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— Social Security supporters worry about the corrosive effects the program is facing as payroll taxes that fund it are again redirected for another purpose — this time to help businesses weather an economic recession from the coronavirus pandemic.
— Talk of swiftly getting direct payments to the public seems hyped up, despite a buoyant outlook from Treasury Secretary Steven Mnuchin.
— Republicans finally scored a much-sought fix to a drafting error in their 2017 tax overhaul, though their persistence isn’t exactly what convinced Democrats the time was right.
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PAYROLL TAX BLOWBACK? Congress is letting businesses skip paying their share of payroll taxes for the rest of this year to help keep them afloat and their workers on the job as part of a mammoth stimulus bill poised to pass the House today after unanimous Senate passage late Wednesday. All told, it will amount to hundreds of billions of dollars in payroll tax cuts and deferrals, which means foregone revenue for the Social Security program for now. Lawmakers defended their decision to make use of the payroll tax funds because of the extraordinary situation that has gripped the nation, and they included plans to make the public pension plan whole again. But even with that backstop, Social Security advocates foresee worrisome implications, our Brian Faler reports.
The issue isn’t simply money but also politics, he writes, noting workers’ widespread belief they’ve earned their Social Security benefits by paying their part of the dedicated tax. Employees pay half of the tax for Social Security and employers cover the balance. But that gets undermined when lawmakers replace it with other tax revenue.
“It’s very dangerous for the whole foundation of the program,” said Chuck Blahous, a former Social Security trustee. He warned that the program’s sustainability is risked by dialing payroll taxes up and down depending on economic needs of the moment. “Its political strength depends on this idea that the program is paying its own way,” Blahous added.
This doesn’t mark the first time the payroll tax has been redirected. In addition to suspending business payments of payroll taxes this year, companies will also get to take a 50 percent credit against their payroll taxes to motivate them to keep employees working under the bill. Other recently passed legislation gives businesses payroll tax breaks to provide family and sick leave. Yet another bill aimed at the coronavirus economic crisis could provide a platform for further reducing payroll taxes, which were cut during the Great Recession 12 years ago.
REALITY CHECK: Mnuchin told CNBC Thursday the money would start going out “within three weeks.” But that would be a much faster start than the last time such payments flowed from the government, when it took the IRS two months to issue its first payments in 2008, our Toby Eckert reports. It helps that direct deposits are more the norm now, and a Senate Finance Committee staffer on Wednesday said the IRS was looking at prepaid debit cards or other options for people without direct deposit. The IRS might even partner with private industry to further speed delivery of direct payments, said a source with knowledge of agency deliberations. “Tax, banking, payroll industry have all helped in the past on this kind of thing,” the source said.
Still, the overall process could face slowdowns due to both longstanding and current IRS staffing factors. The agency’s overall workforce has shrunk for a decade alongside its budget — a headcount of nearly 95,000 full-time equivalent positions at the IRS in 2010 plunged to about 73,500 in 2018. Much of that decline came at the expense of audit functions rather than within processing roles, but processing direct payments for the coronavirus is expected to take longer and prove more difficult because of the virus itself as management takes steps to protect employees. IRS service center workers, who deal directly with tax returns and perform a host of other functions connected to tax filing, are being cut back for coronavirus mitigation.
Under normal circumstances, more than 10,000 of them operate full-time from nine sites, and seasonal hires numbering close to 10,000 swell the headcount this time of year to handle the extra workload. But to physically distance employees, the IRS has started halving staff at service centers and other locations with certain essential functions. “For mission-critical operations that require people to be in a campus or work setting, we will be immediately reducing staffing by approximately 50 percent to enhance social distancing,” IRS Commissioner Chuck Rettig said in a message to employees March 20.
WHAT IT TOOK: Language to end a huge headache for the hospitality industry and retail sector — dubbed the retail glitch — is included in the economic aid legislation awaiting the House. Though both parties heard plenty of griping from affected industries, Democrats heretofore had been content to let Republicans twist in the wind over the error’s longer write-off schedule for certain business investments rather than shortening the period, as intended.
Democrats remained chafed over getting sidelined in the buildup to 2017’s Tax Cuts and Jobs Act, but they planned to eventually fix the retail glitch for the right price — long thought to include expanding family tax breaks like the Earned Income Tax Credit and Child Tax Credit.
But then everything changed, with the U.S. economy plunging in recent weeks due to the coronavirus. Circumstances won out over Republican charm. “I guess it took a pandemic,” a Democratic congressional aide told Morning Tax. Restaurant and retail traffic ground to a halt nationwide, with customers opting to stay home, or being told to, while some state and local governments closed businesses in an effort to halt the spread of the disease. “Opposition on our side was thinned out by the mass economic slaughter of the restaurant industry etc.,” another Democratic aide on Capitol Hill emailed. Supporters acknowledge they didn’t let a crisis go to waste.
With Republicans in the Senate dug in on fixing the retail glitch, and the bill largely driven by Senate negotiations, Democratic pressure to increase refundable tax credits wilted. That’s not to say Democrats got nothing in exchange — they certainly count the sizable expansion of unemployment insurance as a big win. And as for the push for more generous EITC and CTC programs, talk of another round of fiscal stimulus remains alive and well.
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MOTHER RUSSIA: New taxes on bank deposits will help pay for economic aid measures to blunt the coronavirus effects in Russia. The taxes will hit savings held by Russian pensioners and middle-class households, the Financial Times reported. Russian President Vladimir Putin said just 1 percent of depositors would get hit by the tax on interest from deposits exceeding $12,900, but according to the article, millions of Russians will be affected.
ANOTHER STATE EXTENDS: Mainers will now get until July 15 to file their state income taxes, matching the added three months for federal tax returns this year due to the coronavirus. Maine Gov. Janet Mills made the announcement on Thursday, saying she hoped it would give taxpayers there “a measure of relief,” according to a Portland Press Herald article. More than half of the states have now conformed to the federal tax extension announced last week, the story noted.
An official tally from the congressional Joint Committee on Taxation scores almost $600 billion in tax cuts in the latest economic aid bill.
Tax provisions amount to about a tenth of its total tab, says the Committee for a Responsible Federal Budget.
A rundown summarizing the legislation’s tax elements from the conservative American Action Forum.
One of the provisions could be a big boon for real estate investors, according to the Gray Lady.
Kiplinger’s helps estimate the direct payment coming to you.
Russian Tsar Peter the Great in 1698 instituted a tax on beards.
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