Happy Monday! This will be a big week for developments in the key fiscal fights of the year, as President Joe Biden is set to release his budget request on Thursday. Biden will unveil the plan with “unusual fanfare,” Reuters notes, travelling to Philadelphia to deliver a speech at a campaign-style event at a union hall — “a venue in a competitive battleground state that will highlight the president's worker-centric political pitch in the weeks running up to his expected announcement of a 2024 re-election bid.”
Shalanda Young, who heads the White House Office of Management and Budget, said last week that Biden’s plan would reflect four core priorities: growing the economy “from the bottom up and middle out,” as Biden likes to say; lowering costs; protecting Social Security and Medicare; and reducing the deficit by $2 trillion over 10 years.
Also ahead this week, Federal Reserve Chair Jerome Powell will appear before Senate and House panels for his semi-annual monetary policy updates and Treasury Secretary Janet Yellen will testify before the House Ways and Means Committee Friday about Biden’s budget.
Fitch Warns on US Credit Rating: 'Playing With Live Ammunition'
The U.S. has a perfect AAA credit rating from Fitch Ratings, one of three major agencies that grade public and private debt. But James McCormack, Fitch’s global head of sovereign ratings, told CNN Monday that the country’s credit rating may be at risk as Congress battles over raising the debt ceiling, even if lawmakers come to an agreement that avoids a default.
McCormack warned that “repeated episodes” of conflict over raising the debt ceiling “chip away” at the nation’s status as the dominant player in the global economy, raising questions about the level of risk inherent in U.S. debt instruments, which have long been as close to risk-free as investors can get.
“When investors have to think about that, that’s not what you’re looking for in a risk-free asset, right?” McCormack said, referring to the possibility that the U.S. could fail to meet its obligations in full and on time. Even if that outcome is avoided, a contentious lead-up to an eventual agreement this summer could cause global financial markets to react negatively, threatening the status of both U.S. debt and the dollar — a course of events that could result in a credit downgrade by Fitch.
McCormack made it clear that the ratings agency takes the burgeoning standoff very seriously, even if the operating assumption is still that an agreement will be reached. “We are more concerned this time around,” he said, citing the heightened degree of polarization in Washington. “You’re playing with live ammunition here,” he added. “This is an extremely dangerous situation. There is a lot at stake.”
The McCarthy Aide Who Will Be a Key Player in Debt and Budget Battles
If you’re monitoring the debt-limit battle between House Republicans and the White House, here’s a name you should know: Dan Meyer, chief of staff to House Speaker Kevin McCarthy. Meyer, who had been a prominent Republican lobbyist, was also chief of staff for former Speaker Newt Gingrich, and he served as White House director of legislative affairs under President George W. Bush.
Now, as The Washington Post’s Jeff Stein, Leigh Ann Caldwell and Theodoric Meyer write, he’s set to play a key role in this year’s drama over the debt limit:
“Despite more than three decades working in the upper echelons of Republican politics, Meyer, 68, is not a household name. And yet no other person — save McCarthy — is expected to play a more pivotal role this year in trying to steer House Republicans through a series of potentially explosive conflicts with the White House and each other over the nation’s spending and debt, with the fate of the global economy hanging in the balance.
“While Capitol Hill waits to see how McCarthy wields power, his most important adviser has already emerged as a source of comfort for those in establishment Washington nervous about the prospect of a U.S. default later this year. Although McCarthy has vowed to ‘change Washington as we know it today,’ he has tapped the consummate insider — a former lobbyist connected to the old Republican guard who is widely respected among Democrats — to lead his office. And that alone has assured many former colleagues on K Street that Republicans will find a way to raise the federal debt limit later this year without triggering an economic crisis, despite warnings from conservatives about the budget fight ahead.”
Surprise! The IRS Is Doing Better
Early this year, National Taxpayer Advocate Erin M. Collins told Congress that she had begun to see progress at the Internal Revenue Service. “We have begun to see light at the end of the tunnel. I am just not sure how much further we need to travel before we see sunlight,” she wrote in an annual report released on January 11.
Now, The Washington Post’s Jacob Bogage reports that, thanks to a funding boost, the long-beleaguered tax agency is reaching “a once-unimaginable position.” It’s … functioning: “The IRS is answering 90 percent of its phone calls, has squashed its backlog of overdue returns, introduced new online taxpayer tools to keep pace with private software companies and processed 99.7 percent of returns filed this tax season, according to agency reports.”
Bogage reports that the IRS has used nearly $850 million in funding from last year’s Inflation Reduction Act, the law passed by Democrats and assailed by Republicans for providing the tax agency an additional $80 billion over 10 years. As their first piece of legislation, House Republicans voted to repeal most of that funding, though the bill isn’t likely to go any further.
While the political sniping over the new law continued, the IRS says it has hired more than 5,000 employees, mostly to answer taxpayer phone calls and staff tax clinics. It reportedly posted another 5,300 job openings last month.
In all, Bogage reports, the agency has used $847.6 million in new funding, including $426 million for taxpayer services and about $315 million for “operations support, training new employees and preparing software systems for changes in tax laws.” About $100 million has gone toward modernizing business systems. Just $6.6 million so far has been spent on tax enforcement, the most controversial part of the funding.
The bottom line: The IRS is on track for a “normal” tax season, which certainly hasn’t been the norm in recent years.
“I think they understand a disastrous filing season would be catastrophic,” Mark Mazur, a former assistant Treasury secretary for tax policy in the Biden administration, tells the Post. “That would basically mean, ‘We gave you money — you did such a bad job spending it, we’re taking it back.’”