Tag: iab-financial reform

Income Tax Deadline Fast Facts | CNN

CNN
—

Here’s a look at the annual income tax filing deadline in the United States. April 15, 2024, is the deadline to file 2023 income tax returns.

In fiscal year 2022, the IRS amassed more than $4.9 trillion in gross tax collections.

(Source: Center on Budget and Policy Priorities, FY 2023)
Medicare, Medicaid, CHIP, marketplace subsidies 24%
Social Security 21%
National Defense 13%
Economic security programs 8%
Benefits for veterans & federal retirees 8%
Interest on debt 10%
Education 4%
Transportation 2%
Natural resources and agricultrue 1%
Science and medical research 1%
Law enforcement 1%
International 1%
All other 4%

1862 – During the Civil War, the IRS is born when President Abraham Lincoln and Congress create the Commissioner of Internal Revenue and enact an income tax to pay war expenses. The first income tax levies 3% on incomes between $600 and $10,000 and 5% on anything over $10,000. This income tax lasts until 1872.

1895 – The Supreme Court rules in Pollock v. Farmers’ Loan and Trust Co. that taxing incomes uniformly throughout the United States is unconstitutional.

1913 – The 16th Amendment is ratified by the states, giving Congress the authority to enact an income tax. Congress also introduces the first 1040 form and levies a 1% tax on personal incomes over $3,000 with 6% surtax on incomes of more than $500,000.

1954 – The tax filing deadline is moved from March 15 to April 15, to give taxpayers more time to prepare their returns.

January 3, 1996 – Congress enacts the Taxpayer Bill of Rights to ensure relief from overzealous collection efforts on the part of IRS personnel.

March 20, 2020 – Secretary of the Treasury Steven Mnuchin tweets that tax day is moving from April 15 to July 15 due to the coronavirus pandemic.

March 17, 2021 – The IRS announces the filing deadline has been moved from April 15 to May 17, to allow filers more time to navigate tax situations complicated by the coronavirus pandemic.

Source link

March 28, 2024
Opinion: The SVB collapse doesn’t have to be the first in a chain of many | CNN

Editor’s Note: Lanhee J. Chen is a regular contributor to CNN Opinion and the David and Diane Steffy fellow in American Public Policy Studies at the Hoover Institution. He was a candidate for California state controller in 2022. He has played senior roles in both Republican and Democratic presidential administrations and has been an adviser to four presidential campaigns, including as policy director of 2012 Mitt Romney-Paul Ryan campaign. The views expressed in this commentary are his own. View more opinion on CNN.

CNN
—

When Silicon Valley Bank collapsed this month, analysts and policymakers quickly began considering how to prevent similar failures from happening in the future. While there are changes that lawmakers should consider, when it comes to financial regulation, history shows us that politicians are usually reacting to the last crisis and one step behind the next one.

The savings and loan crisis of the 1980s led to passage of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, which closed insolvent financial institutions, created new regulatory agencies and implemented restrictions on how savings and loan (or thrift) institutions could invest deposited funds.

The 2007-2008 financial crisis led to passage of the sweeping Dodd-Frank Act in 2010, which revamped federal regulation of the financial services sector and placed restrictions on how banks do business. Amid criticism that Dodd-Frank had gone too far in regulating banks, a bipartisan coalition in Congress passed, and then-President Donald Trump signed into law in 2018, some rollbacks of Dodd-Frank’s requirements pertaining to small and midsize financial institutions.

Democrats have largely blamed this rollback of regulations for SVB’s demise. Many Republicans, for their part, have focused their aim on whether the bank’s leadership spent too much time pursuing “woke” policies on diversity and sustainability rather than ensuring depositors were protected.

The fact that there is so little overlap between Republican and Democrat critiques in the wake of SVB’s collapse illuminates the challenging road ahead for bipartisan policy solutions to avert a future similar failure. If the two sides can’t even agree on the principal cause of the bank’s failure, it’s unlikely there will be consensus on the policies needed to shore up the financial system for the future.

But they should. While Democrats generally favor more aggressive oversight of the financial system and Republicans largely argue that the current regulatory scheme is sufficient, the right answer looking ahead is somewhere in between.

In the wake of SVB’s failure, some regulatory interventions have come into focus and could form the basis of policy discussions in the coming weeks and months as Congress considers how to respond to the current banking crisis.

First, SVB’s demise came when a lack of liquidity (or a shortfall of cash on hand) left it unable to pay out depositors when they came looking for their money. The bank had invested a disproportionate amount of assets in long-term debt that was purchased at a time when interest rates were much lower than they are today. When the bank attempted to liquidate this debt over the last few weeks, it was forced to do so at a significant loss. SVB failed to hedge against risk by diversifying its investments.

When depositors tried to withdraw $42 billion in cash from the bank on a single day, SVB’s cash shortfall generated a panic among those who had deposits at the bank and raised concerns about the health of the US banking system more broadly.

Just as individual investors are often advised to diversify their investment strategies to minimize risk, so too might politicians look to requirements that banks ensure that they have proper diversification in how they are investing their assets.

Further, some Republicans and many Democrats are also calling for expanded deposit insurance so that bank deposits over the current federal cap of $250,000 are also insured. Democratic Sen. Elizabeth Warren of Massachusetts, a vocal supporter of increased financial sector regulation, has called for increased deposit insurance that would be paid for by banks. Democratic Rep. Ro Khanna of California is expected soon to introduce legislation that raises or removes the insurance cap entirely, such that deposits of all amounts will be protected.

Some Republicans have joined them in addressing the insurance cap. Republican Sen. J.D. Vance of Ohio, for example, has argued that lifting the cap (for example, by ensuring the cap keeps up with inflation) would equalize the playing field between large banks and smaller local and regional ones. Republican Sen. Mitt Romney of Utah has suggested that larger depositors might be insured up to the entire amount of their deposits in exchange for a small fee.

If Congress moves toward increasing or eliminating the deposit insurance cap entirely, it should do so carefully. Depending on how the policy is constructed, such changes could disproportionately benefit wealthier institutional depositors or encourage bad behavior by banks if they know an open-ended bailout is waiting on the other end of risky investment decisions.

Finally, some changes will undoubtedly come through the Federal Reserve, rather than Congress. This is probably a good thing, as these policymakers have some insulation from the political forces that directly affect lawmakers.

The Federal Reserve, for example, will likely examine the extent of both capital and liquidity requirements at banks based on their total assets. A bank’s capital is the difference between its assets and liabilities or, put another way, the resources a bank has to ultimately absorb losses. Liquidity, by comparison, is a measure of the cash and assets a bank has immediately on hand to pay obligations (such as money that depositors might ask for).

America’s central bank may also look at the content of “stress tests” created by the Dodd-Frank Act and designed to regularly assess the health of large financial institutions across the country. For nearly a decade, tests have been benchmarked to a low-interest rate environment, which is not reflective of recent conditions.

But ultimately, the Federal Reserve is not blameless in the collapse of SVB as it created a fertile environment for the bank’s failure by keeping interest rates as low as they were for as long as they were. Lawmakers should do their part to make sure people understand that monetary policy has far-reaching impacts.

While the best way to prevent the next SVB is likely to be viewed by policymakers through partisan-tinted glasses, there are avenues for Democrats and Republicans to work together. But the window to do so is narrow and closing. This time next year, we’ll be in the throes of presidential primary elections, and neither party will be particularly interested in compromise — even if that’s what our financial system needs.

Source link

March 19, 2023
CFPB: What it does and why its future is in question | CNN Business

New York
CNN
—

The US Supreme Court decided this week to hear a case that will consider the constitutionality of funding for the Consumer Financial Protection Bureau and, in doing so, test the constraints of US regulators’ power. The case would be heard in the fall, with a decision likely by summer 2024.

But what is the CFPB? How does its work affect your wallet? And why is its future potentially at risk?

The agency was created after the 2008 financial meltdown, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. That law was passed in the wake of the 2007 subprime mortgage crisis and the Great Recession that followed.

The broad purpose of the CFPB is to protect consumers from financial abuses and to serve as the central agency for consumer financial protection authorities.

Prior to its creation, as the agency notes on its site, “[c]onsumer financial protection had not been the primary focus of any federal agency, and no agency had effective tools to set the rules for and oversee the whole market.”

The CFPB has regulatory authority over providers of many types of financial products and services, including credit cards, banking accounts, loan servicing, credit reporting and consumer debt collection.

It is charged with implementing and enforcing consumer protection laws, making rules and issuing guidance for consumer financial institutions. And it is the place consumers can go to lodge complaints about financial products and services.

Importantly, Dodd-Frank also gave the agency new authority to determine whether any given consumer financial product or service is unfair, deceptive or abusive and therefore unlawful.

While there are critics of the agency’s current structure and funding, it has saved consumers money, made it easier for them to seek redress and to get better clarity and more tailored responses from companies when they have a problem with their accounts, loans or credit reports.

“It has completely changed the consumer financial marketplace. Overall it has had a tremendous impact on making it more fair and transparent,” said Lauren Saunders, associate director of the National Consumer Law Center.

For instance, the CFPB has taken action against bank overdraft policies. “Arguably, the focus on overdraft practices has led some banks to eliminate or reduce their overdraft fees,” said Christine Hines, legislative director of the National Association of Consumer Advocates.

And it has gone after institutions for saddling consumers with pointless products, excessive fees and punitive terms.

Both Hines and Saunders made a special note of CFPB’s actions against Wells Fargo, after the agency found the bank had been engaging in multiple abusive and unlawful consumer practices across several financial products between 2011 and 2022 — from auto loans to mortgage loans to bank accounts.

Last month, the agency required the bank to pay more than $2 billion to customers who were harmed by such practices, plus a $1.7 billion fine that will go into a relief fund for victims.

“More than 16 million accounts at Wells Fargo were subject to their illegal practices, including misapplied payments, wrongful foreclosures, and incorrect fees and interest charges,” the agency said in a blog post.

In the area of mortgages, “CFPB has written rules to implement new protections so that mortgage lenders don’t make loans with tricks and traps that lead people to lose their homes,” Saunders said.

It also has created other safeguards, including rules on how service providers should communicate with borrowers who want to find alternatives to foreclosure, Hines noted.

Currently, the agency is in the midst of an effort to curb excessive or “junk” fees on a range of consumer financial products, such as credit card late fees.

Critics of the CFPB have been trying for years to limit its power and independence, attacking the way the agency is structured and funded. Like federal banking regulators, its funding is not determined by lawmakers in Congress as part of the annual appropriations process. Rather, it gets its money from the Federal Reserve System’s earnings.

“This nontraditional funding source limits congressional oversight of the agency and is the subject of legal challenges,” according to the Congressional Research Service.

The latest challenge — arising from a federal appeals court ruling that CFPB’s funding violates the Constitution’s Appropriations Clause and separation of powers — is what the Supreme Court will take up in its October term.

While it’s impossible to predict how the justices will rule, should they decide to uphold the appeals court ruling, that will put in doubt how the agency will be funded going forward, and whether it can continue to function effectively.

It’s also unclear whether the agency’s actions and rule-making over the past 11 years would be invalidated, nor what impact it would have on banks and other financial institutions that have set up systems to be in compliance with CFPB rules and safe harbors.

“The agency would be unable to do anything if the funding is invalidated. And prior rules could be challenged as the agency did not have a legal funding source that it could use to write those rules,” Cowen Washington Research Group analyst Jaret Seiberg said in a note to clients.

Source link

March 3, 2023
Fact check: Biden makes false and misleading claims in economic speech | CNN Politics

Washington
CNN
—

President Joe Biden delivered a Thursday speech to hail economic progress during his administration and to attack congressional Republicans for their proposals on the economy and the social safety net.

Some of Biden’s claims in the speech were false, misleading or lacking critical context, though others were correct. Here’s a breakdown of the 14 claims CNN fact-checked.

Touting the bipartisan infrastructure law he signed in 2021, Biden said, “Last year, we funded 700,000 major construction projects – 700,000 all across America. From highways to airports to bridges to tunnels to broadband.”

Facts First: Biden’s “700,000” figure is wildly inaccurate; it adds an extra two zeros to the correct figure Biden used in a speech last week and the White House has also used before: 7,000 projects. The White House acknowledged his misstatement later on Thursday by correcting the official transcript to say 7,000 rather than 700,000.

Biden said, “Well, here’s the deal: I put a – we put a cap, and it’s now in effect – now in effect, as of January 1 – of $2,000 a year on prescription drug costs for seniors.”

Facts First: Biden’s claims that this cap is now in effect and that it came into effect on January 1 are false. The $2,000 annual cap contained in the Inflation Reduction Act that Biden signed last year – on Medicare Part D enrollees’ out-of-pocket spending on covered prescription drugs – takes effect in 2025. The maximum may be higher than $2,000 in subsequent years, since it is tied to Medicare Part D’s per capita costs.

Asked for comment, a White House official noted that other Inflation Reduction Act health care provisions that will save Americans money did indeed come into effect on January 1, 2023.

– CNN’s Tami Luhby contributed to this item.

Criticizing former President Donald Trump over his handling of the Covid-19 pandemic, Biden said, “Back then, only 3.5 million people had been – even had their first vaccination, because the other guy and the other team didn’t think it mattered a whole lot.”

Facts First: Biden is free to criticize Trump’s vaccine rollout, but his “only 3.5 million” figure is misleading at best. As of the day Trump left office in January 2021, about 19 million people had received a first shot of a Covid-19 vaccine, according to figures published by the Centers for Disease Control and Prevention. The “3.5 million” figure Biden cited is, in reality, the number of people at the time who had received two shots to complete their primary vaccination series.

Someone could perhaps try to argue that completing a primary series is what Biden meant by “had their first vaccination” – but he used a different term, “fully vaccinated,” to refer to the roughly 230 million people in that very same group today. His contrasting language made it sound like there are 230 million people with at least two shots today versus 3.5 million people with just one shot when he took office. That isn’t true.

Biden said Republicans want to cut taxes for billionaires, “who pay virtually only 3% of their income now – 3%, they pay.”

Facts First: Biden’s “3%” claim is incorrect. For the second time in less than a week, Biden inaccurately described a 2021 finding from economists in his administration that the wealthiest 400 billionaire families paid an average of 8.2% of their income in federal individual income taxes between 2010 and 2018; after CNN inquired about Biden’s “3%” claim on Thursday, the White House published a corrected official transcript that uses “8%” instead. Also, it’s important to note that even that 8% number is contested, since it is an alternative calculation that includes unrealized capital gains that are not treated as taxable income under federal law.

“Biden’s numbers are way too low,” said Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center at the Urban Institute think tank, though Gleckman also said we don’t know precisely what tax rates billionaires do pay. Gleckman wrote in an email: “In 2019, Berkeley economists Emmanuel Saez and Gabe Zucman estimated the top 400 households paid an average effective tax rate of about 23 percent in 2018. They got a lot of attention at the time because that rate was lower than the average rate of 24 percent for the bottom half of the income distribution. But it still was way more than 2 or 3, or even 8 percent.”

Biden has cited the 8% statistic in various other speeches, but unlike the administration economists who came up with it, he tends not to explain that it doesn’t describe tax rates in a conventional way. And regardless, he said “3%” in this speech and “2%” in a speech last week.

Biden cited a 2021 report from the Institute on Taxation and Economic Policy think tank that found that 55 of the country’s largest corporations had made $40 billion in profit in their previous fiscal year but not paid any federal corporate income taxes. Before touting the 15% alternative corporate minimum tax he signed into law in last year’s Inflation Reduction Act, Biden said, “The days are over when corporations are paying zero in federal taxes.”

Facts First: Biden exaggerated. The new minimum tax will reduce the number of companies that don’t pay any federal taxes, but it’s not true that the days of companies paying zero are “over.” That’s because the minimum tax, on the “book income” companies report to investors, only applies to companies with at least $1 billion in average annual income. According to the Institute on Taxation and Economic Policy, only 14 of the companies on its 2021 list of 55 non-payers reported having US pre-tax income of at least $1 billion.

In other words, there will clearly still be some large and profitable corporations paying no federal income tax even after the minimum tax takes effect this year. The exact number is not yet known.

Matthew Gardner, a senior fellow at the Institute on Taxation and Economic Policy, told CNN in the fall that the new tax is “an important step forward from the status quo” and that it will raise substantial revenue, but he also said: “I wouldn’t want to assert that the minimum tax will end the phenomenon of zero-tax profitable corporations. A more accurate phrasing would be to say that the minimum tax will *help* ensure that *the most profitable* corporations pay at least some federal income tax.”

There are lots of nuances to the tax; you can read more specifics here. Asked for comment on Thursday, a White House official told CNN: “The Inflation Reduction Act ensures the wealthiest corporations pay a 15% minimum tax, precisely the corporations the President focused on during the campaign and in office. The President’s full Made in America tax plan would ensure all corporations pay a 15% minimum tax, and the President has called on Congress to pass that plan.”

Noting the big increase in the federal debt under Trump, Biden said that his administration has taken a “different path” and boasted: “As a result, the last two years – my administration – we cut the deficit by $1.7 trillion, the largest reduction in debt in American history.”

Facts First: Biden’s boast leaves out important context. It is true that the federal deficit fell by a total of $1.7 trillion under Biden in the 2021 and 2022 fiscal years, including a record $1.4 trillion drop in 2022 – but it is highly questionable how much credit Biden deserves for this reduction. Biden did not mention that the primary reason the deficit fell so substantially was that it had skyrocketed to a record high under Trump in 2020 because of bipartisan emergency pandemic relief spending, then fell as expected as the spending expired as planned. Independent analysts say Biden’s own actions, including his laws and executive orders, have had the overall effect of adding to current and projected future deficits, not reducing those deficits.

Dan White, senior director of economic research at Moody’s Analytics – an economics firm whose assessments Biden has repeatedly cited during his presidency – told CNN’s Matt Egan in October: “On net, the policies of the administration have increased the deficit, not reduced it.” The Committee for a Responsible Federal Budget, an advocacy group, wrote in September that Biden’s actions will add more than $4.8 trillion to deficits from 2021 through 2031, or $2.5 trillion if you don’t count the American Rescue Plan pandemic relief bill of 2021.

National Economic Council director Brian Deese wrote on the White House website last week that the American Rescue Plan pandemic relief bill “facilitated a strong economic recovery and enabled the responsible wind-down of emergency spending programs,” thereby reducing the deficit; David Kelly, chief global strategist at J.P. Morgan Funds, told Egan in October that the Biden administration does deserve credit for the recovery that has pushed the deficit downward. And Deese correctly noted that Biden’s signature legislation, last year’s Inflation Reduction Act, is expected to bring down deficits by more than $200 billion over the next decade.

Still, the deficit-reducing impact of that one bill is expected to be swamped by the deficit-increasing impact of various additional bills and policies Biden has approved.

Biden said, “Wages are up, and they’re growing faster than inflation. Over the past six months, inflation has gone down every month and, God willing, will continue to do that.”

Facts First: Biden’s claim that wages are up and growing faster than inflation is true if you start the calculation seven months ago; “real” wages, which take inflation into account, started rising in mid-2022 as inflation slowed. (Biden is right that inflation has declined, on an annual basis, every month for the last six months.) However, real wages are lower today than they were both a full year ago and at the beginning of Biden’s presidency in January 2021. That’s because inflation was so high in 2021 and the beginning of 2022.

There are various ways to measure real wages. Real average hourly earnings declined 1.7% between December 2021 and December 2022, while real average weekly earnings (which factors in the number of hours people worked) declined 3.1% over that period.

Biden said he was disappointed that the first bill passed by the new Republican majority in the House of Representatives “added $114 billion to the deficit.”

Facts First: Biden is correct about how the bill would affect the deficit if it became law. He accurately cited an estimate from the government’s nonpartisan Congressional Budget Office.

The bill would eliminate more than $71 billion of the $80 billion in additional funding for the Internal Revenue Service (IRS) that Biden signed into law in the Inflation Reduction Act. The Congressional Budget Office found that taking away this funding – some of which the Biden administration said will go toward increased audits of high-income individuals and large corporations – would result in a loss of nearly $186 billion in government revenue between 2023 and 2032, for a net increase to the deficit of about $114 billion.

The Republican bill has no chance of becoming law under Biden, who has vowed to veto it in the highly unlikely event it got through the Democratic-controlled Senate.

Biden said that “MAGA Republicans” in the House “want to impose a 30 percent national sales tax on everything from food, clothing, school supplies, housing, cars – a whole deal.” He said they want to do that because “they want to eliminate the income tax system.”

Facts First: This is a fair description of the Republicans’ “FairTax” bill. The bill would eliminate federal income taxes, plus the payroll tax, capital gains tax and estate tax, and replace it with a national sales tax. The bill describes a rate of 23% on the “gross payments” on a product or service, but when the tax rate is described in the way consumers are used to sales taxes being described, it’s actually right around 30%, as a pro-FairTax website acknowledges.

It is not clear how much support the bill currently has among the House Republican caucus. Notably, House Speaker Kevin McCarthy told CNN’s Manu Raju this week that he opposes the bill – though, while seeking right-wing votes for his bid for speaker in early January, he promised its supporters that it would be considered in committee. Biden wryly said in his speech, “The Republican speaker says he’s not so sure he’s for it.”

Biden claimed the unemployment rate “is the lowest it’s been in 50 years.”

Facts First: This is true. The unemployment rate was just below 3.5% in December, the lowest figure since 1969.

The headline monthly rate, which is rounded to a single decimal place, was reported as 3.5% in December and also reported as 3.5% in three months of President Donald Trump’s tenure, in late 2019 and in early 2020. But if you look at more precise figures, December was indeed the lowest since 1969 – 3.47% – just below the figures for February 2020, January 2020 and September 2019.

Biden said that the unemployment rates for Black and Hispanic Americans are “near record lows” and that the unemployment rate for people with disabilities is “the lowest ever recorded” and the “lowest ever in history.”

Facts First: Biden’s claims are accurate, though it’s worth noting that the unemployment rate for people with disabilities has only been released by the government since 2008.

The Black or African American unemployment rate was 5.7% in December, not far from the record low of 5.3% that was set in August 2019. (This data series goes back to 1972.) The rate was 9.2% in January 2021, the month Biden became president. The Hispanic or Latino unemployment rate was 4.1% in December, just above the record low of 4.0% that was set in September 2019. (This data series goes back to 1973.) The rate was 8.5% in January 2021.

The unemployment rate for people with disabilities was 5.0% in December, the lowest since the beginning of the data series in 2008. The rate was 12.0% in January 2021.

Biden said that fewer families are facing foreclosure than before the pandemic.

Facts First: Biden is correct. According to a report published by the Federal Reserve Bank of New York, about 28,500 people had new foreclosure notations on their credit reports in the third quarter of 2022, the most recent quarter for which data is available; that was down from about 71,420 people with new foreclosure notations in the fourth quarter of 2019 and 74,860 people in the first quarter of 2020.

Foreclosures plummeted in the second quarter of 2020 because of government moratoriums put in place because of the Covid-19 pandemic. Foreclosures spiked in 2022, relative to 2020-2021 levels, after the expiry of these moratoriums, but they remained very low by historical standards.

Biden said, “More American families have health insurance today than any time in American history.”

Facts First: Biden’s claim is accurate. An analysis provided to CNN by the Kaiser Family Foundation, which studies US health care, found that about 295 million US residents had health insurance in 2021, the highest on record – and Jennifer Tolbert, the foundation’s director for state health reform, told CNN this week that “I expect the number of people with insurance continued to increase in 2022.”

Tolbert noted that the number of insured residents generally rises over time because of population growth, but she added that “it is not a given” that there will be an increase in the number of insured residents every year – the number declined slightly under Trump from 2018 to 2019, for example – and that “policy changes as well as economic factors also affect these numbers.”

As CNN’s Tami Luhby has reported, sign-ups on the federal insurance exchange created by the Affordable Care Act, also known as Obamacare, have spiked nearly 50% under Biden. Biden’s 2021 American Rescue Plan pandemic relief law and then the 2022 Inflation Reduction Act temporarily boosted federal premium subsidies for exchange enrollees, and the Biden administration has also taken various other steps to get people to sign up on the exchanges. In addition, enrollment in Medicaid health insurance has increased significantly during the Covid-19 pandemic, in part because of a bipartisan 2020 law that temporarily prevented people from being disenrolled from the program.

The percentage of residents without health insurance fell to an all-time low of 8.0% in the first quarter of 2022, according to an analysis published last summer by the federal government’s Department of Health and Human Services. That meant there were 26.4 million people without health insurance, down from 48.3 million in 2010, the year Obamacare was signed into law.

Biden said, “And over the last two years, more than 10 million people have applied to start a small business. That’s more than any two years in all of recorded American history.”

Facts First: This is true. There were about 5.4 million business applications in 2021, the highest since 2005 (the first year for which the federal government released this data for a full year), and about 5.1 million business applications in 2022. Not every application turns into a real business, but the number of “high-propensity” business applications – those deemed to have a high likelihood of turning into a business with a payroll – also hit a record in 2021 and saw its second-highest total in 2022.

Trump’s last full year in office, 2020, also set a then-record for total and high-propensity applications. There are various reasons for the pandemic-era boom in entrepreneurship, which began after millions of Americans lost their jobs in early 2020. Among them: some newly unemployed workers seized the moment to start their own enterprises; Americans had extra money from stimulus bills signed by Trump and Biden; interest rates were particularly low until a series of rate hikes that began in the spring of 2022.

Source link

January 28, 2023
House GOP keeps up attacks on IRS with bill to abolish the agency | CNN Politics

Washington
CNN
—

The Republican-controlled House has made the Internal Revenue Service a political target after Democrats bolstered the agency with new funding last year.

Within the first week of the new Congress, a dozen GOP lawmakers introduced a bill that would abolish the IRS altogether and replace the entire federal tax code with a national sales tax.

Separately, the House voted to rescind nearly $80 billion in funding for the agency that Democrats approved last year – with many top Republicans repeating the misleading claim that the money will be used to hire 87,000 auditors.

“Instead of adding 87,000 new agents to weaponize the IRS against small business owners and middle America, this bill will eliminate the need for the department entirely by simplifying the tax code with provisions that work for the American people and encourage growth and innovation,” said Rep. Earl “Buddy” Carter, a Republican from Georgia who introduced the Fair Tax Act earlier this month.

It’s highly unlikely that either bill will become law, given that Democrats still control the Senate. But the measures highlight how America’s two major political parties have very different strategies when it comes to addressing the embattled tax collection agency – which has seen its budget shrink by more than 15% over the past decade and has struggled to not only process returns on time but also answer taxpayers’ questions. Just 13% of phone calls were answered last year.

Democrats have taken a different approach, making funding the IRS a priority. The Inflation Reduction Act, which passed along party lines last year, approved $80 billion for the IRS over 10 years. By using the money to crack down on tax cheats, it’s estimated that the agency could boost federal revenue by more than $124 billion over that time period.

The Republicans’ Fair Tax Act is not a new idea. A version was first introduced in Congress in 1999. It’s never had enough support to become law, but it puts forth an appealing message to those Americans who love to hate the federal tax agency.

It would get rid of the complicated federal tax system, doing away with the annual task of filing tax returns. Instead, the bill would replace federal taxes on individual and corporate income with a national 23% sales tax in 2025, allowing for adjustments to the rate in later years. Americans would pay Uncle Sam whenever they bought a new good or service for personal consumption.

The bill calls for abolishing the IRS and directing states to collect the new federal tax.

While every consumer would pay the same tax at the cash register, the bill provides for a monthly tax rebate payment, based on the poverty rate and family size. It’s meant to help offset the tax levy on low-income Americans who tend to spend a higher share of their paycheck on goods and services.

A national sales tax appears very simple: one rate all Americans pay on new goods and services they buy.

But some policy experts say the Fair Tax Act is more complicated than it looks.

“Moving away from taxing income and toward taxing consumption is a step in the right direction for a pro-growth and simpler tax code,” said Garrett Watson, a senior policy analyst at the Tax Foundation, an independent tax policy nonprofit.

But there could still be complications. First, the tax rate would likely have to be higher than 23% in order for the federal government to pull in the same amount of tax revenue that it does now. One estimate found that a tax rate of about 30% would more likely be able to generate the same amount of revenue – or 44%, if measured the way state sales taxes are typically presented.

Second, a nationwide sales tax could leave low- and middle-income people worse off. The current tax system is progressive, meaning it takes a larger percentage of income from high-earners than low-income groups. Even with the monthly tax rebate, a national sales tax would still be less progressive.

A 2011 independent analysis of a similar national sales tax found that, on average, most income groups would pay more tax than they did under the federal tax system at the time – except the top 5% of earners who would see a tax cut.

Additionally, it’s hard to imagine that lawmakers would pass a bill that does not exclude some things from the sales tax, like health care costs, for example.

“The basic income tax is simple too,” said Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center.

It’s the deductions, credits and exclusions – like for retirement savings and charitable giving – that make it complicated.

Plus, Americans would likely have to file some paperwork to some tax collection entity in order to receive the rebate, Gleckman said. The administration cost may be less than it is now, but it wouldn’t be zero.

Tax filing season opens Monday and National Taxpayer Advocate Erin Collins expects IRS services for taxpayers to improve this year – in part due to the funding increase provided by Congress.

Since the Inflation Reduction Act was passed in August, the IRS has hired 5,000 new customer service agents. The agency has also worked to improve its technology so that taxpayers can ask questions via an automated service online, said Treasury Deputy Secretary Wally Adeyemo on a call with reporters last week.

The IRS started the year with about 400,000 unprocessed paper individual returns and about 1 million unprocessed business returns. But it’s in much better shape than the prior year, when it had a backlog of 4.7 million unprocessed individual returns and 3.2 million unprocessed business returns, according to the taxpayer advocate’s annual report to Congress.

Taxpayer service, like answering the phones and processing returns in a timely manner, has suffered as the IRS’ budget has shrunk.

The Covid-19 pandemic brought even more challenges for the IRS. It was tasked with administering several rounds of stimulus payments to millions of Americans with a lot of its staff working from home. This caused long delays for many taxpayers who filed a paper return. The IRS is starting to implement a scanning system so that returns filed by paper can quickly be made digital. Previously, paper returns had to be entered manually into the agency’s computer system.

Source link

January 23, 2023
Here’s how the House GOP majority will try to curb federal spending and taxes | CNN Politics

CNN
—

In adopting their rules package Monday, the new House Republican majority has made it clear that they want to rein in federal government spending and keep a lid on taxes.

The package, which governs how the chamber will operate for the next two years, lays out several measures aimed at making it harder to hike spending and to increase taxes to pay for it. Some of the provisions have been in effect previously when the GOP has controlled the House.

The measures, several of which raised concerns even among cost-conscious Republican lawmakers, are sure to lead to battles later this year with the Democratic-led Senate and President Joe Biden that could have severe consequences for the nation.

If the two parties can’t work out an agreement to fund the government for fiscal year 2024, which starts October 1, it could result in a shutdown. And if a war over spending cuts prevents Congress from raising the $31 trillion debt limit this summer or fall, it would risk a default on US debt that would roil the national and global economies.

“I’m worried about the types of fiscal goals that they’re setting, that they’re not going to be achievable, and they’re setting themselves up for failure,” said Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget. “I’m also worried that instead of both parties negotiating in good faith, we’ll be stuck in one of these dangerous standoffs.”

The package swaps the pay-as-you-go rule for a cut-as-you-go requirement, as existed the last time the GOP ran the House.

The former mandates that any new spending or tax cuts have to be paid for by spending cuts or tax increases elsewhere. But the latter requires only new spending be paid for, making it easier to cut taxes, said Shai Akabas, director of economic policy at the Bipartisan Policy Center.

Another provision would restore the requirement that tax rate increases be approved by a 60% supermajority vote, making such efforts harder to pass and limiting lawmakers’ options to reduce the deficit or raise spending.

Plus, the package makes it harder for House members to game the system by proposing legislation that would not raise spending in the first decade, the typical time frame Congress considers, but would in subsequent years. It does so by establishing a point of order, or an objection, against consideration of such a bill.

What may prompt even more chaos on Capitol Hill are the side deals that House Speaker Kevin McCarthy made with conservative members of his party last week to secure their support for his leadership. The details of those agreements have yet to be made public, which has annoyed more than a few GOP lawmakers.

McCarthy signed off on a pledge that the Republican-led House would pair any debt ceiling increase to spending cuts, which would add even more complexity to what’s expected to be difficult negotiations within the GOP and between the two parties.

What’s more, McCarthy agreed to approve a fiscal year 2024 budget capping discretionary spending at fiscal year 2022 levels. That would require cutting all domestic discretionary spending by roughly 25% in inflation-adjusted dollars if defense funding is protected, Akabas said.

Just how wed to these measures conservative Republicans are will determine the depth of the dysfunction in Congress this year. McCarthy’s slim majority in the House means he needs the support of nearly everyone in the party to pass any legislation.

“It has yet to be seen whether these are immovable policy positions or policy preferences that are the starting point for negotiations,” Akabas said.

Source link

January 10, 2023
Trump tax returns to be released by House panel on Friday | CNN Politics

CNN
—

The House Ways and Means Committee will release former President Donald Trump’s tax returns Friday morning, a source familiar confirmed to CNN.

The returns will be placed into the congressional record on Friday morning during a House pro forma session. That pro forma session will occur around 9 a.m. ET on Friday. There will also be a formal announcement Friday from the committee.

The highly anticipated release comes after the panel last week asserted that the IRS failed to properly audit the former president’s taxes while he was in office.

The committee released a report that detailed six years’ worth of the former president’s tax returns, including his claims of massive annual losses that significantly reduced his tax burden.

Chairman Richard Neal and fellow Democrats have said that the records they obtained showed that the presidential audit program failed to work as intended. Neal, a Massachusetts Democrat, charged that the complete required audit of Trump’s taxes “did not occur,” as his returns were only subjected to the mandatory audit once, in 2019, after Democrats inquired.

The committee also released a supplemental report from the Joint Committee on Taxation that included details on Trump’s tax returns from 2015 to 2020, ahead of the planned release of the returns themselves.

The release of Trump’s tax returns marks the conclusion of a nearly four-year legal battle House Democrats waged against the former president after they took control of the House in 2019.

The audit program was important to Democrats because it was the justification they used to obtain the returns in the first place – but the Democratic pursuit was also tied in part to long-held suspicions about Trump’s taxes after he bucked the norm and refused to release his returns as a candidate and while in office.

This story is breaking and has been updated.

Source link

December 28, 2022
Fixing Social Security involves hard choices | CNN Politics

CNN
—

There’s a reason why politicians have long shied away from addressing Social Security’s massive financial problems. The commonly proposed solutions involve cutting benefits or raising taxes, which would spark an outcry from a range of powerful constituents, including senior citizens and the business community.

The situation, however, is only growing more critical. The combined Social Security trust funds are projected to run dry in 2034, according to the latest annual report from the entitlement program’s trustees that was released last week. At that time, the funds’ reserves will be depleted, and the program’s continuing income will only cover 80% of benefits owed.

The estimate is one year earlier than the trustees projected last year.

About 66 million Americans received Social Security benefits in 2022. It’s a vital lifeline for many of them. Some 42% of elderly women and 37% of elderly men rely on the monthly payments for at least half their income, according to the Social Security Administration.

Though congressional Republicans’ drive to cut spending amid debt ceiling negotiations this year has prompted renewed interest in the entitlement’s finances, little is likely to happen, experts say. The insolvency date is still too far in the future.

The last time Congress enacted a major overhaul, in 1983, Social Security was only months away from being able to pay full benefits. At that time, Democratic lawmakers who controlled the House agreed with Senate Republicans and then-GOP President Ronald Reagan to increase payroll taxes and gradually raise the full retirement age from 65 to 67, among other reforms.

While President Joe Biden has promised to strengthen Social Security and defend it from any cuts by Republicans, he has yet to lay out a concrete vision for protecting the program. It was not included in his annual budget proposal this year, though he did suggest a financial fix for Medicare, which is facing its own solvency issues.

Asked about the president’s plan, the White House said that the budget “clearly states his principles for strengthening Social Security.”

“He looks forward to working with Congress to responsibly strengthen Social Security by ensuring that high-income individuals pay their fair share, without increasing taxes on anyone making less than $400,000,” said Robyn Patterson, assistant press secretary at the White House.

A multitude of proposals have been floated over the years to address Social Security’s shortfall, many of which have multiple measures.

Several options focus on saving the entitlement program money, though left-leaning advocates and senior citizen groups are quick to point out that these moves are actually benefit cuts that they would strenuously oppose.

One common proposal is raising the retirement age. Currently, Americans can start collecting Social Security benefits at 62, though doing so would reduce their lifetime payments by as much as 30%.

The full retirement age, which had been 65 for much of the program’s existence, is slowly rising to 67 for Americans born in 1960 or later.

Some policymakers advocate for raising the full retirement age to 70 for future retirees, bringing it more in line with changes in life expectancy. That would mean those retiring earlier than that would get smaller monthly checks than under current law.

Doing so could wipe out about a third of the Social Security trust fund’s 75-year deficit.

Last year, the conservative Republican Study Committee released a budget plan that called for raising the full retirement age for future retirees at a rate of three months per year until it is increased to 70 for those born in 1978. It would then link the retirement age to future increases in life expectancy, as well as adjust the number of working years included in benefit calculations to 40 years, up from 35 years.

Other options include reducing benefits for higher-income Americans, which was also included in the Republican Study Committee’s budget plan.

New retirees’ Social Security benefits are one-third higher today than they were for folks who retired 20 years ago, even after accounting for inflation, according to Andrew Biggs, senior fellow at the right-leaning American Enterprise Institute. Plus, the maximum Social Security benefit in the US is two to three times higher than the maximum retirement benefit in Canada, the United Kingdom, Australia and New Zealand.

Biggs supports placing a cap on the maximum benefit that the highest-earning retirees can receive. The maximum benefit this year is about $43,000 and will rise to $59,000 by 2050, he said. Though such a cap would only solve about 10% to 15% of the long-term solvency gap, Biggs argues it’s one step, and it only affects those who he says don’t depend on the benefits.

“We’re going way, way beyond a pure safety net program,” Biggs said at a recent webinar hosted by the Committee for a Responsible Federal Budget, a government watchdog group. “Here we’re looking at a retirement program for middle income and upper income people.”

Other suggestions that have been floated include changing the formulas that determine the benefits Americans get upon retirement or the annual cost-of-living adjustment retirees receive to slow the growth of payments.

The main way to bring more money into the Social Security system is to increase the amount of payroll taxes collected.

A proposal popular among Democrats and left-leaning experts is to lift the wage cap so that higher-income earners have to shell out more in payroll taxes.

The Social Security tax rate of 6.2% is levied on both employers and employees, for a total rate of 12.4%. However, in 2023, it’s only applied to annual wages of up to $160,200. (By contrast, Medicare’s 2.9% total payroll tax rate is applied to all wages, and higher-income Americans are subject to an additional 0.9% Medicare tax.)

When payroll taxes for Social Security were first collected in 1937, about 92% of earnings from jobs covered by the program were subject to the payroll tax, according to the Congressional Budget Office. By 2020, that figure had fallen to about 83% as income inequality has increased.

Several congressional Democrats have floated proposals to raise the amount of wages subject to the payroll tax. Rep. John Larson of Connecticut wants to apply the payroll tax to wages above $400,000, which he says would extend the program’s solvency by nine years.

Vermont Sen. Bernie Sanders, an independent, and Massachusetts Sen. Elizabeth Warren, a Democrat, introduced a bill earlier this year that would make multiple changes to Social Security, including subjecting all income above $250,000 to the payroll tax and applying it to investment and business income. They say their reforms would extend the entitlement’s solvency for 75 years.

But changing the wage cap could also alter the fundamental design of Social Security, in which retirees’ benefits are tied to the amount of taxes they paid into the system while working.

For instance, the proposal from Sanders and Warren would not credit the additional taxed earnings toward benefits. That would increase the beneficial impact on solvency but would also raise resistance among some advocates who believe the link between taxes and benefits should be maintained.

Another option is raising the payroll tax rate. Increasing it to a total of 16% would just about assure 75 years of solvency, said Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget.

Most lawmakers, however, would not find that type of tax hike very palatable, particularly not Republicans who control the House.

While experts disagree on the best way to address Social Security’s shortfall, one thing they are generally united on is that waiting will only result in having to employ harsher solutions. But that isn’t spurring elected officials to action.

“Nobody’s acting as if that’s something they’ve got to take seriously,” Biggs said. “So I’ll just be honest and say I’m worried about how this thing plays out.”

Source link

April 12, 2021