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

By Yuval Rosenberg

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?”


Read the full piece at The Washington
Post.

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.

Have a good three-day weekend! We'll
be back in your inbox on Tuesday. Send your feedback to
yrosenberg@thefiscaltimes.com.
Follow us on Twitter:
@yuvalrosenberg,
@mdrainey and
@TheFiscalTimes. And please tell your
friends they can
sign up here for their own copy of this
newsletter.

News

Views and Analysis