Good Wednesday evening! There’s lots going on in the world, but we’re just going to point out that the Yankees swept a doubleheader against the Red Sox yesterday and are now tied for the top wild card spot. Now on to the serious stuff.
Covid Pandemic Led to a Huge Spike in US Households Paying No Income Tax
The number of American households that paid no federal income tax spiked dramatically last year, both as a result of job and wage losses driven by the Covid-19 pandemic and the government's response to the crisis, which provided thousands of dollars in tax credits to millions of families.
Nearly 107 million households — or some 61% — owed no federal individual income tax in 2020, according to an analysis by the Urban-Brookings Tax Policy Center. That’s an increase of more than 40% over 2019, when about 76 million households had zero or negative federal income tax bills.
"Effectively no households making less than about $28,000 will pay federal income tax this year, nor will three-quarters of those making between $28,000 and $55,000," the Tax Policy Center’s Howard Gleckman writes in a blog post. "Among middle-income households, about 43 percent will pay no federal income tax."
Still paying other taxes: It’s worth emphasizing, though, that these number reflect only federal income taxes, not payroll or other taxes. The Tax Policy Center estimates that only about one in five households paid neither federal income nor payroll taxes last year (up from about 17% in 2019) — meaning that roughly 80% of households paid at least one of the two. "And nearly everyone paid some other taxes, including state and local sales taxes, excise taxes, property taxes, or state income taxes," Gleckman notes.
He adds that many Americans who paid no federal income tax last year may have seen only a small decrease in their tax bill, with someone owing, say $1,500 seeing their tab entirely offset by Economic Impact Payments larger than that.
A return to normal as economy rebounds: The spike in households with no federal income tax liability is likely to be short-lived. The Tax Policy Center projects that the number will dip to about 102 million, or 57%, this year and then fall below pre-pandemic levels in 2022 and beyond, dropping below 40% by the second half of the decade. "Middle-income households will be far more likely to pay again: Only about 21 percent will be non-payers next year, falling to about 18 percent in 2026," Gleckman says.
Those projections assume that the economy will continue to recover and a number of tax breaks expire as scheduled. Those assumptions may not be borne out. Democrats are pushing to extend or make permanent an expansion of the Child Tax Credit currently set to expire at the end of the year, and Congress may still renew some of the individual income tax cuts enacted in law.
The bottom line: While the proportion of households paying no federal income tax has been a political flashpoint in the past — remember Mitt Romney’s 47% — this extraordinary surge is all about the pandemic. "The number of households who paid no income tax last year truly was eye-popping," Gleckman writes. "But keep in mind: It was only temporary."
Afghanistan Watchdog Offers Bleak Assessment of US Reconstruction Effort
A watchdog overseeing the American effort to rebuild Afghanistan offered a tough assessment this week of where things stand in the war-torn country as U.S. troops withdraw.
"If the goal was to rebuild and leave behind a country that can sustain itself and pose little threat to U.S. national security interests, the overall picture is bleak," wrote John Sopko, the Special Inspector General for Afghanistan Reconstruction, in a report titled "What We Need to Learn: Lessons from Twenty Years of Afghanistan Reconstruction."
Sopko, whose office is referred to as SIGAR, has provided numerous reports over the years that have cast a frequently negative light on the American effort in the war-torn country, exposing billions of dollars in waste, including a long line of abandoned schools, broken vehicles and crumbling highways. (The full library of SIGAR reports is available here.)
This week’s release, the 11th "lessons learned" report, looks back at the 20-year American effort and raises serious questions about the ability of the U.S. to "carry out reconstruction efforts on the scale seen in Afghanistan."
"The U.S. government has now spent 20 years and $145 billion trying to rebuild Afghanistan, its security forces, civilian government institutions, economy, and civil society," the report says. "While there have been several areas of improvement—most notably in the areas of health care, maternal health, and education—progress has been elusive and the prospects for sustaining this progress are dubious."
The main lessons: SIGAR offers seven main lessons from the reconstruction effort in Afghanistan, quoted here from the report:
1. The U.S. government continuously struggled to develop and implement a coherent strategy for what it hoped to achieve.
2. The U.S. government consistently underestimated the amount of time required to rebuild Afghanistan and created unrealistic timelines and expectations that prioritized spending quickly. These choices increased corruption and reduced the effectiveness of programs.
3. Many of the institutions and infrastructure projects the United States built were not sustainable.
4. Counterproductive civilian and military personnel policies and practices thwarted the effort.
5. Persistent insecurity severely undermined reconstruction efforts.
6. The U.S. government did not understand the Afghan context and therefore failed to tailor its efforts accordingly.
7. U.S. government agencies rarely conducted sufficient monitoring and evaluation to understand the impact of their efforts.
A warning for next time: After reviewing the many failings in Afghanistan, the report concludes that the U.S. lacks the ability to rebuild countries following military interventions, no matter how much money it spends. Former National Security Advisor Stephen Hadley summed up this insight in an interview with SIGAR. "We just don’t have a post-conflict stabilization model that works," Hadley said. "Every time we have one of these things, it is a pick-up game. I don’t have confidence that if we did it again, we would do any better."
15% of Covid Small Business Loans Could Be Fraudulent: Analysis
More than 15% of loans made through the Paycheck Protection Program could be fraudulent, according to a preliminary analysis released this week by a team of academic researchers.
Established by the Cares Act in 2020, the $800 billion program provided forgivable loans intended to help small businesses stay open and keep their employees on the payroll during the Covid-19 crisis. In order to get money out the door as quickly as possible, PPP allowed loan applicants to skip much of the usual vetting that occurs with small business loans. The easing of standards increased the likelihood of fraud, and the new paper gives a sense of just how big that fraud may be.
What they looked for: The researchers reviewed loan data on $780 billion worth of loans looking for patterns that indicate fraud. Red flags include "non-registered businesses, multiple businesses at residential addresses, abnormally high implied compensation per employee, and large inconsistencies in jobs reported with another government program."
What they found: According to the analysis, about 1.8 million of the program’s 11.8 million loans — worth roughly $76 billion — show signs of fraud. A more restrictive standard, which requires the presence of at least two red flags, indicates that 1.2 million loans, worth $38 billion, could be fraudulent.
The researchers also found that not all lenders are alike, with suspicious activity more strongly associated with financial technology firms, which focus on digital lending. These "fintechs" were responsible for more than half of the suspicious loans, despite accounting for just 29% of the loan total.
"Certain fintech lenders seem to specialize in dubious loans," the researchers said. (Several of the fintech firms named in the analysis have disputed the findings.)
The bottom line: The researchers say their analysis provides more evidence that the PPP was poorly designed and executed. "Our evidence, along with evidence that the P.P.P. saved relatively few jobs at a high cost, provides growing evidence that the P.P.P. seems to have been a poor allocation of capital," they concluded.
Poll of the Day: Voters Approve of a $500 Billion ‘Polluters Tax’
More than three quarters of American voters say that fossil fuel companies have "a lot" or "some" responsibility to address climate change, according to a new survey from left-leaning pollsters Data for Progress. Nearly two thirds of voters "strongly" or "somewhat" approve of a proposal to impose a $500 billion fee over 10 years against large fossil fuel companies like ExxonMobil, BP, Shell and Chevron.
That idea echoes legislation proposed earlier this month by Sens. Chris Van Hollen (D-MD), Bernie Sanders (I-VT), Ed Markey (D-MA), Sheldon Whitehouse (D-RI), Elizabeth Warren (D-MA) and Jeff Merkley (D-OR). Their Polluters Pay Climate Fund Act would tax the 25 to 30 largest carbon dioxide and methane gas emitters based on their share of emissions, with large oil companies likely facing a tab of about $5 billion to $6 billion a year, according to the lawmakers.
Data for Progress surveyed 1,169 likely voters between July 16 and 19. The survey has a three-point margin of error.
- The Infrastructure Bill Will Increase the Debt — Stop Telling Americans Otherwise – Robert L. Bixby, The Hill
- The Infrastructure Bill Won't Eliminate Lead Pipes — Which Aren't the Biggest Problem – Robert Verbruggen, The Hill
- A Monumentally Important Democratic Spending Bill – John Cassidy, New Yorker
- A $10 Billion Plan to Clean the Nation’s Water Is Murky on Facts – Nick Rahall, The Hill
- Moderates Can’t Prevail in House Democratic Squabble – Jonathan Bernstein, Bloomberg
- Millions of Workers Will Lose Their Safety Net This Labor Day If Congress Doesn’t Act – Annelies Goger, Brookings Institution
- We Need a Reagan Tax Revolt to Counter Today's Big-Government Spending – Lewis K. Uhler, The Hill
- COVID-19: Booster Shots Are the Right Call – William Feehery, The Hill
- Why So Many Holdouts Still Won’t Get Vaxxed — And Why We Should Learn to Live With It – Jack Shafer, Politico
- The Truth About Long Covid Is Complicated. Better Treatment Isn’t – Adam Gaffney and Zackary Berger, New York Times