income tax

Same Old Same Old

Following tax and fiscal issues can be like the movie Groundhog Day

IRS travails update

On June 21, 2022, Commissioner Rettig sent a letter to the chairs and ranking members of the congressional tax writing committees updating them on the progress or lack thereof in clearing the backlog of unprocessed paper returns.

It would be stretch to say things are looking up. Some excerpts:

This week, the IRS will complete processing of all original individual returns without errors that were received last year. Business returns filed in 2021 will be completed shortly thereafter[.] ***

Because the IRS entered this filing season with a significant backlog, millions of paper returns received in 2022 have not yet been processed. *** To date, more than twice as many returns await processing compared to historical norms at this point in the calendar year. ***

Submission processing workers responsible for the processing of original returns have already logged 500,000 hours of overtime this year, and 2,000 employees have shifted from other parts of the agency to help process returns.

Rettig letter (6/21/22) [emphasis added.]

As an aside, I shudder to think what has happened to the tasks the 2,000 reassigned employees were supposed to be doing. So much for answering phone calls and emails, other taxpayer service, conducting exams and audits or whatever. I also wonder how much this slows down the availability of detailed information on what is happening with income tax revenues for government economists.

The letter reveals just how far behind IRS is on the technology curve (i.e., no automatic optical scanning of paper returns):

Today, roughly six to eight IRS employees manually handle each paper return that is filed. Not surprisingly, that creates bottlenecks to processing returns in normal times, and certainly in a pandemic.


The real point of the letter is, of course, a no-brainer:

What the agency requires to avoid a crisis like this in the future is sustained, multi-year funding to invest in overhauling antiquated technology, improving taxpayer service, and increasing voluntary compliance.


Amen. But we’re dealing with Congress and its general dysfunction. Good luck!

Retirement Nonreform Moving?

As I noted before, the House has passed its version of the latest iteration of how to layer more tax breaks for retirement savings. It has a few good provisions but, as usual, mostly will help upper income folks who already have adequate retirement savings. Senator Wyden has released his version of the same shtick (summary), which he is calling the EARN (Enhancing American Retirement Now) Act.

Wyden’s bill is different in detail than the House version but the effect is the same old same old.

A silly centerpiece of both bill is to delay RMDs and both bills use budget gimmicks to offset the resulting revenue loss. The Senate simply delays its RMD changes until outside the 10-year budget window (2031). It’s so important that we can wait 10 years? Both bills rely on converting more retirement plans to the Roth model, which accelerates revenues into the budget window but does not increase revenues permanently and likely (in my view) decreases them. The provenance of fiscal nihlism is bipartisan.

In addition to the articles that I blogged about earlier (here and here), another article to similar effect by what appears to be a practitioner has been posted on SSRN. Albert Feuer, Would the Securing a Strong Retirement Act Secure More Retirement Equity? 50 Comp. Plan. J. 1 (2022). I’m not familiar with the author but agree with the many of the points he makes, mirroring much of what professors Doran and Hemel have written.

I don’t know what the odds of EARN Act/Secure 2.0 being in enacted by the 2021-22 Congress. But if history is any guide, they are higher than fixing mega IRAs, limiting syndicated conservation easements (miracle of miracles, the Senate Finance Committee has added that to the retirement bill, according to TPC), enacting international changes that comply with the global minimum tax agreement, and other high profile tax issues. Rather than taxing the rich (or whatever the mantra of the day is), it’s more important to let people who don’t really need to take money out of their retirements not do so. And we’ll get even more Roth plans in the bargain.

State Revenues

The May revenue report showed continued strong individual income tax receipts – almost a half billion more than forecast for the month. Once again, MMB is pointing its fingers at the new elective PTE tax as part of the explanation. (“We estimate that about $1 billion of the fiscal-year-to-date variance reflects the timing of pass-through entity (PTE) tax payments and refunds.”) Without access to detailed collection data (or even with it), one can never know. But this far into the year, the needle on my skepticism meter is rising. $1 billion is a very large amount relative to the total Minnesota income tax paid on PTE income (maybe 40% or more). Federal individual income tax revenues, as noted by CBO, are at an all-time high relative to GDP. Much of the state revenue effect may just be following the federal pattern, where there is no distortion from a new PTE entity tax election.

Daniel Hemel is out with a new piece on the state PTE tax manuevers. I don’t know if he’s right about the legal issue (mooted by the IRS decision, of course) but he’s clearly right as a policy matter. Of course, this gets tangled up in the SALT deduction politics in Congress – an example of parochialism and politics leading to ugly compromises of policy principles. I suspect Congressional Dems will leave deductibility of state PTE taxes untouched precisely because they view them as checking TCJA’s SALT cap, even if it further distorts their preferred distributional results. Policy purists should never hang round the legislative process.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s