Is the IRS Up to the Challenge of Biden’s Rescue Plan?

Is the IRS Up to the Challenge of Biden’s Rescue Plan?

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Plus, Biden rolls back Trump's Medicaid work requirements
Friday, February 12, 2021

Biden Rolls Back Trump's Medicaid Work Requirements

The Biden administration on Friday afternoon revoked permission for states to impose work requirements on Medicaid beneficiaries. The move comes two weeks after President Joe Biden ordered federal officials to review policies that make it more difficult for Americans to access federal health care programs.

The Centers for Medicare and Medicaid Services announced that it is rescinding a rule change made by the Trump administration in 2018 that allowed states to apply to develop programs that would force Medicaid recipients to work at least 20 hours per week, provide community service, or attend school or training in pursuit of a job.

A long-running struggle over benefits: Supporters of Medicaid work requirements say they are intended to conserve public funds and to help low-income beneficiaries get back into the workforce, with the goal of leaving the program as quickly as possible. Critics say the requirements violate both the letter and spirit of the law that established Medicaid, and serve to unfairly restrict access to publicly funded health care for the poor.

At least 12 states received permission from the Trump administration to impose work requirements, though efforts in Arkansas, Kentucky and New Hampshire were halted following legal challenges, and other states have waited to see how those legal issues play out before rolling out their own programs.

The Supreme Court is expected to hear a case next month related to the legality of the work requirements in Arkansas and New Hampshire, but the Biden administration’s reversal could render that case moot.

Growth Looking Up in 2021, Economists Say

Forecasters are raising their projections for economic growth this year, based in large part on hopes for the passage of a substantial stimulus package and the rollout of vaccines around the country.

Economists in a Wall Street Journal survey bumped up their estimate for annual growth to 4.9% for 2021, up from the 4.3% projection registered a month ago.

The labor market, however, is looking a bit less robust. While the economists in the survey project the creation of 4.8 million jobs this year, that estimate is down from the previous estimate of 5.0 million, and equal to only half of the jobs that have been lost due to the pandemic.

The unemployment rate is projected to be 5.3% by the end of the year, falling from the current 6.3%.

How much fiscal aid is needed? Asked about how much the U.S. economy needs in fiscal stimulus, a majority of the 62 economists surveyed said the figure was less than $1 trillion. One respondent said the economy needed more than $2 trillion, while the rest put the number between $1 trillion and $2 trillion.

Is the IRS Up to the Challenge of Biden’s Rescue Plan?

President Joe Biden’s coronavirus rescue plan calls for the Internal Revenue Service to send out another round of relief payments and would also make the agency responsible for distributing $109 billion in child benefit payments this year. The Washington Post’s Jacob Bogage reports that the additional tasks that may get piled on top of the IRS’s core tax collection mission threaten to further stretch an arm of government that’s already been struggling:

“The reliance on the IRS comes at a time when the agency is already underfunded and scrambling in pandemic working conditions.

It continues to grapple with a significant backlog from the 2019 tax-filing season, plus snags in earlier rounds of stimulus payments. Personnel shortages caused by the pandemic have also caused a major slowdown in agency operations, forcing officials to platoon staff at IRS campuses to open mail and process a backlog of paper returns.”

The IRS says it is up to the new jobs it’s being asked to do, but Erin Collins, the national taxpayer advocate, tells the Post that she’s concerned that the agency may not have the tools required already in place.

“It is morphing the IRS into this dual mission of both tax administration and administering of social programs. The challenge is the IRS was not set up for that purpose and their IT is not structured for that,” she says. “I think it’s wonderful the things that Congress are looking to do going forward, especially with child care. But I am concerned that the IRS systems were not created to do monthly checks. I think if you ask the IRS, they say, ‘We will get it done.’ And they will get it done. But my concern is, at what cost?”

Article of the Week: The Fed’s Monumental Change on How It Views Stimulus and Inflation

The hot economic debate of the moment is over the size of President Joe Biden’s pandemic relief plan and fears, raised by economists Larry Summers and Olivier Blanchard, that it might be so large as to cause the economy to overheat and result in surging inflation.

Over at New York magazine’s Intelligencer, Eric Levitz puts that debate into some important historical context. In doing so, he also lays out the significance of recent policy shifts by the Federal Reserve and of Fed Chair Jerome Powell’s speech this week in which he said that the real unemployment rate is significantly higher than the official 6.3% and is probably closer to 10% once the millions of people who have been driven out of the labor market by the pandemic, as well as those who have been misclassified as being employed by the Bureau of Labor Statistics, are factored into the calculation. “Despite the surprising speed of recovery early on, we are still very far from a strong labor market whose benefits are broadly shared,” Powell said, adding that fully repairing the job market “will take continued support from both near-term policy and longer-run investments.”

Powell was effectively intervening in the ongoing economic debate on Biden’s behalf, Levitz writes, explaining that the Fed chief’s comments represent a monumental change:

“In the late 1970s, stubbornly high inflation taught the central bank that the conflict between its dual objectives — to promote full employment and price stability — was fiercer than it had previously thought. Specifically, the Fed decided that it would need to preemptively cool the economy when unemployment got too low, so as to snuff out inflationary spirals before they took hold. This was because tight labor markets allowed workers to hold their employers hostage to unreasonable wage demands; with no reserve army of the unemployed to draw new hires from, bosses were forced to placate existing staff. Thus, employers ended up overpaying their workers and then trying to compensate by overcharging consumers. ... Therefore, central banks had to proactively preserve slack in the labor market — both by slowing economic growth through interest-rate hikes when unemployment got too low, and by encouraging Congress to rein in deficit spending lest it spur excessive demand for labor.

“Under Jerome Powell, the central bank has brought American monetary policy into belated alignment with federal law and empirical economics. Instead of attempting to preempt high inflation by sustaining a cushion of unemployment, Powell has waited for inflation to actually show itself before deliberately cooling the economy, a posture he has justified by emphasizing the myriad economic and social benefits of maximizing employment.”

Powell’s speech signaled support for further fiscal stimulus and a belief that the economy can bear lower levels of unemployment without a worrisome rise in inflation. “Perhaps most significantly,” Levitz says, “Powell broke with past Fed chairman Ben Bernanke by arguing that fiscal and monetary stimulus doesn’t just accelerate an economy’s return to full productive capacity, but rather, that stimulus can actually grow the economy’s long-term growth potential.”

The bottom line:
Powell has been making an emphatic case for more fiscal support for the economy and job market, and that argument represents a dramatic shift with potentially significant implications for the politics of federal spending. Unsurprisingly, the Biden White House is embracing the Fed chair’s view. “Based on the reporting I've done,” The Washington Post’s Jeff Stein tweeted this week, “I think it's safe to say Jerome Powell's comments hold vastly more sway over the White House economic team than Larry Summer's [SIC].”

Read the full piece at New York.

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