The Internal Revenue Service is about to pay $70 million in employee bonuses despite an Obama administration directive to cancel discretionary bonuses because of automatic spending cuts enacted this year, according to a GOP senator.
Sen. Chuck Grassley of Iowa says his office has learned that the IRS is executing an agreement with the employees’ union on Wednesday to pay the bonuses. Grassley says the bonuses should be canceled under an April directive from the White House budget office.
The directive was written by Danny Werfel, a former budget official who has since been appointed acting IRS commissioner.
(Read More: IRS Officials Face Grilling Over Lavish Spending)
IRS Under Fire, Again
Video of IRS employees dancing during an employee conference is stirring up controversy, reports CNBC’s John Harwood.
“The IRS always claims to be short on resources,” Grassley said. “But it appears to have $70 million for union bonuses. And it appears to be making an extra effort to give the bonuses despite opportunities to renegotiate with the union and federal instruction to cease discretionary bonuses during sequestration.”
Michael Kelly let go of another employee last month.
As chief executive of a small Michigan military contractor, Nanocerox, he had already cut his work force by one-third. But it was not enough. And if the government spending cuts mandated by Congress continue, he said, more people will go in the coming months.
The squeeze Mr. Kelly is facing is one reason markets are jittery about what the Labor Department’s latest report on unemployment and job creation will reveal about the economy on Friday. After a strong start to the year, several economic indicators beginning in March have pointed to much slower growth, largely because of the fiscal headwinds from Washington, economists say.
Job cuts like the kind at Nanocerox remain the exception, rather than the rule. On Thursday, the government said weekly unemployment claims were at a five-year low.
The problem is that companies have not been hiring. This week, a survey of private sector hiring in April came in well below expectations, while indications for everything from retail sales to manufacturing have also been soft recently.
Whatever the data ultimately show for April, economists like Diane Swonk, chief economist for Mesirow Financial in Chicago, say the economy would be showing much more momentum if it were not for the combination of higher payroll taxes that went into effect in January, as well as the process of automatic spending cuts known as sequestration that began to bite last month.
hree budget crises ago, in early 2011, Republicans and President Barack Obama faced off over raising the debt ceiling - and Alison Brown saw the writing on the wall.
Washington had entered the cycle of partisan brinksmanship over the budget that has sown confusion among federal agencies and delayed contracts to small companies like Brown’s Navsys Corp., which designs satellite navigation systems in this military town. So Brown slashed her 40-strong workforce in half. And as she feared back then, her revenues have since plunged by half.
The latest crisis hit on Friday with across-the-board automatic spending cuts. They total about $85 billion, but the economic damage created by two years of showdowns is far greater. And there’s no end in sight: Temporary resolutions funding the government expire on March 27. May brings another debt ceiling standoff.
“We’re planning for the worst,” Brown said in her office with a view of the Rampart Range, a portrait of President George W. Bush on the shelf behind her. “We’re not going to be taking risks and making investments, and that’s bad for the country as a whole.”
Thousands of businesses are in similar straits, from defense contractors like Navsys to wind turbine manufacturers to wheat farmers. It is one reason the U.S. economic recovery has been so persistently anemic. But it is happening quietly, drowned out by dueling press conferences inside the Beltway and general disgust at the perpetual drama over federal spending.
Most business economists opposed the automatic spending cuts that took effect Friday night amid the gridlock between President Obama and Congress, but they overwhelmingly support efforts to reduce the deficit over the next 10 years, according to a survey released Monday.
The survey of 196 members of the National Association for Business Economics, taken from Jan. 21 to Feb. 13, gave some support to both sides in the U.S. government budget debate.
Republicans’ views won some support, as 56 percent of the economists said deficit reduction should be achieved “only” or “mostly” with spending cuts. More than half, or 58 percent, said the cuts should be focused on entitlement programs, such as Social Security and Medicare.
President Obama also got some backing, as most of the surveyed economists said that spending cuts should be balanced by raising revenue through tax increases. Around 95 percent said that Congress should reform the individual tax code, with 74 percent believing the reforms should “slightly” or “significantly” increase revenues.
Automatic spending cuts due to go into effect March 1 would likely extend U.S. reliance on Russia for human spaceflight, delay development of badly-needed next-generation weather satellites, and force a reduction in radar scans searching for space debris, according to Obama administration officials.
That’s if Congress and the White House don’t act to avoid the across-the-board cuts, which will be automatically triggered at the end of next week without a compromise on how to deal with the federal government’s budget deficit.
NASA would lose about $894 million from its current budget outlook in the period between March 1 and Sept. 30, the end of fiscal year 2013.
More: Spaceflight Now
President Obama will sit for interviews with eight local reporters on Wednesday, as he continues to ratchet up his pressure on lawmakers to take action to prevent automatic spending cuts from taking effect on March 1.
“The president will take the case directly to the American people in markets across the country about how their leaders in Congress must act to protect our nation from a self-inflicted wound that would hurt our recovery and the middle class,” the White House said in a statement.
Picking up where he left off Tuesday with a brief speech delivered with first responders joining him on stage, Obama “will make clear that the only reason that these devastating cuts would hit is if congressional Republicans choose to protect loopholes that benefit the wealthy and big corporations rather than compromise to reduce the deficit in balanced way and protect American families.”
The White House sees the interviews as an effective way to reach people across the country who don’t pay much attention to national news but who do keep up with what’s happening in their hometowns. It’s a strategy the White House used throughout the presidential campaign and also employed in December as Obama rallied Americans to support him and to push Republicans to act as the fiscal cliff loomed.
More: Obama to Sit for 8 Local Interviews on Sequester
Here is the meat from his speech yesterday:
Two more good things about this:
the Hastert rule (a.k.a. majority of the majority rule) was tossed aside by the GOP to pass the bill, I think that’s a first for the 112th tea party congress & Wikipedia has already been updated.
The Obama middle class tax cuts and top earner tax increases are permanent, unlike the previous temporary Bush tax relief.
Republicans split the difference on dividend taxation, raising it to 20 percent too, rather than the 39.6 percent Obama wanted. The working class got an extension of the stimulus tax cuts, but lost out on an extension of the payroll tax holiday. The deal also includes a bunch of other miscellaneous provisions (Suzy Khimm has the details here), and the end result is a revenue increase of about $600 billion over ten years.
In bonus news, the milk cliff was also averted. At the last minute, the Senate added a nine-month extension of the current farm bill to the legislation. This means we won’t be reverting to the 1949 law, which would have doubled milk prices across the country. Lactophiles can now breathe as easily as millionaires in hospices.
But it’s not over til it’s over, and the fiscal cliff is far from over. First, the House still has to vote on the deal. They’ll probably approve it, though. [Late night update: They did.] More importantly, negotiators punted over the debt ceiling and the sequestration cuts. That’s the $1.2 trillion in automatic spending cuts that emerged from the 2011 debt deiling debacle, split evenly between domestic programs and defense programs. Congress now has two months to hammer out a deal on that front, and Obama held a press conference yesterday warning Republicans that he wouldn’t accept a deal that was all spending cuts and no revenue increases. If this sounds like the exact same thing they’ve been fighting over for the past year, give yourself an A.
President Obama’s cheerful, mocking statement enraged Republicans. But the bigger problem is he said something Republican leaders have been trying to hide from their members. Obama said, clearly, that if the GOP wants more spending cuts later, they’re going to need to hand over more taxes, too. In fact, he said it repeatedly.
The GOP had good reason to hate Obama’s remarks today. (Larry Downing — Reuters)
He made the point when talking about the sequester:
I want to make clear that any agreement we have to deal with these automatic spending cuts that are being threatened for next month, those also have to be balanced, because, remember, my principle always has been let’s do things in a balanced, responsible way. And that means the revenues have to be part of the equation in turning off the sequester and eliminating these automatic spending cuts, as well as spending cuts.
And then he made it again when talking about Medicare cuts:
Almost two-thirds of Americans say that the November election results give President Obama a mandate to raise taxes on the wealthy, according to a new survey.
A new Bloomberg News national poll finds that 65 percent of those surveyed — including 45 percent of Republicans — say that Obama campaigned, ran and won on his pledge to hike taxes on income brackets over $250,000.
But almost the same number of Americans — 64 percent — say that Obama also has a mandate to protect popular entitlement programs like Social Security and Medicare.
Those results give Obama a mandate on his tax proposal — but make it clear that the public is deeply opposed to any entitlement reforms that might be part of any “grand bargain” over taxes and spending between the House GOP and the Obama administration.
Both sides have been at odds over how to unwind the pending combination of tax increases for all Americans and automatic spending cuts. Republicans have largely refused to budge on the principle that tax rates should not go up for anyone.
Of all the deductions woven into the sprawling U.S. tax code, few have been more fiercely guarded than the enormous tax break that lets homeowners deduct the interest they pay on their mortgages.
But as Congress and the White House negotiate the first major rewrite of tax laws in decades, changing the generations-old mortgage-interest deduction — which costs the government roughly $100 billion a year — has gone from far-off possibility to part of the conversation.
The outcome of that debate could have profound long-term effects on homeowners across the country — and particularly those in the Washington area, who tend to benefit from the tax break more than many other Americans due to the region’s hefty home prices and high incomes.
As the Obama administration and lawmakers on Capitol Hill scramble to defuse automatic spending cuts and tax increases set to take effect Jan. 1, a herd of sacred cows — from Social Security and Medicare to deductions for charitable giving and mortgage interest — are in danger of losing their untouchable status.