they are even more frustrated than they were when Obama was in office.”

    Democrat Joe Biden campaigned in 2020 on pledges to raise taxes on corporations and households earning over $400,000 a year and not on those making less than that. So far, the president has not been able to turn proposals like a billionaire’s minimum tax or a higher top tax rate into law.

    The real tax-policy fight brewing in the background is the 2025 expiration of Trump-era tax cuts, experts have said.

    In the sweeping 2017 tax-code overhaul, Congress reduced five of seven income-tax brackets and boosted commonly used features of the tax code, including payouts for the child tax credit and the standard deduction. But some of those tax cuts were scheduled to sunset, while others were permanent.

    Another potential shaping the mood on taxes is the broader economy and recent tax season, Jones said. One possibility, he noted, is that some people are getting pushed to higher tax brackets with pay raises meant to keep up with inflation. (Tax brackets are adjusted annually to account for inflation.)

    While inflation is still pinching wallets, tax refunds are lower than they were a year ago.

    Refunds averaged just over $2,800, and that’s down more than 7% from a year earlier, according to IRS data through May 12.

    So you know: What happens if you can’t pay your taxes? IRS has a payment plan — but read this before you sign up.

    For his part, Lawrence Zelenak, who teaches tax law at Duke University, thinks the current darkening public mood “is largely a response to the disappearance of all the temporary pandemic-related tax relief,” he said.

    In 2020 an estimated 60% of households ended up with no federal income-tax liability because they were making less and bringing in more through direct cash assistance from the federal government, according to Tax Policy Center estimates.

    By 2022, an estimated 40% of households wouldn’t face any federal income tax, according to the nonpartisan think tank — which is more in line with levels seen before the pandemic.

    Keep in mind: IRS will launch free tax-filing pilot in 2024. TurboTax, H&R Block and Republicans are opposed.

    Refunds during 2022 got a kick from extragenerous payouts including the child tax credit, the child- and dependent-care credit and the earned-income tax credit.

    Most taxpayers also got a chance to shave their tax bill with a temporary change that let them take the standard deduction and also write off a portion of their charitable donations. But the credits reverted to their prepandemic size, and the deduction on cash donations subsequently went away.

    “With the end of the pandemic tax relief, many people have seen their income-tax liabilities go up, and it’s not surprising they see that as unfair,” Zelenak said. “So it may be the change more than the absolute level of tax.”

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  • Debt-ceiling talks are at a ‘pause,’ says McCarthy deputy

    Debt-ceiling talks are at a ‘pause,’ says McCarthy deputy

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    Debt-ceiling negotiations are at a “pause” on Friday, said Republican Rep. Garret Graves of Louisiana, a deputy for House Speaker Kevin McCarthy.

    “We’ve decided to press pause, because it’s just not productive,” Graves said.

    It wasn’t immediately clear how long the pause would last.

    Graves also suggested the Biden White House’s representatives in the talks were being “unreasonable.”

    “Until people are willing to have reasonable conversations about how you can actually move forward and do the right thing, then we’re not going to sit here and talk to ourselves,” the congressman told reporters.

    When asked if negotiators would be meeting in person over the weekend, Graves said, “I’m not sure right now.”

    “We’re not there,” Graves also said, in a remark that indicated a deal wasn’t imminent.

    U.S. stocks
    DJIA,
    -0.28%
    sold off after his remarks to reporters, and the S&P 500
    SPX,
    -0.16%
    was recently trading lower.

    “There are real differences between the parties on budget issues and talks will be difficult,” a White House official said. “The president’s team is working hard towards a reasonable bipartisan solution that can pass the House and the Senate.”

    Traders also were assessing remarks from Federal Reserve chief Jerome Powell as well as a report that Treasury Secretary Janet Yellen had said more bank mergers may be necessary.

    Separately, Senate Minority Leader Mitch McConnell, a Kentucky Republican, said Friday that it is “past time” for President Joe Biden to get serious about the negotiations.

    Stocks advanced Wednesday and Thursday, with credit for the gains going in part to upbeat comments from Biden and McCarthy on the debt-limit standoff, but some analysts have warned that markets may have turned too optimistic.

    “While we agree that recent developments represent a meaningful positive shift relative to a week or two ago, we caution investors not to overestimate how quick or smooth the path to the finish line will be,” said Tobin Marcus, senior U.S. policy and politics strategist at Evercore ISI, in a note.

    Marcus added that “the expectations being set on timing are slightly unrealistic, which could lead to market concern over setbacks next week.”

    Terry Haines, founder of Pangea Policy, described Friday’s pause as a “predictable bump in the winding negotiation road,” adding that “what it means for markets is that there’s very little hope of a deal by the end of Sunday, and that negotiations will go into next week.”

    Now read: Debt-ceiling standoff: Here’s what could go into a bipartisan deal

    And see: ‘Doomsday machine’: Here’s what could happen if the debt ceiling is breached

    MarketWatch’s Robert Schroeder contributed to this report.

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  • Ray Dalio says debt-ceiling debate sets stage for ‘disastrous financial collapse’

    Ray Dalio says debt-ceiling debate sets stage for ‘disastrous financial collapse’

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    “‘Increasing the debt limit the way Congress and presidents have repeatedly done, and most likely will do this time around, will mean there will be no meaningful limit on the debt. This will eventually lead to a disastrous financial collapse.‘ ”


    — Ray Dalio, founder, Bridgewater Associates

    That’s billionaire investor and Bridgewater Associates founder Ray Dalio, warning via a post on LinkedIn that while the U.S. government is likely to avoid a first-ever debt default, a lack of effective restraint on spending spells big trouble ahead.

    Dalio wrote that he doesn’t expect the battle between the Biden administration and congressional Republicans over a debt-limit increase to lead to a default — or if it does, it will be resolved quickly. But any agreement is unlikely to deal with the “big issues” in a substantive way, and will instead likely tweak things in ways that won’t matter much, making no real commitment to cutting the deficit in future years.

    See: Debt-ceiling standoff: Here’s what could go into a bipartisan deal

    House Speaker Keven McCarthy, R-Calif., told reporters Thursday that he thinks an eventual bill to raise the borrowing limit needs to be on the House floor next week and that he can “see the path.” McCarthy and President Joe Biden have designated representatives to negotiate a deal while Biden is attending a G-7 meeting in Japan.

    Both have said they are confident a deal will be reached before the government is unable to pay its bills, which could come as early as June 1. Debt-ceiling worries have made for volatile trading in short-term Treasury bills that would be affected by a potential default, but concerns have yet to exert lasting pressure on the stock market.

    The Dow Jones Industrial Average
    DJIA,
    +0.34%
    rose 115.14 points, or 0.3%, on Thursday, while the S&P 500
    SPX,
    +0.94%
    rallied 0.9% to close at a nearly nine-month high.

    Read: ‘Doomsday machine’: Here’s what could happen if the debt ceiling is breached

    Dalio argues that continuing along the same path isn’t sustainable “because increasing debt assets and liabilities faster than income eventually makes it impossible to simultaneously pay lender-creditors a high enough real (i.e., inflation-adjusted) interest rate to have them hold the debt assets without having that real interest rate too high for the borrower-debtors to be able to service their debts.”

    When the amount of debt sold is greater than what debt buyers want to absorb, central banks must decide whether to let interest rates rise to balance the supply and demand, which will crush debtors and the economy, or print money to buy the debt. The latter option is inflationary and encourages debtholders to sell, making the debt imbalance worse.

    “In either case that creates a debt crisis that is like the runs on the banks that we have been seeing, but with government bonds being what is sold and the run on the bank being a run on the central bank,” Dalio wrote.

    At the same time. not increasing the debt limit will lead to default and to cutbacks on basics for those who can’t afford cutbacks, causing financial havoc and social upheaval, Dalio said.

    An agreement to raise the limit would ideally be accompanied by an agreement between Biden and McCarthy that overcomes the objections of the “more extreme” members of both parties, Dalio wrote, who either don’t want to lift the debt ceiling or aren’t willing to compromise on a long-term budget approach.

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  • U.S. could run out of cash ‘at some point in the first two weeks of June,’ CBO says

    U.S. could run out of cash ‘at some point in the first two weeks of June,’ CBO says

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    The U.S. government faces a significant risk that it will no longer be able to pay all of its obligations “at some point in the first two weeks of June” if Congress doesn’t raise the federal borrowing limit, the Congressional Budget Office said Friday.

    The nonpartisan agency’s projection falls in line with a forecast that Treasury Secretary Janet Yellen made on May 1, as she said her department’s best estimate is that it could become unable to continue to satisfy all obligations “by early June, and potentially as early as June 1.”

    It also fits with an estimate released on Tuesday by a think tank, the Bipartisan Policy Center, which said the government is likely to have insufficient cash to meet all of its financial obligations as soon as early June.

    “The extent to which the Treasury will be able to fund the government’s ongoing operations will remain uncertain throughout May, even if the Treasury ultimately runs out of funds in early June,” the CBO said. “That uncertainty exists because the timing and amount of revenue collections and outlays over the intervening weeks could differ from CBO’s projections.”

    While a breakthrough hasn’t happened yet in Washington’s debt-ceiling standoff, there is increasing chatter about what could go into a bipartisan deal that ends the stalemate and avoids a market-shaking default.

    See: Debt-ceiling standoff: Here’s what could go into a bipartisan deal

    President Joe Biden and the four top U.S. lawmakers had planned to hold another meeting Friday on the debt limit after a parley on Tuesday, but it was postponed. A source familiar with the meetings called the delay a “positive” development, as staff work is continuing and Friday wasn’t yet the right time to re-convene Biden and the congressional leaders.

    The CBO also said Friday that the government could end up staying solvent through the end of July without a debt-limit hike.

    “If the Treasury’s cash and extraordinary measures are sufficient to finance the government until June 15, expected quarterly tax receipts and additional extraordinary measures will probably allow the government to continue financing operations through at least the end of July,” the agency said.

    But it warned that if the debt limit is not raised or suspended “before the Treasury’s cash and extraordinary measures are exhausted, the government will have to delay making payments for some activities, default on its debt obligations, or both.”

    “Those actions could result in distress in credit markets, disruptions in economic activity, and rapid increases in borrowing rates for the Treasury,” the agency said.

    U.S. stocks
    SPX,
    -0.16%

    DJIA,
    -0.03%
    were trading lower Friday.

    In addition, the CBO updated a budget forecast on Friday, saying its “current projections show a federal budget deficit of $1.5 trillion for 2023 — which is $0.1 trillion more than the agency estimated in February.”

    “The project cumulative deficit over the 2024–2033 period — $20.2 trillion — is about the same as the shortfall CBO projected in February,” the agency said.

    “Measured in relation to the size of the economy, deficits grow from 6.0 percent of gross domestic product (GDP) next year to 6.9 percent in 2033 — well above their 50-year average of 3.6 percent of GDP.”

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  • Debt-ceiling standoff: Here’s what’s next, as U.S. faces potential default on June 1

    Debt-ceiling standoff: Here’s what’s next, as U.S. faces potential default on June 1

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    A divided Washington is making a little progress toward raising the debt ceiling and avoiding a U.S. default, but the endgame still isn’t clear.

    Here’s what looks likely to come next, as a White House meeting among key players is planned for May 9 — and June 1 looms as a possible deadline.

    Biden aims for May 9 talks after Yellen’s warning

    The…

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  • Why it might take ‘a stock-market meltdown’ to resolve the debt-ceiling standoff

    Why it might take ‘a stock-market meltdown’ to resolve the debt-ceiling standoff

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    It might take a market mishap to end a debt-ceiling standoff that threatens to trigger a previously unthinkable default on U.S. government debt.

    “An interesting question now is whether financial market vigilantes, in bonds, stocks or even currencies could flex their muscles the closer the government gets to running out of cash,” said Steven Barrow, head of G-10 strategy at Standard Bank, in a note late last week.

    U.S….

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  • U.S. could default on debt as soon as June 1 if Congress doesn’t increase borrowing limit, says Treasury Secretary Yellen

    U.S. could default on debt as soon as June 1 if Congress doesn’t increase borrowing limit, says Treasury Secretary Yellen

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    Treasury Secretary Janet Yellen on Monday warned that the U.S. could breach its debt ceiling as soon as June 1 if Congress doesn’t raise the nation’s borrowing limit.

    “After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time,” she told House Speaker Kevin McCarthy and other bipartisan leaders in a letter.

    Late…

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  • Here’s What Treasury, Fed Might Do in a Debt Ceiling Crisis

    Here’s What Treasury, Fed Might Do in a Debt Ceiling Crisis

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    Here’s What Treasury, Fed Might Do in a Debt Ceiling Crisis

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  • What is a credit-default swap? Debt-ceiling jitters put obscure instrument back in spotlight.

    What is a credit-default swap? Debt-ceiling jitters put obscure instrument back in spotlight.

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    It’s usually not a good sign when obscure financial instruments are making headlines. And that’s the case now as the political standoff over the U.S. government’s debt ceiling puts credit-default swaps back in the spotlight.

    How CDS work

    Credit-default swaps, or CDS, are instruments that effectively allow a lender to insure against default by a borrower. An investor who owns a corporate bond, bank credits or government debt, can buy CDS to protect against default. Speculators can also use CDS to place bets, though…

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  • Worried the IRS is going to audit your tax return? If you earn less than $400,000, you can probably relax.

    Worried the IRS is going to audit your tax return? If you earn less than $400,000, you can probably relax.

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    Some clarity is emerging regarding statements from Biden administration officials that no one making less than $400,000 will see higher audit rates by the Internal Revenue Service, which is about to step up its scrutiny of wealthy taxpayers.

    The Inflation Reduction Act — the tax and climate package enacted last summer — earmarked $80 billion for the IRS over the next decade and a half. The money is intended in part to facilitate more audits of corporations and wealthier individuals.

    Ahead of the bill’s passage, Treasury Secretary Janet Yellen pledged that there would be no increase in the audit rate for households and small businesses with annual incomes below $400,000 “relative to historical levels.”

    But Republican critics and other observers have asked what “historical levels” might actually mean.

    The audit rate on returns for tax year 2018 is the reference point to keep in mind, IRS Commissioner Danny Werfel told senators on Wednesday. He emphasized that “there’s no surge coming for workers, retirees and others.”

    The IRS audited fewer than 1% of 2018 returns with total positive incomes — the sum of all positive amounts shown for various sources of income reported on an individual income-tax return, which excludes losses — of between $1 and $500,000, according to statistics that the tax agency released last week.

    The agency has three years to start an audit from the time it receives a return.

    Also read: The IRS wants more people working in tax enforcement. Now it has to find them.

    The numbers show that 0.4% of returns for taxpayers earning up to $25,000 were audited. That figure was 0.3% for returns between $200,000 and $500,000 and more than 9% for returns over $10 million, the IRS data show. Six years earlier, more than 13% of returns over $10 million were scrutinized, according to the IRS.

    “Help us with understanding what the words ‘historic level’ means,” Sen. James Lankford, a Republican from Oklahoma, asked Werfel during a Wednesday budget hearing.

    “We will take the most recent final audit rate, and it’s historically low … and we allow that to be the marker for least several years, and then we’re revisit it,” Werfel said. The 2018 audit rates were the newest final rates, he added.

    “So the 2018 number is what it’s going to be?” Lankford asked.

    “Yes,” Werfel replied.

    “Werfel’s explanation that 2018 audit levels will be the reference point is the most detail I’ve heard so far,” Erica York, s senior economist at the Tax Foundation, told MarketWatch. “He did seem to leave open the possibility of revisiting the reference year for ‘historical’ in the future,” she added.

    Another open question has been how the $400,000 income threshold will be determined. Months after the Inflation Reduction Act passed, IRS and Treasury officials still hadn’t finalized what counted as $400,000 in income, according to a January Treasury Department watchdog report.

    “How are you arriving at this number?” asked Sen. Marsha Blackburn, a Republican from Tennessee. Blackburn’s state has many self-employed entrepreneurs who might appear richer on paper than they actually are, she said. “While they may have a higher gross, their net is very low,” she added.

    “We’re going to look at total positive income as our metric,” Werfel said. He later added that “there would be no increased likelihood of an audit if they have less than $400,000 in total positive income.”

    The IRS description of total positive income as “the sum of all positive amounts shown for the various sources of income reported on an individual income tax return and, thus, excludes losses” represents, effectively, a tally of income before taxpayers subtract their losses.

    Total positive income is a metric the IRS usually applies to categorize audits, the Tax Foundation’s York noted. But one challenge of strict thresholds for more audits, she said, “is that it creates incentives for underreporting income” to stay under the line.

    Compared with recent years, there are now more specifics about how the IRS will implement additional audits of higher-income taxpayers, said Janet Holtzblatt, a senior fellow at the Tax Policy Center.

    “But still there are questions,” she noted, about how the agency will treat situations when taxpayers don’t provide full picture of their income.

    Read on: Make sure the tax breaks you’re taking now won’t hammer you in retirement

    Also: ‘This was a test’: IRS has handled more than 100 million returns already — Tax Day by the numbers

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  • How will the IRS spend $80 billion in new funding? The Treasury Department is dropping hints.

    How will the IRS spend $80 billion in new funding? The Treasury Department is dropping hints.

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    Details about the Internal Revenue Service’s spending plans for a major cash influx are about to come to light, Treasury Secretary Janet Yellen said Tuesday.

    More than half a year after Congress authorized $80 billion in new funding for the tax-collection agency over the next decade, Yellen said details are coming this week on how the IRS will put the money to use in improving customer service, upgrading internal technology and making sure the richest taxpayers are paying their fair share.

    The $80 billion infusion is part of the Inflation Reduction Act, which passed Congress last summer without Republican support and plenty of GOP skepticism that the additional funding would be used appropriately, depicting it instead as engendering a sort of tax-collection police state in which middle-income individuals could find themselves targeted by armed IRS agents.

    From the archives (August 2022): Fact check: No, the IRS is not hiring an 87,000-strong military force with funds from the Inflation Reduction Act

    Yellen spoke Tuesday at the swearing-in ceremony for Danny Werfel, the newly confirmed IRS commissioner. Werfel “will lead the IRS through an important transition” after a period during which the agency “suffered from chronic underinvestment,” Yellen said in prepared remarks.

    During Werfel’s confirmation hearing in February, senators from both parties pressed him about how he would oversee the new money’s use.

    The U. S. House of Representatives is under Republican control, and observers expect lawmakers to give hard looks at the funding of the IRS. The House, in fact, voted in January to repeal the $80 billion. The measure isn’t expected to go further, with Democrats retaining control in the Senate and President Joe Biden, a Democrat, in the White House.

    Some of the money will go toward modernizing the taxation experience. Within the first five years of the decade-long plan, taxpayers should be able to file all of their tax documents and respond to all IRS notices online, according to a Treasury official.

    There are a handful of IRS notices for which taxpayers currently have that capacity. By the end of fiscal 2024, another 72 notices, which include Spanish-language notices, will add online capacity, the official said.

    By the end of fiscal 2025, taxpayers, along with accountants and other professional tax preparers, should be able to peruse their accounts and view and download information, including payments and notices, the official said.

    The IRS has already been hiring more staff, including 5,000 customer-service representatives to improve phone service, which has fallen off during the pandemic.

    Tax Day is weeks away, on April 18. As of late March, income-tax refunds are 11% lower than they were last year. They are averaging $2,903 versus $3,263 at the same point last year. It’s an outcome many tax-code watchers predicted after pandemic-era boosts to certain tax credits went away.

    The same day Yellen spoke, a new watchdog report said the IRS still has plenty of work to do processing the backlog of tax returns that built up during the pandemic.

    During last year’s tax-filing season, the IRS hired 9,000 employees and shifted more than 2,400 workers from other areas to cut the backlog, according to Treasury’s inspector general for tax administration.

    By last July the IRS had transcribed all tax-year 2020 paper returns but still had 9.5 million unprocessed 2021 paper returns. “The inability to timely process tax returns and address tax account work continues to have a significant impact on the associated taxpayers,” the report said.

    At this point, the IRS says it has processed all paper and electronically filed returns that it received before this January. The agency said it still has 2.17 million unprocessed tax returns from the 2022 tax year and 2021 returns that needed fixes and corrections.

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  • IMF board approves $15.6 bln loan package for Ukraine

    IMF board approves $15.6 bln loan package for Ukraine

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    The executive board of the International Monetary Fund on Friday approved a four-year $15.6 billion loan program for Ukraine, part of a broader $115 billion international support package to help the country meet its funding needs in the wake of Russia’s invasion.

    The decision clears the way for an immediate payment of about $2.7 billion to Kyiv, the Fund said in a statement.

    The Extended Fund Facility (EFF) loan is the first major financing program approved by the IMF for a country involved in a war. Ukraine’s previous $5-billion IMF program expired last year.

    “Russia’s invasion of Ukraine continues to have a devastating economic and social impact,” IMF First Deputy Managing Director Gita Gopinath said in a statement.

    Ukrainian President Volodymyr Zelenskiy welcomed the new funding.

    “It is an important help in our fight against Russian aggression,” he said on Twitter. “Together we support the Ukrainian economy. And we are moving forward to victory!”

    The agreement is expected to help unlock financing for Ukraine from international donors and partners, including the World Bank and other lenders.

    The $115 billion package includes the IMF loan, $80 billion in pledges and loans from other countries and $20 billion worth of debt relief commitments.

    “I welcome the IMF approval of a $15.6 billion economic program for Ukraine,” U.S. Treasury Secretary Janet Yellen said in a statement late Friday. “I commend Ukraine’s efforts to pursue broad-based structural reforms under the program despite Russia’s brutal and immoral war and strongly support the program’s measures aimed at securing economic and financial stability. The program’s policies and reforms will support economic growth, strengthen good governance and anti-corruption efforts, and set the foundation for longer-term reconstruction.”

    Some of Ukraine’s creditors, such as Canada, France, Germany, Japan, the UK and the US, supported the deal which required the IMF to change its rules by giving assurances that they would extend a debt-repayment standstill for the duration of the program.

    The Russian invasion, launched over a year ago, has devastated Ukraine’s economy and infrastructure, killing thousands of people and driving more than a third of a pre-war population of 40 million from their homes. 

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