61% of US Households Paid No Federal Income Tax Last Year

By Yuval Rosenberg

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.

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