America’s coronavirus-battered economy appears on the road to recovery.
Unemployment claims are falling, jobs are returning, the stock market is rebounding, and many small businesses are beginning to reopen their doors.
But now, with hope in sight, the government is preparing to hit taxpayers with a bill that will send the economy back into a tailspin.
On July 15, the IRS and state tax agencies are set to snatch nearly $1 trillion in assorted personal and business tax payments. The decision will leave American taxpayers reeling and bleed much-needed money from the economy.
The Treasury Department and the IRS announced the extension of the filing deadline for individual and business tax returns from April 15 to July 15. At the time, little was known about COVID-19’s possible impact to the economy, and no one knew if Americans would be in a position to pay their taxes in July.
U.S. Treasury Secretary Steven Mnuchin implemented the tax extension in March, just two days after California became the first state in the nation to institute a lockdown.
There were barely 15,000 COVID-19 cases in the U.S., and just 52 confirmed coronavirus-related deaths. The unemployment rate hovered around 4 percent and the Dow Jones Industrial Average set a record high only weeks earlier.
Since then, 2.2 million Americans tested positive for the coronavirus. Nearly 120,000 individuals lost their lives. More than 44 million Americans filed jobless claims and the unemployment rate skyrocketed to 14.7 percent as the economy plunged into recession.
Congress and the Federal Reserve responded by pumping $6 trillion into emergency stimulus schemes, including more than $1.8 trillion for the CARES Act alone.
Clearly, a lot has changed since Secretary Mnuchin decided to delay Tax Day.
The economic damage proved worse than many economists and policymakers expected, and July 15 now seems far too soon to slap Americans with hundreds of billions of dollars in tax bills.
Based on 2019 figures, July’s federal tax bills will include more than $300 billion in federal estimated income tax payments for individuals and small businesses, as well as about $170 billion in balances due on tax returns for Americans who took advantage of the three-month extension.
American employers will owe an additional $200 billion in combined corporate income tax payments and excise tax levies. Those eye-popping numbers don’t include the hundreds of billions in state tax payments that are due from quarterly estimated taxes and outstanding state income tax payments.
The total amount of federal and state tax payments due on July 15 will approach $1 trillion. This tax tsunami would stall consumer and business spending, threaten the millions of jobs created in the past two months and may trigger a "double dip" recession.
July was expected to be a month of economic recovery, but it will turn it into a month of economic devastation unless the Trump administration acts fast.
The Treasury Department and the IRS should postpone all 2019 tax payments from July 15 until at least Oct. 15, and preferably until 2021.
Additionally, all estimated tax payments — including income taxes, excise taxes, and employer-side payroll taxes — should be eliminated for all of 2020.
Those taxes should instead be allowed to come due on April 15 of next year.
Americans anticipating a refund, or who wish to pay before the new deadline, should be encouraged to file their returns.
Since many parts of the country are still under COVID-19 lockdowns, and the economy has yet to fully rebound, delaying tax payments would give more Americans a chance to resume normal economic activity and be better-positioned to pay a tax bill.
In addition to keeping nearly $1 trillion pumping through the economy, delaying tax payments has other critically important benefits.
As the National Taxpayers Union Foundation (NTUF) pointed out in a recent publication, pushing back tax payments "allows IRS employees to continue to stay home themselves by decreasing call volume and meetings."
The delay would also reduce the workload for accounting firms and tax-preparation clinics.
This would allow many accountants and tax preparers to work from home rather than risking their health and their lives taking in-person meetings required to meet some clients’ tax-filing needs.
Nicole Kaeding and Andrew Moylan, the authors of the NTUF report, admit the tax payment postponement would lead to a temporary reduction in federal revenues and potentially lead to additional government borrowing.
Fortunately, according to Kaeding and Moylan, "the interest rate on federal debt (is) down sharply, meaning the ultimate financial cost of delay is small."
The best part about delaying tax deadlines a few more months is that it doesn’t require an act of Congress or even President Trump’s signature.
Secretary Mnuchin has full authority to postpone IRS payments.
That’s how this year’s Tax Day was moved from April 15 to July 15 in the first place.
Americans have fought valiantly to stay afloat in the midst of a deadly global pandemic and a catastrophic economic crisis. Secretary Mnuchin should act immediately to make sure that taxpayers aren’t pulled under by the IRS.
Drew Johnson is a senior fellow at the National Center for Public Policy Research. Read Drew Johnson's Reports — More Here.
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