Treasury’s No. 2 talks tax season turmoil

From: POLITICO's Morning Money - Friday Jan 21,2022 01:02 pm

Jan 21, 2022

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The government has warned taxpayers to brace for a painful filing season this year, as existing backlogs and longstanding operational problems at the IRS collide with pandemic-related challenges.

Deputy Treasury Secretary Wally Adeyemo sat down with MM to talk about the administration’s efforts to help manage incoming returns, resolve the backlog and bolster the agency’s resources. We also got an update on what’s happening with the global tax agreement the U.S. and 135 other countries joined last year.

Here are key excerpts from our Q&A (you can also read the full version here):

As of Dec. 23, the IRS still had about 6 million unprocessed individual returns. What sort of progress has been made since then, and what is the administration doing to get the backlog cleared?

The IRS is focused on making sure that we don't grow the backlog. And some of the things they've done, for example, is sending letters out to people who received stimulus checks, and advanced [Child Tax Credit payments], so they know which numbers to enter into their forms, so their forms aren’t rejected by the system.

We've been advocating to people that they go out and they file their taxes online. When you file your taxes online, on average, you'll get a refund in 21 days, if you're eligible.

At the same time, the commissioner and the IRS are taking steps to make sure they deal with the inventory that exists today to bring it down towards historical levels.

Have there been any discussions about delaying the filing deadline to give the agency some more time to work through this?

No, our goal right now is to take every step we can to make sure that people have the time to file.

As you know, for most people who are eligible for the second half of the Child Tax Credit, for the [Earned Income Tax Credit], it's critical that they get that money as soon as possible, because it will help smooth out their income.

Our goal was to open filing season as early as possible, and that's what we've done this year.

Yesterday, the president talked about the need to probably break up the Build Back Better plan. Will the $80 billion in proposed IRS funding — which is also an important revenue offset for the package – be included in whatever measure the White House pushes this year?

I spent a great deal of time talking to members about the IRS. And every member I talked to talks about the fact that we need to have this package, because you're right, it is a pay-for, but also because they know that enforcing our tax laws [is] important. …

So our expectation is that this will be a part of the conversation about what gets done as part of the packages that happen this year.

And finally, on the global tax deal that Treasury helped secure last year, does the administration have a plan B for implementing the deal? The plan to comply with the global minimum tax (Pillar Two) is stuck in Build Back Better, and the provisions regarding the taxing rights (Pillar One) may need a treaty, which seems like it will be hard to get through the Senate — what’s the plan right now?

When we entered into this agreement with more than 130-something countries that covered 90-something percent of the global economy, we didn't have to bring it into force until 2022.

We're at 2022 now. We're working to do that. Our expectation is that this will get done and will be a historic agreement that puts us in a position to help level the playing field.

And as the conversations go on, on Pillar One, we also expect to find a path for getting that done. But right now, we're focused on making sure that we get the provisions that need to be done in 2022 done in order to bring this agreement into effect.

IT’S FRIDAY — So tax filing season begins Jan. 24. And the Girl Scouts start taking pre-orders for cookies on Feb. 12. Thanks to those of you (even the Thin Mints haters!) who shared your strong cookie opinions yesterday. I hope supply chain issues don’t get in your way.

What should we be writing about next week? Tell us: kdavidson@politico.com, aweaver@politico.com, or on Twitter @katedavidson and @aubreeeweaver.

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Driving the Day

FDIC Chairman Jelena McWilliams speaks at a virtual discussion on advancing diversity and inclusion in the financial services sector at 11 a.m.

FED TAKES FIRST STEP TOWARD DIGITAL DOLLAR — Our Victoria Guida: “The Federal Reserve on Thursday for the first time asked for public feedback on whether it should issue its own virtual currency and laid out a vision for what a digital dollar might look like.

“The central bank in a long-awaited paper said a U.S.-issued virtual currency should be ‘privacy-protected, intermediated, widely transferable and identity-verified.’ A fully digital version of the dollar would in some ways mimic physical cash by allowing a person or a business to transfer money directly to someone else without using a private bank account.

“The Fed, which is seeking comments by May 20, said it would not launch its own digital currency without ‘clear support’ from the executive branch and from Congress, ‘ideally in the form of a specific authorizing law.’”

— Ian Katz, policy analyst at Capital Alpha, says: “Perhaps the most interesting thing in the report is its apparent rejection of the idea, pushed by progressive Democrats, of Fed accounts for U.S. consumers. … That assertion could have the effect of eliminating one of the main reasons CBDC proponents are CBDC proponents.”

CFPB EXPANDS OVERSIGHT OF COLLEGES’ INSTITUTIONAL LOAN PROGRAMS — Our Michael Stratford: “The Consumer Financial Protection Bureau is expanding its oversight over colleges that make loans directly to their students, citing concerns about colleges that withhold transcripts or restrict enrollment to force students to repay their debt.”

CRYPTO ROUNDUP —

The Securities and Exchange Commission Thursday rejected Anthony Scaramucci’s proposal to launch a Bitcoin-based investment fund, saying it would be too risky for investors, our Sam Sutton reports.

New York Mayor Eric Adams' first paycheck, which hits Friday, will be paid out in Bitcoin and Ethereum , he announced Thursday, our Amanda Eisenberg reports. The first three paychecks for his $258,750 salary will be converted into cryptocurrency through the exchange platform Coinbase, according to City Hall.

Hours after the mayor’s announcement , the investment platform Apex Crypto said Adams' cheerleading for digital assets had spurred plans to triple the headcount of its New York City operations. "Mayor Eric Adams' commitment to converting his first paycheck into cryptocurrency is the surest sign yet that New York will be well-positioned to embrace the revolution in crypto and decentralized finance," CEO Daniel Rosenthal said in a statement. (h/t Sam Sutton)

Meanwhile, the U.K. crypto industry is gearing up for tougher scrutiny from watchdogs like the U.K. Treasury and Financial Conduct Authority, after regulators moved this week to enforce more accuracy in crypto advertising, our Matei Rosca reports from London.

BIDEN’S TEAM SAYS IT’S ON ALERT FOR OMICRON DISRUPTIONS IN CHINA — Bloomberg’s Jenny Leonard: “The Biden administration is monitoring real-time data obtained from businesses operating in China to determine whether outbreaks of the omicron variant of coronavirus pose a risk to U.S. supply chains, an administration official said.”

TRUMP DEAL FACED WIDESPREAD INVESTOR DOUBT BEFORE RAISING $1 BILLION — NYT’s Matthew Goldstein, Kate Kelly, Kenneth P. Vogel and Maureen Farrell: “More than a dozen well-known hedge funds and investment firms were hesitant to go into business with Mr. Trump, people briefed on the matter said, because any association with him could risk alienating their investors, which often include public pension funds and foundations. Others were wary of Mr. Trump’s history of corporate bankruptcies and disputes with lenders and partners, and concerned that details about his media company were scant.”

FIRST LOOK: SBA LAUNCHES SMALL BUSINESS DIGITAL ALLIANCE — The Small Business Administration is announcing a new public-private partnership today that will connect big tech companies with small businesses to help them start and expand their e-commerce business. The partnership with Business Forward, a non-profit small business advocacy group, will offer free briefings, training and tools to help companies raise capital and reach new markets. The Small Business Digital Alliance is planning to announce members, including major corporations, in mid to late February.

WHAT WE’RE LISTENING TO: Our Victoria Guida is out with a new podcast featuring Groundwork Collaborative’s Lindsay Owens, talking about whether big corporations are to blame for elevated inflation.

Jobs Report

CFTC Chair Rostin Behnam on Thursday announced a suite of appointments to his executive leadership and communications staff:

David Gillers will remain as Behnam’s chief of staff. Laura Gardy, who worked most recently as special counsel to Behnam when he was acting chair, will become deputy chief of staff.

John Dunfee will continue to serve as chief counsel. Alicia Lewis will remain as special counsel managing clearing, LIBOR transition and international regulatory matters. Abigail Knauff joins the agency as special counsel and will serve as deputy of the CFTC’s Climate Risk Unit.

Steven Adamske is returning to the CFTC as the agency’s director of public affairs, a role he previously held for seven years.

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Fly Around

U.S. EXISTING HOME SALES REACHED 15-YEAR HIGH OF 6.1 MILLION LAST YEAR — WSJ’s Nicole Friedman: “U.S. home sales surged to a 15-year high in 2021, powered by low borrowing rates and an intense buyer demand that are expected to keep the market hot during the first months of 2022.”

A YEAR’S WORTH OF NASDAQ TUMULT GETS JAMMED INTO THREE WEEKS — Bloomberg’s Lu Wang and Vildana Hajric: “Many ways exist to chart shakiness in the stock market. There’s options-derived volatility indexes, price relative to moving averages and maximum drawdowns, to name a few.

“Then there’s the type of whole-cloth vanishing act the Nasdaq 100 has been staging in recent weeks, sessions in which the index appears headed for resounding gains or declines — before the whole thing goes poof in a matter of minutes. It happened again Thursday, when the tech-heavy gauge erased a 2% rally and kept falling in its worst bearish reversal in 17 months.”

ON WALL STREET, BONUSES ARE UP BUT THE MOOD IS NOT — WSJ’s Liz Hoffman and David Benoit: “Higher bonuses handed out this week across Wall Street came with a warning: Don’t get used to it.

“After a blockbuster year, the five biggest investment banks paid out $142 billion in compensation for 2021, $18 billion more than in 2020. Pay, which on Wall Street is usually tightly tethered to how much money firms bring in, rose twice as fast as revenue.”

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