Business Groups Blast Trump's Tax Plan

Business Groups Blast Trump's Tax Plan

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Plus, USPS pauses controversial changes
Tuesday, August 18, 2020

Postal Service Says It Will Halt Controversial Changes

Facing an outcry over his operational changes to the U.S. Postal Services and questions about the political implications of those changes, Postmaster General Louis DeJoy on Tuesday said he would halt the initiatives until after the election.

"To avoid even the appearance of any impact on election mail, I am suspending these initiatives until after the election is concluded," DeJoy said in a statement.

DeJoy said that the Postal Service "is ready today to handle whatever volume of election mail it receives this fall." He added that retail hours at post offices will not change, mail processing equipment and collection boxes will remain where they are and no mail processing facilities will be closed.

House Speaker Nancy Pelosi said the pause isn’t enough. "This pause only halts a limited number of the Postmaster’s changes, does not reverse damage already done, and alone is not enough to ensure voters will not be disenfranchised by the President this fall," she said in a statement.

DeJoy is set to testify before the Senate Homeland Security and Governmental Affairs Committee on Friday and before the House Oversight and Reform Committee on Monday.

Trump’s Executive Actions Run Into Trouble

From the moment President Trump unveiled unilateral actions that he claimed would provide economic relief to those hurt by the coronavirus pandemic, there were questions about just how effective those moves would be. Ten days later, two of the key steps Trump announced are running into some stiff resistance.

Companies say no to Trump’s payroll tax plan
: More than 30 industry associations and business groups — including the U.S. Chamber of Commerce, the National Retail Federation, the National Association of Manufacturers and the National Restaurant Association — warned Tuesday that many employers won’t take part in Trump’s plan to defer employee payroll taxes through the end of the year.

In a letter to House Speaker Nancy Pelosi, Senate Majority Leader Mitch McConnell and Treasury Secretary Steven Mnuchin, the groups said that Trump’s suspension of the payroll tax could leave workers facing large tax bills once the deferral ends in 2021. A worker earning $35,000 would see an $83.46 boost per pay period, they wrote, but could then owe $751 in deferred taxes. Someone earning $75,000 would get a $178.85 boost in every paycheck, but could face a $1,609 tax hit in 2021.

Trump has said he will push to have those taxes permanently forgiven, but that would require an act of Congress. Lawmakers in both parties have expressed concerns about a payroll tax cut and it’s not clear how likely lawmakers might be to ultimately forgive any deferred taxes.

"Many of our members consider it unfair to employees to make a decision that would force a big tax bill on them next year," the business groups wrote. "It would also be unworkable to implement a system where employees make this decision. Therefore, many of our members will likely decline to implement deferral, choosing instead to continue to withhold and remit to the government the payroll taxes required by law."

States hesitant on Trump’s unemployment payments:
Trump said his plan would provide $400 a week in supplemental benefits covering lost wages, but $100 of that was required to come from the states, a structure that drew complaints about the costs being imposed and the complexity of setting up a new payment system. In the end, the Trump administration said that the federal government would pay a fixed $300 and states could choose whether to add another $100 or not. Still, the Trump plan "has found little traction," the Associated Press reports based on a survey of states:

"[A]s of Monday, 18 states have said they will take the federal grants allowing them to increase unemployment checks by $300 or $400 a week. The AP tally shows that 30 states have said they’re still evaluating the offer or have not said whether they plan to accept the president’s slimmed-down benefits. Two have said no."

The AP reports that most states that have signed on to the program have chosen the $300 option, but even once they’ve agreed to take part, states still face implementation issues:

"New Mexico was the first state to apply for the aid last week and one of the first to be announced as a recipient by the Federal Emergency Management Agency. But Bill McCamley, secretary of the state’s Department of Workforce Solutions, said it’s not clear when the money will start going out, largely because the state needs to reprogram benefit distribution systems to make it work."

IRS Will Send 14 Million Taxpayers Interest on Their Tax Refunds

Nearly 14 million taxpayers who waited until July 15 to file their taxes will be paid interest on their refunds, the IRS said Tuesday. The Treasury Department delayed the tax filing date for three months due to disruptions caused by the coronavirus pandemic, and the tax agency will pay interest on refunds that go out after July 15 based on the normal April 15 deadline. The average payment will be $18 — not much, but high enough to be taxable. Anyone receiving more than $10 in interest will have to report it as income on their tax return next year.

Why Republicans, Democrats Think Differently About Taxes

Opinions about tax policy are divided in the U.S. along fairly predictable partisan lines, with Republicans typically expressing preferences for lower taxes compared to Democrats, but how do those beliefs arise and why do they persist? Economist Stefanie Stantcheva, a professor at Harvard University who studies public finance, released a new paper that examines how Americans think about taxes, linking specific questions about fiscal issues to broader issues related to fairness and the role of government.

Using experiments in which test subjects are exposed to different ideas about taxation and the economy, Stantcheva found that people differ not just in their policy preferences, but also in how they make up their minds and their assumptions about how the world works.

"Relative to Republicans, Democrats are more likely to believe that taxes have less economic costs, that tax cuts almost never ‘pay for themselves’ and that people will not starkly change behaviors in response to tax increases," she wrote. "Democrats believe less in ‘trickle-down,’ whereby tax cuts on high incomes would benefit everyone. They are also much more likely than Republicans to think that the distributions of income, wealth & inheritances are unfair & that taxing away parts of them is fair."

There is also what Stantcheva calls a "polarization of reality" when it comes to fiscal policies, in which people disagree about even the most basic facts and misperceptions play a role in forming opinions. "People on the right perceive current taxes as higher & more progressive than people on the left," she says, despite the existence of objective data that could settle those issue one way or another.

At the same time, there are some areas of broad agreement. For example, the majority of respondents say they think people who work hard should pay lower taxes. Surprisingly, they also agree that middle class tax cuts help shrink the federal deficit. While more Republicans than Democrats agree, majorities from both parties believe this to be true – despite the fact that it is almost certainly untrue. (Stantcheva refers to this as a "Laffer effect," after Art Laffer, the conservative economist credited with popularizing the notion that tax cuts increase revenues.)

Ultimately, preferences for different tax policies are driven by ways of thinking as much as facts and figures, Stantcheva says, and people generally don’t think like economists. "Indeed ... factual knowledge about the exact numbers and statistics of a given policy may be more or less accurate, but the reasoning about it may still be very different across people, especially across political groups, and may matter much more in shaping policy views." This suggests that any effort to elevate the public policy debate over taxes needs to focus on broader questions of worldviews and how people actually think, while situating specific proposals within the broader context of fairness.

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