1. Tax Season's Greetings
Buckle up for a bumpy ride: The 2022 tax filing season, which officially began Monday and runs through April 18th, will likely make for a chaotic spring:
Many families may have more tax items to navigate this year than ever before, all while working with an IRS that is increasingly underwater.
IRS overwhelmed: Over the past two years the IRS has dealt with such challenges as pandemic-related disruptions for staff and the need to quickly administer several large and complicated relief packages enacted through the tax code:
In 2021, the IRS telephone service had an answer rate of about 11 percent.
The IRS has a backlog of over 8 million unprocessed returns from the 2021 filing season.
Beyond its scope: The implementation issues at the IRS have exposed the trade-offs of using the tax code to administer social support, especially during the pandemic. The agency has been stretched beyond its core mission of tax collection. Read more or listen to podcast.
2. Taxes, Fiscal Policy, and Inflation
A stimulating discussion: Where did this inflation come from and what might its impacts be? Tax and fiscal policy offer important clues.
Many economists now see persistent inflation attributable in part to the massive monetary and fiscal stimulus issued in the wake of the pandemic rather than supply-chain issues as originally thought.
The U.S. embarked on several rounds of fiscal stimulus amounting to more than $5 trillion, or 27% of GDP—one of the largest fiscal responses of any industrialized country.
Pivoting: While the Federal Reserve has pivoted to address the issue, planning to raise interest rates three times this year, that comes with higher borrowing costs for both citizens and the Federal government as well as the risk of a recession.
To address inflation and its effects, fiscal policymakers should adjust the tax code to better account for inflation while avoiding additional deficit-financed fiscal stimulus. Read more or listen to podcast.
3. Tax Reforms for Mobility and Modernization
Change is here: The pandemic sparked a move toward a more mobile economy for workers and businesses across the country. Where you live no longer has to dictate where you work—and that mobile economy is here to stay.
States are unprepared: Our economy is changing, but state tax codes have failed to keep up. In some states, moreover, existing tax provisions exacerbate the impact of high inflation and contribute to the supply chain crisis.
A road map forward: On yesterday's webinar, our state experts overviewed the landscape and explained how states can remove impediments to new living and working arrangements, enhance their attractiveness for increasingly mobile employers and employees, and respond to greater economic uncertainty and rising inflation.