By: Ryan Ellis
The month of July brings with it this year a tidal wave of tax payments owed by employers and families to the IRS and state tax offices. In total, about $1 trillion is scheduled to come out of the economy in July and be sent to federal, state, and local governments. Thankfully, Treasury Secretary Steven Mnuchin has full authority to delay at least the IRS payments until later this year, or even into the early part of 2021.
In March, as part of the first wave of emergency COVID-19 relief, the Treasury Department announced in a series of rulings that tax payments owed between March and June would all be shifted into the month of July. This rather sizeable list includes but is not limited to: balances due on 2019 personal income tax returns, estimated tax payments for corporations and small businesses for the first and second quarters of 2020, and excise and death tax payments owed during these months.
The Congressional Budget Office and IRS produce regular data on the size of all these payments, and they total at least $500 billion — and could be several hundred billion dollars higher than that. Economic uncertainty makes arriving at a more exact figure difficult, but there’s no doubt that hundreds of billions of dollars are due to be sucked out of the economy in the month of July. That doesn’t count the comparable payments owed to state tax authorities, which pushes the total figure to a level approaching $1 trillion.
TaxAudit, the exclusive provider of Intuit Audit Defense for the popular TurboTax product, released a survey last week that found that 37% of respondents don’t have enough to cover their 2019 tax bills. In addition, 61% say they’re worried they may owe taxes next year due to the crisis. That would add to the $131 billion that 14 million people already owe the IRS, according to the company.
The good news is that just as Mnuchin had the legal authority to shift these payments into July 2020 in the first place, he also has the authority to move them even further into the future. In fact, he has the power to delay any tax payment deadline by up to one year. That means 2019 balances due and first-quarter estimated tax payments could be delayed all the way to April 15, 2021. Second-quarter estimated payments can be pushed to June 15, 2021. Monthly excise tax payments could also be delayed until the middle of next year. He should do so.
Officials are debating what, if anything, Congress should pass by way of pandemic relief legislation this July. Mnuchin has a tool at his disposal to give the economy nearly $1 trillion in immediate cash flow relief — delay all these required tax payments. He can do this without an act of Congress — no need to negotiate anything with House Speaker Nancy Pelosi. This wouldn’t increase the national debt by a single penny. All taxes owed are still owed, just a few months later.
July would be a particularly bad month to suck half a year’s taxes out of the economy all at once. The National Bureau of Economic Research and the Federal Reserve, reflecting the consensus views of most economists, believe that the coronavirus recession started in March, bottomed out in April, and ended sometime in May. The early months of a recovery from a recession are fragile ones, and the danger of a “double dip” or “W-shaped” recession is real. If recent increases in diagnosed viral cases in a few states do more than just scare the stock market a little, the danger is very real that July may be the month the economy stalls. Delaying a huge glut of tax payments is a costless insurance policy against this happening.
Conservative policy experts agree. More than 50 conservative groups from Washington, D.C., and around the country (including the National Taxpayers Union and Americans for Tax Reform) have signed a letter to Mnuchin urging him to use his statutory powers to push these July tax payments into 2021. The whole reason the Treasury secretary has this authority is to use it in times like these — dire national emergencies. To fail to use it would be a huge mistake for an economy just getting its legs under it and an even bigger unforced error for a president hoping for a strong economy in a reelection year.
The important metric for Mnuchin is tax payments. There’s also a tax filing deadline on July 15, 2020, for personal income tax returns. Mnuchin may or may not choose to extend that further, but that’s a far less important matter. The IRS, through the latest reporting week, has received more than 138 million income tax returns, compared to more than 144 million returns in the same period last year. Most people that need to file already have. About 126 million of these returns have received refunds, compared with 130 million refund returns in 2019 (again, a rounding error difference). The gap in total refunds issued between this year and last year is less than $10 billion, a small fraction of the taxes owed in July. If Mnuchin is concerned that moving dates further into the year discourages people from filing and getting refunds, the IRS data should give him comfort.
Mnuchin can deliver absolutely guaranteed relief for millions of employers and families in July by delaying this tidal wave of taxes owed. He needs to do so for the sake of the economy and for the sake of President Trump’s reelection.
Ryan Ellis (@RyanLEllis) is president of the Center for a Free Economy.
Read more here.