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How Trump’s Justice Dept. Derailed an Investigation of a Major Company

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The industrial giant Caterpillar hired William Barr and other lawyers to defuse a federal criminal investigation of alleged tax dodges.In December 2018, a team of federal law enforcement agents flew to Amsterdam to interview a witness in a yearslong criminal investigation into Caterpillar, which had avoided billions of dollars of income taxes by shifting profits to a Swiss subsidiary.A few hours before the interview was set to begin, the agents were startled to hear that the Justice Department was telling them to cancel the long-planned meeting.The interview was never rescheduled, and the investigation would limp along for another few years before culminating, in late 2022, with a victory for Caterpillar. The Internal Revenue Service told the giant industrial company to pay less than a quarter of the back taxes the government once claimed that Caterpillar owed and did not impose any penalties. The criminal investigation was closed without charges being filed — and even without agents having the chance to review records seized from the company.Caterpillar appears to have defused the investigation at least in part by deploying a type of raw legal power that rarely becomes publicly visible. This account is based on interviews with people familiar with the investigation, regulatory filings and internal Justice Department emails provided to Senate investigators and reviewed by The New York Times.In the months leading up to the canceled interview in the Netherlands, Caterpillar had enlisted a small group of well-connected lawyers to plead the company’s case. Chief among those was William P. Barr, who had served as attorney general in the George H.W. Bush administration.Richard Zuckerman, the Justice Department’s top tax official, stopped an investigation into Caterpillar after meeting with its lawyers.Jerry ZolynskyWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    U.S. National Debt Tops $33 Trillion for First Time

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    The fiscal milestone comes as Congress is facing a new spending fight with a government shutdown looming.America’s gross national debt exceeded $33 trillion for the first time on Monday, providing a stark reminder of the country’s shaky fiscal trajectory at a moment when Washington faces the prospect of a government shutdown this month amid another fight over federal spending.The Treasury Department noted the milestone in its daily report detailing the nation’s balance sheet. It came as Congress appeared to be faltering in its efforts to fund the government ahead of a Sept. 30 deadline. Unless Congress can pass a dozen appropriations bills or agree to a short-term extension of federal funding at existing levels, the United States will face its first government shutdown since 2019.Over the weekend, House Republicans considered a short-term proposal that would slash spending for most federal agencies and resurrect tough Trump-era border initiatives to extend funding through the end of October. But the plan had little hope of breaking the impasse on Capitol Hill, with Republicans still divided on their demands and Democrats unlikely to support whatever compromise they reach among themselves.The debate over the debt has grown louder this year, punctuated by an extended standoff over raising the nation’s borrowing cap.That fight ended with a bipartisan agreement to suspend the debt limit for two years and cut federal spending by $1.5 trillion over a decade by essentially freezing some funding that had been projected to increase next year and then limiting spending to 1 percent growth in 2025. But the debt is on track to top $50 trillion by the end of the decade, even after newly passed spending cuts are taken into account, as interest on the debt mounts and the cost of the nation’s social safety net programs keeps growing.But slowing the growth of the national debt continues to be daunting.Some federal spending programs that passed during the Biden administration are expected to be more costly than previously projected. The Inflation Reduction Act of 2022 was previously estimated to cost about $400 billion over a decade, but according to estimates by the University of Pennsylvania’s Penn Wharton Budget Model it could cost more than $1 trillion thanks to strong demand for the law’s generous clean energy tax credits.Pandemic-era relief programs are still costing the federal government money. The Internal Revenue Service said last week that claims for the Employee Retention Credit, a tax benefit that was originally projected to cost about $55 billion, have so far cost the federal government $230 billion. The I.R.S. is freezing the program because of fears about fraud and abuse.At the same time, several of President Biden’s attempts to raise more revenue through tax changes have been met with resistance.In late 2022, the I.R.S. delayed by one year a new tax policy that would require users of digital wallets and e-commerce platforms to start reporting small transactions to the agency. The policy was projected to raise about $8 billion in additional tax revenue over a decade.Last month, the I.R.S. delayed by two years a new provision that will stop high earners from being able to funnel extra money into their 401(k) retirement accounts. The agency described the delay as an “administrative transition period.”Meanwhile, lobbyists are pressing for loopholes in new taxes that have been enacted. The 15 percent corporate alternative minimum tax was devised to ensure that rich companies could no longer get away with paying single-digit tax rates because of creative use of deductions. However, many of these companies have been pushing the Treasury Department, which is currently writing the rules that will govern the tax, to create exceptions to preserve their most prized deductions. That tax is different from the global minimum tax that most countries, except the United States, are working to adopt.The pushback against efforts to raise revenue and cut spending has heightened the sense of alarm among budget watchdog groups that fear that a fiscal crisis is approaching.“As we have seen with recent growth in inflation and interest rates, the cost of debt can mount suddenly and rapidly,” said Michael A. Peterson, the chief executive of the Peter G. Peterson Foundation, which promotes fiscal restraint. “With more than $10 trillion of interest costs over the next decade, this compounding fiscal cycle will only continue to do damage to our kids and grandkids.”Republicans and Democrats in the House and the Senate continue to be divided on a path forward to avoid the near-term problem of a shutdown, and lawmakers have started pressing for leaders to begin focusing on a stopgap bill to keep the government operating past Sept. 30.But the red ink continues to mount.A Treasury Department report last week showed that the deficit — the gap between what the United States spends and what it collects through taxes and other revenue — was $1.5 trillion for the first 11 months of the fiscal year, a 61 percent increase from the same period a year ago.In an interview with CNBC on Monday, Treasury Secretary Janet L. Yellen said she was comfortable with the nation’s fiscal course because interest costs as a share of the economy remained manageable. However, she suggested that it was important to be mindful of future spending.“The president has proposed a series of measures that would reduce our deficits over time while investing in the economy,” Ms. Yellen said, “and this is something we need to do going forward.” More

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    The Debt-Ceiling Deal Suggests Debt Will Keep Growing, Fast

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    The bipartisan deal to avert a government default this week featured modest cuts to a relatively small corner of the federal budget. As a curb on the growth of the nation’s $31.4 trillion debt load, it was a minor breakthrough, at best.It also showed how difficult — perhaps impossible — it could be for lawmakers to agree anytime soon on a major breakthrough to demonstrably reduce the nation’s debt load.There is no clear economic evidence that current debt levels are dragging on economic growth. Some economists contend that rising debt levels will hurt growth by making it harder for businesses to borrow money; others say spiraling future costs of government borrowing could unleash rapid inflation.But Washington is back to pretending to care about debt, which is poised to top $50 trillion by the end of the decade even after accounting for newly passed spending cuts.With that pretense comes the reality that the fundamental drivers of American politics all point toward the United States borrowing more, not less.The bipartisan agreement to suspend the debt ceiling for two years, which passed the Senate on Thursday, effectively sets overall discretionary spending levels over that period. The agreement cuts federal spending by $1.5 trillion over a decade, according to the Congressional Budget Office, by essentially freezing some funding that had been projected to increase next year and then limiting spending to 1 percent growth in 2025.But even with those savings, the agreement provides clear evidence that the nation’s overall debt load will not be shrinking anytime soon.Republicans cited that mounting debt burden as a reason to refuse to raise the limit, risking default and financial crisis, unless Mr. Biden agreed to measures to reduce future deficits. But negotiators from the White House and House Republican leadership could only agree to find major savings from nondefense discretionary spending.That’s the part of the budget that funds Pell grants, federal law enforcement and a wide range of domestic programs. As a share of the economy, it is well within historical levels, and it is projected to fall in the coming years. Currently, base discretionary spending accounts for less than one-eighth of the $6.3 trillion the government spends annually.The deal included no major cuts to military spending, which is larger than base nondefense discretionary spending. Early in the talks, both parties ruled out changes to the two largest drivers of federal spending growth over the next decade: Social Security and Medicare. The cost of those programs is expected to soar within 10 years as retiring baby boomers qualify for benefits.While Republicans at first balked when Mr. Biden accused them of wanting to cut those politically popular programs, they quickly switched to blaming the president for taking them off the table.Asked on Fox News on Wednesday why Republicans had not targeted the entire budget for cuts, Speaker Kevin McCarthy replied, “Because the president walled off all the others.”“The majority driver of the budget is mandatory spending,” he said. “It’s Medicare, Social Security, interest on the debt.”Negotiators for Mr. McCarthy effectively walled off the other half of the debt equation: revenue. They rebuffed Mr. Biden’s pitch to raise trillions of dollars from new taxes on corporations and high earners, and both sides wound up agreeing to cut funding for the Internal Revenue Service that was expected to bring in more money by cracking down on tax cheats.Instead, Republicans attempted to frame mounting national debt as solely a spending problem, not a tax-revenue problem, even though tax cuts by both parties have added trillions to the debt since the turn of the century.Republican leaders now appear poised to introduce a new round of tax-cut proposals, which would likely be financed with borrowed money, a move Democrats decried during the floor debate over the debt-ceiling deal.“Before the ink is dry on this bill, you will be pushing for $3.5 trillion in business tax cuts,” Representative Gwen Moore, Democrat of Wisconsin, said shortly before the final vote on the Fiscal Responsibility Act, as it is called, on Wednesday.Those comments reflected a lesson Democrats took from 2011, when Washington leaders last made a big show of pretending to care about debt in a bipartisan deal to raise the borrowing limit. That agreement, between President Barack Obama and Speaker John Boehner, limited discretionary spending growth for a decade, helping to drive down budget deficits for years.Many Democrats now believe those lower deficits gave Republicans the fiscal and political space they needed to pass a tax-cut package in 2017 under President Donald J. Trump that the Congressional Budget Office estimated would add nearly $2 trillion to the national debt. They have come to believe that Republicans would happily do the same again with any future budget deals — putting aside deficit concerns and effectively turning budget savings into new tax breaks.At the same time, both parties have grown more wary of cuts to Social Security and Medicare. Mr. Obama was willing to reduce future growth of retirement benefits by changing how they were tied to inflation; Mr. Biden is not. Mr. Trump won the White House after promising to protect both programs, in a break from past Republicans, and is currently slamming his rivals over possible cuts to the programs as he seeks the presidency again.All the while, the total amount of federal debt has more than doubled, to $31.4 trillion from just below $15 trillion in 2011. That growth has had no discernible effect on the performance of the economy. But it is projected to continue growing in the next decade, as retiring baby boomers draw more government benefits. The budget office estimated last month that debt held by the public would be nearly 20 percent larger in 2033, as a share of the economy, than it is today.Even under a generous score of the new agreement, which assumes Congress will effectively lock in two years of spending cuts over the full course of a decade, that growth will only fall by a few percentage points.Groups promoting debt reduction in Washington have celebrated the deal as a first step toward a larger compromise to reduce America’s reliance on borrowed money. But neither Mr. McCarthy nor Mr. Biden has shown any interest in what those groups want: a mix of significant cuts to retirement programs and increases in tax revenues.Mr. McCarthy suggested this week that he would soon form a bipartisan commission to scour the full federal budget “so we can find the waste and we can make the real decisions to really take care of this debt.”The 2011 debt deal produced a similar sort of commission, which issued recommendations on politically painful steps to reduce debt. Lawmakers discarded them. There’s no evidence they’d do anything else today. More

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    When Will the U.S. Run Out of Cash? The Answer Is Complicated.

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    The federal government is essentially living paycheck to paycheck, making the X-date hard to pin down.In letters to Congress and warnings to business leaders about the catastrophic consequences if the United States defaults on its debt, Treasury Secretary Janet L. Yellen has repeatedly offered an important caveat.She cannot give the exact date when the federal government will run out of cash.The United States reached its statutory $31.4 trillion debt limit on Jan. 19, forcing the Treasury Department — which borrows huge sums of money to pay nation’s bills — to begin using accounting maneuvers known as extraordinary measures to conserve cash and avoid breaching the cap.On Monday, Ms. Yellen reiterated previous warnings that the Treasury Department could deplete its cash reserves by June 1. Still, the exact day when the United States will reach the so-called X-date is nearly impossible to determine.“These estimates are based on currently available data, and federal receipts, outlays and debt could vary from these estimates,” Ms. Yellen has told lawmakers in her letters. “The actual date Treasury exhausts extraordinary measures could be a number of days or weeks later than these estimates.”While Treasury has the most sophisticated cash management system in the world and employs teams of highly trained economists, its coffers are a blur of payments going out and tax revenues coming in. When its cash balance runs painfully low — as was the case on Wednesday, when the Treasury General Account started the day with less than $100 billion — pinpointing the X-date becomes even harder to predict. In many respects, that is because the moment that a default would occur is a moving target.Big bills are coming due.Ms. Yellen has been eyeing early June as a pivotal month since her first warnings to Congress about the debt limit in January. The reason: The federal government spends a lot of money in a short period of time around June 1, and it is impossible to predict exactly how much revenue is going to be coming in and when.In a report published on Thursday, the Bipartisan Policy Center, a think tank that carefully tracks federal spending, estimated that the government would spend $101 billion on June 1. Most of that money — $47 billion — will go toward Medicare, while the rest will be directed to veterans’ benefits, military pay and retirement, civil service retirement and supplemental security income. On June 2, the government has to pay $25 billion in Social Security benefits and another $2 billion for Medicaid.During those two days, the government is projected to spend about $140 billion and bring in only $44 billion in tax revenue, leaving the nation’s coffers operating on fumes.Revenues sputter as refunds flow.One big problem this year is that tax revenues have been coming in at a more tepid pace than anticipated.Severe storms, flooding and mudslides in California, Alabama and Georgia this year prompted the Internal Revenue Service to push the April 18 tax-filing deadlines in dozens of counties to October.Another surprising reason that cash is running lower than some budget experts projected is that the I.R.S. is starting to operate more efficiently. As a result of the $80 billion that the agency received as part of the Inflation Reduction Act last year, it has been able to ramp up hiring and chip away at the backlog of unprocessed tax returns.Because the I.R.S. has been processing returns more quickly, it is also paying out refunds more quickly and draining the amount of available cash.June 15 is a critical day.If Ms. Yellen can find enough coins in Treasury’s couch to pay the bills until June 15, the United States could find itself with a bit of breathing room.That is because June 15 is when third-quarter payments are due from corporations and people who are required to pay their tax bills throughout the year or choose to make payments every three months to avoid having large bills due in April.The Congressional Budget Office said in a report last week that an expected influx of quarterly tax receipts on June 15 and the availability of additional extraordinary measures would probably allow the government to continue financing operations through at least the end of July.The government could receive approximately $80 billion in tax revenue that day. The Bipartisan Policy Center estimates that those funds could be sufficient to keep the federal government afloat until June 30. At that time, Ms. Yellen would also have some additional extraordinary measures at her disposal — a suspension of investments into retirement funds for federal workers — that would allow her to unlock an additional $145 billion and potentially delay a default until well into July.It’s too close to call.The lack of clarity about the X-date has made it difficult for lawmakers to know how much pressure they are under to strike a deal. The government may not know how quickly cash is running out until right before the country faces default.But pressure is still mounting. Congress is likely to take days — if not weeks — to pass legislation to raise the debt ceiling. And even if President Biden and Speaker Kevin McCarthy strike an agreement, there is no guarantee that the House and Senate will easily pass the legislation.The legislative calendar gets increasingly complicated as summer approaches.Mr. McCarthy and Senator Chuck Schumer, Democrat of New York and the majority leader, would need to navigate legislation reflecting that agreement through their respective chambers, and the days left to do so are rapidly dwindling. The House is scheduled to be in session for only six days before the end of the month. The Senate is set for just five and is scheduled to be out of Washington beginning on Monday before the Memorial Day weekend.Mindful that lawmakers are loathe to reschedule their recesses, analysts have been watching the legislative schedule closely as they try to read the debt limit tea leaves. If no deal is signed into law by Memorial Day and Ms. Yellen does not announce that the X-date is delayed, that could raise the likelihood of a short-term suspension of the borrowing cap to give Congress more time to act.“The congressional calendar is king and will dictate urgency and passage dates for a bill, as has historically been the case,” Henrietta Treyz, the director of economic policy at Veda Partners, said in a note to clients this month. More

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    Debt Ceiling: U.S. Could Run Out of Cash by June 1, Yellen Warns

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    President Biden said he would meet with lawmakers on May 9 to discuss ways to avoid a default.WASHINGTON — Treasury Secretary Janet L. Yellen said on Monday that the United States could run out of money to pay its bills by June 1 if Congress does not raise or suspend the debt limit, putting pressure on President Biden and lawmakers to reach a swift agreement to avoid defaulting on the nation’s debt.The more precise warning over when the United States could hit the so-called X-date dramatically reduces the projected amount of time lawmakers have to reach a deal before the government runs out of money to pay all of its bills on time.The new timeline could accelerate negotiations between the House, Senate and Mr. Biden over government spending — a high-stakes standoff between the president and the House Republicans who have refused to raise the limit without deep spending cuts attached.In response to Ms. Yellen’s new timeline, Mr. Biden on Monday called the top four leaders in Congress to ask for a meeting on May 9 to discuss fiscal issues. The president reached out to Speaker Kevin McCarthy and Representative Hakeem Jeffries of New York, the minority leader, along with Senator Chuck Schumer of New York, the majority leader, and Senator Mitch McConnell of Kentucky, the minority leader.Economists have warned that failure to raise the debt limit, which caps the total amount of money the United States can borrow, threatens to rock financial markets and throw the global economy into a financial crisis.Because the United States runs a budget deficit — meaning it spends more money than it takes in — it must borrow huge sums of money to pay its bills. In addition to paying Social Security benefits, along with salaries for the military and government workers, the United States is also required to make interest and other payments to the bondholders who own its debt.The Treasury Department had previously projected that it could run out of cash sometime in early June, but the new estimate raises the alarming prospect that the United States could be unable to make some payments, including to bondholders, in a matter of weeks.“Given the current projections, it is imperative that Congress act as soon as possible to increase or suspend the debt limit in a way that provides longer-term certainty that the government will continue to make its payments,” Ms. Yellen said in a letter to Congress.The Congressional Budget Office also warned on Monday that time was running out more quickly than previously thought. The nonpartisan budget office said tax receipts from income payments that were processed in April were smaller than it had anticipated and that future tax payments were unlikely to have much impact.“That, in combination with less-than-expected receipts through April, means that the Treasury’s extraordinary measures will be exhausted sooner than we previously projected,” Phillip Swagel, the C.B.O. director, wrote in an analysis posted on the agency’s website.White House officials had not expected the date of possible default to arrive so soon, and the accelerated timetable could scramble the president’s approach to the potential crisis.Mr. Biden has continued to insist he will not negotiate directly over the limit, saying Congress must raise the cap without conditions. The newly compressed calendar leaves little time for the president and congressional leaders to find agreement on raising the limit. Mr. McCarthy is traveling in the Middle East this week. Later this month, Mr. Biden is scheduled to attend the Group of 7 nations leaders’ summit in Japan, then travel on to Australia for a summit with the leaders of Japan, India and Australia.House Republicans passed legislation in April that would raise the debt limit in exchange for deep spending cuts and roll back recent climate legislation that Democrats passed along party lines. Mr. Biden has blasted that bill, saying it would hurt working families while benefiting the oil and gas industry, and he has accused Republicans of putting America’s economy on the line.On Monday, the president called on Republicans “to make sure the threat by the Speaker of the House to default on the national debt is off the table.”“For over 200 years, America has never, ever, ever failed to pay its debt. To put in the capital — in colloquial terms, America is not a deadbeat nation. We have never, ever failed to meet the debt,” Mr. Biden said.Republican Senators reacted to the news on Monday by emphasizing the onus was now on Mr. Biden to negotiate to avoid economic calamity.“It is very scary,” Senator Joni Ernst of Iowa and a member of Republican leadership said of the looming crisis. “President Biden needs to step it up and get to the table. Kevin McCarthy and the folks in the house, they did their part.”Some expressed optimism that the approaching deadline would force action.“Washington’s at its best when it has a deadline to respond to,” Senator Thom Tillis, Republican of North Carolina, said.Mr. Schumer and Mr. Jeffries urged Republicans to lift the limit immediately with no strings attached. “We do not have the luxury of waiting until June 1 to come together, pass a clean bill to avoid a default and prevent catastrophic consequences for our economy and millions of American families,” the lawmakers wrote in a joint statement on Monday. While there is bipartisan agreement that the nation needs to find a way to reduce the gap between when it spends and what it collects, even the most ardent supporters of fiscal reform say the debt limit must be raised.“We need to raise the debt limit as soon as possible, without drama and without serious risk of default,” said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget. “To threaten default or drag one’s feet is the height of irresponsibility. Lawmakers need to commence serious discussions immediately.”The possibility of a default by June 1 could compel lawmakers to agree to a short-term increase or suspension of the debt limit to provide more time for negotiations. But even that temporary salve is far from assured given competing factions within the Republican Party.The United States technically hit its $31.4 trillion debt limit in January, forcing the Treasury Department to employ accounting maneuvers known as extraordinary measures to allow the government to keep paying its bills, including payments to bondholders who own government debt. Ms. Yellen said at the time that her powers to delay a default — in which the United States fails to make its payments on time — could be exhausted by early June. She cautioned, however, that the estimate came with considerable uncertainty.Tax receipts depend on a complicated array of factors such as the jobless rate, wages and whether taxpayers submit their returns on time. On Monday, the Treasury secretary underscored the challenges of predicting the default date, noting that the new estimate was based on currently available data that is inherently variable, such as tax payments from individuals.“The actual date that Treasury exhausts extraordinary measures could be a number of weeks later than these estimates,” Ms. Yellen said.A Treasury Department official said that, as of April 30, the government had a cash balance of about $300 billion. Ms. Yellen’s ability to delay a default will depend in part on how much tax revenue comes into the federal government this spring.Payments for the 2022 tax year are still arriving. Goldman Sachs economists projected last week that by the second week of June, the Treasury Department could have about $60 billion of cash remaining, which would allow the government to keep making its payments until late July.Some budget analysts have suggested that winter storms could complicate the Treasury Department’s ability to delay a default. Severe storms, flooding and mudslides in California, Alabama and Georgia this year prompted the Internal Revenue Service to push the April 18 filing deadline to October for dozens of counties.The I.R.S. also gave those affected areas more time to make contributions to retirement and health savings accounts, potentially affecting their taxable income.Ms. Yellen has already been taking steps to ensure that the federal government has sufficient cash on hand.Earlier this year, she announced that she would redeem some existing investments and suspend new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund.Ms. Yellen said on Monday that the Treasury Department was suspending the issuance of State and Local Government Series Treasury securities to help manage the risks associated with the debt limit. She lamented that the move would deprive state and local governments of an important tool to manage their finances.Brinkmanship over the debt limit has revived debates over how far the executive branch can go to avoid a default. Ms. Yellen, however, has dismissed the notion that she could prioritize certain payments or mint a platinum coin worth $1 trillion to ensure that the United States remains solvent.Although markets have broadly remained calm about the prospect of a default, there are some signs that investors are becoming nervous.They have sold government bonds that mature in three months — around the time policymakers have said the United States could run out of cash — and snapped up bonds with just one month until they are repaid.The cost of insuring existing bond holdings against the possibility that the United States will default on its debts has also risen sharply. Still, some analysts say the market reaction would need to be much more pronounced to force a fast deal.In a separate report issued by the Treasury Department on Monday about the risks facing the economy, Eric Van Nostrand, the acting assistant secretary for economic policy, laid out the dire consequences of failing to raise the debt limit.“A default by the U.S. government — including the failure to pay any of the United States’ obligations — would be an economic catastrophe, sparking a global downturn of unknown but substantial severity,” Mr. Van Nostrand said.Catie Edmondson More

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    Trickling Tax Revenue Complicates Debt Limit Talks

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    The Treasury Department’s ability to delay a default, the so-called X-date, hinges on how fast the money is coming in.WASHINGTON — A vote by House Republicans last week to lift the nation’s debt limit in exchange for deep spending cuts was the first step in what is likely to be a protracted battle over raising or suspending the borrowing cap to avoid defaulting on United States debt.But while Republicans and President Biden and his fellow Democrats are gearing up for a fight, a key question is beginning to sow unease in Washington and on Wall Street: How much time is there to strike a deal?The United States technically hit its $31.4 trillion debt limit in January, forcing the Treasury Department to employ accounting maneuvers known as extraordinary measures to allow the government to keep paying its bills, including payments to bondholders who own government debt. Treasury Secretary Janet L. Yellen said at the time that her powers to delay a default — in which the United States fails to make its payments on time — could be exhausted by early June. She cautioned, however, that the estimate came with considerable uncertainty.With June now just a few weeks away, uncertainty around the timing of when the United States will run out of cash — what’s known as the X-date — remains, and determining the true deadline could have huge consequences for the country.Tax receipts will be key to the X-date.Determining the X-date depends on a complex set of factors, but ultimately what matters most is how much money the government spends and how much it takes in through taxes and other revenue.The Bipartisan Policy Center, which tracks federal revenues, projected in February that lawmakers would need to raise or suspend the debt limit sometime between summer and early fall to avoid a default. The specific date would largely depend on how quickly tax revenues are coming into the government’s coffers.There are signs that 2022 tax receipts are trickling in too slowly for comfort. Economists at Wells Fargo wrote in a note to clients last week that because tax collections appear to be weaker than expected, there is a chance the X-date could be as soon as early June. However, they continue to believe early August is the most likely default deadline.“A low but not insignificant probability of a U.S. default is still very concerning, and we would think the last thing Treasury officials want is an X-date that sneaks up on Congress,” they wrote.Tax day payments are still arriving. Goldman Sachs economists projected last week that by the second week of June, the Treasury Department could have around $60 billion of cash remaining, which would allow the government to keep making its payments until late July.Natural disasters could fuel a debt disaster.There is a surprising factor that could cause the X-date to arrive sooner: the weather. Severe storms, flooding and mudslides in California, Alabama and Georgia this year prompted the Internal Revenue Service to push the April 18 filing deadlines in dozens of counties to October.The I.R.S. said this year that, because of the storms, individuals and businesses in the affected areas could file their returns late. They were also given more time to make contributions to retirement and health savings accounts.Farmers, who often file their tax returns by March 1, also have received a reprieve until Oct. 16, and estimated payments that normally would have been made in January were allowed to be pushed back to that date.It is not clear how much tax revenue has been delayed by the storms, but the extensions have given the Treasury Department less wiggle room to keep paying the bills.An update could come this week.The Treasury Department is expected to send a letter to Congress in the coming days with a more precise estimate of when it could start running out of cash. It could also lay out new measures intended to stave off a default. This year, Ms. Yellen announced that she would redeem some existing investments and suspend new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund.In a speech last week, Ms. Yellen warned that a default would have real consequences for the economy.“Household payments on mortgages, auto loans and credit cards would rise,” Ms. Yellen said in remarks to the Sacramento Metropolitan Chamber of Commerce. “And American businesses would see credit markets deteriorate.”She added, “On top of that, it is unlikely that the federal government would be able to issue payments to millions of Americans, including our military families and seniors who rely on Social Security.”Here’s what the X-date means for negotiations.As the X-date approaches, it will put more pressure on lawmakers to take action.Analysts at Beacon Policy Advisors predicted that if a default could really happen as soon as June, that would increase the likelihood that Congress will pass a short-term suspension of the debt limit through October. If the X-date is expected to hit in July, that might compel lawmakers to file legislation by early May so they have sufficient time to deal with procedural obstacles in Congress.Although markets have broadly remained calm about the prospect of a default, there are some signs that investors are becoming nervous.They have sold government bonds that mature in three months — around the time policymakers have said the United States could run out of cash — and snapped up bonds with just one month until they are repaid.The cost of insuring existing bond holdings against the possibility that the United States will default on its debts has also risen sharply. Still, analysts say the market reaction would need to be much more pronounced to force a fast deal.“This has caused some heartburn among policymakers but not enough to move the negotiating needle in a meaningful way,” the Beacon analysts wrote. “There needs to be a bigger market response and a more definitive X-date to get negotiations going in full.”That has yet to happen, however. While Mr. Biden has indicated he is open to talking with Speaker Kevin McCarthy about ways to get the nation’s fiscal situation on a better track, the two have yet to schedule a meeting after the House passage last week. More

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    I.R.S. Unveils $80 Billion Plan to Overhaul Tax Collection

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    The 10-year strategy document outlines a focus on improving customer service and cracking down on tax evasion by corporations and the wealthy.WASHINGTON — The Internal Revenue Service on Thursday unveiled an $80 billion plan to transform itself into a “digital first” tax collector focused on customer service and cracking down on wealthy tax evaders. The move lays the groundwork for an ambitious 10-year overhaul of one of the most scrutinized arms of the federal government.The effort is a key part of President Biden’s economic agenda, which aims to reduce the nation’s $7 trillion of uncollected tax revenue and use the funds to combat climate change, curb prescription drug prices and pay for other initiatives prized by Democrats.The plan is also at the heart of the White House’s goal of making tax administration fairer. The report indicates that more than half the new money will be dedicated to ensuring that rich investors and large corporations cannot avoid paying the taxes that they owe.The $80 billion is the largest single infusion of funds in the agency’s history and was included in the Inflation Reduction Act, the sweeping climate and energy legislation that Democrats pushed through last year.According to the Biden administration, the investment will yield hundreds of billions of dollars in deficit reduction. But efforts to bolster the I.R.S. have drawn strong opposition from Republicans, who have long accused the agency of improperly targeting them.The report released Thursday was requested by Treasury Secretary Janet L. Yellen, whose department oversees the tax agency.In a memorandum to Ms. Yellen that accompanied the report, Daniel I. Werfel, the new I.R.S. commissioner, said he would focus new enforcement resources on “hiring the accountants, attorneys and data scientists needed to pursue high-income and high-wealth individuals, complex partnerships and large corporations that are not paying the taxes they owe.”Daniel I. Werfel, the new I.R.S. commissioner, said the agency’s staff expansion would aim to improve its ability to collect unpaid taxes from the wealthy and big corporations.Shuran Huang for The New York TimesThe I.R.S. has about 80,000 full-time employees, about 20 percent fewer than it had in 2010 even though the U.S. population is now larger and the tax system more complex. The agency’s resources have also declined over the years, as Republicans have sought to cut its funding and, in some cases, called for its abolition. The financial strain has led to backlogs of tax filings, delayed refunds, long waits for taxpayers who call the agency with questions and plunging audit rates.In recent months, the I.R.S. has ramped up hiring to improve its customer service capacity and has been racing to complete the processing of old tax returns, most of which were filed on paper rather than electronically.The plan released on Thursday details how the I.R.S. intends to become a “digital first” organization that provides “world class” service to taxpayers. That includes the replacement of antiquated technology and the introduction of systems that will allow taxpayers greater access to their financial information, easier communication with the I.R.S. and new ways to correct errors as returns are being filed.The most sweeping and politically sensitive changes involve enforcement. The I.R.S. plans to introduce more data analytics and machine-learning technology to better detect cheating, and it aims to bolster its teams of revenue agents and tax attorneys so that the agency is not overwhelmed when auditing complicated business partnerships or corporations.The I.R.S. plan repeatedly emphasizes that it will honor Ms. Yellen’s directive that the new money not be aimed at increasing audit rates for taxpayers who earn less than $400,000 a year — a pledge meant to align with Mr. Biden’s promise not to raise taxes on low- and middle-income Americans. The plan echoes Ms. Yellen’s assurance that those audit rates will not rise above “historical levels,” but does not specify the levels, suggesting that audit rates could rise above their existing levels.In a briefing for reporters on Thursday, however, Mr. Werfel said that in the near term, audit rates for those making less than $400,000 would not rise.“We have years of work ahead of us, where we will be 100 percent focused on building capacity for higher-income individuals and corporations,” he said.But Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center, said it would be a challenge for the I.R.S. to determine whether taxpayers reporting an income under $400,000 were doing so legitimately, without being able to audit some of them initially. Ultimately, she said, the agency will need to decide on an acceptable audit rate for people under that income level.Mr. Werfel acknowledged that the I.R.S. would have to be alert in instances when taxpayers earn, for example, $5 million in a given year and $399,000 a year later.“We might take a second look at that,” he said.The plan lays out benchmarks for many of its goals, but it leaves unanswered questions.The I.R.S. is in the midst of a $15 million study to determine if it can create its own system enabling more taxpayers to file their federal returns online at no cost. This idea has met resistance from lobbying groups representing the tax preparation industry.The agency has faced criticism this year after the publication of a study that showed Black taxpayers are at least three times as likely as other taxpayers to face I.R.S. audits, even after the study accounted for the differences in the types of returns that each group is most likely to file. The plan includes using data to support “equity analyses” and says a key project will be developing procedures to evaluate the fairness of I.R.S. systems.The Treasury Department said earlier that the investment in the I.R.S. would lead to the hiring of 87,000 employees over 10 years, and has suggested that with anticipated attrition its head count could top 110,000 by the end of the decade. But the operating plan does not give an estimate for the agency’s eventual head count, and Wally Adeyemo, the deputy Treasury secretary, said on Thursday that I.R.S. did not want to be “locked in” to long-term hiring requirements before learning how new technology would affect its staffing needs.Mr. Werfel batted down claims by Republican lawmakers that the I.R.S. would be hiring thousands of armed “agents” to scrutinize middle-class taxpayers and small businesses. He said that only 3 percent of the I.R.S. work force was in the criminal investigations division, which has access to weapons, and that there were no plans to increase that percentage. The plan projects that the I.R.S. will hire more than 7,000 new enforcement employees over the next two years.Despite efforts to focus on technology and taxpayers services, the plan is likely to stoke criticism.Erin M. Collins, the national taxpayer advocate, wrote in a blog post on Thursday that the plan had the potential to transform tax administration but that the money was disproportionately invested in enforcement.“I believe Congress should reallocate I.R.S. funding to achieve a better balance with taxpayer service needs and IT modernization,” Ms. Collins, who serves as a watchdog for the I.R.S., wrote.The report notes that if the agency’s annual funding is curtailed over the coming years, some of the $80 billion might be needed to maintain its basic operations. That would force the I.R.S. to scale back its overhaul.House Republicans in January voted to pare the allocation, and Republican reaction to the report on Thursday indicated that the political fight over the I.R.S. will only intensify.“The Democrats are further weaponizing the most-feared agency in all of the federal government: the IRS,” Representative Mike Kelly, Republican of Pennsylvania and a member of the House Ways and Means Committee, said on Twitter. “Make no mistake — we are using money from hardworking American taxpayers to go after hardworking American taxpayers.”Former Gov. Nikki Haley of South Carolina, a candidate for the Republican presidential nomination, said on Twitter, “Does anyone believe the IRS won’t go after middle America?” More

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    IRS Decision Not to Tax Certain Payments Carries Fiscal Cost

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    The Biden administration has opted not to tax state payments to residents, a decision that could add to the nation’s fiscal woes.WASHINGTON — More than 20 state governments, flush with cash from federal stimulus funds and a rebounding economy, shared their windfalls last year by sending residents one-time payments.This year, the Biden administration added a sweetener, telling tens of millions taxpayers they did not need to pay federal taxes on those payments.That decision by the Internal Revenue Service, while applauded by some tax experts and lawmakers, could cost the federal government as much $4 billion in revenue at a time when Washington is struggling with a ballooning federal deficit and entering a protracted fight over the nation’s debt limit.The I.R.S.’s ruling came after bipartisan pressure from lawmakers and was the latest move by the agency to forgo revenue this tax season.In December, the I.R.S. delayed by a year a new requirement that users of digital wallets like Venmo and Cash App report income on 1099-K forms if they had more than $600 of transactions. That requirement, which was part of the American Rescue Plan of 2021, was projected to raise nearly $1 billion in tax revenue per year over a decade. The last-minute decision to delay it followed intense lobbying from business groups and political backlash directed at the Biden administration, which was accused of breaking its pledge not to raise taxes on people making less than $400,000.Taken together, the moves by the I.R.S. run counter to two big economic issues bedeviling Washington — rapid inflation and concerns about the government’s ability to avoid defaulting on its debt.Allowing residents to avoid paying taxes on their state rebates means more money in their pockets to spend at a moment when the Federal Reserve is trying to rein in consumer and business spending to cool rising prices. A report released on Friday showed that, despite the Fed’s efforts to slow the economy, personal spending sped up in January.Understand the U.S. Debt CeilingCard 1 of 5What is the debt ceiling? More

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    IRS Releases Inflation-Adjusted Tax Rates for 2023

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    Filers whose salaries have not kept pace with inflation could see savings on their federal income tax bills.WASHINGTON — The rapidly rising cost of food, energy and other daily staples could allow many Americans to reduce their tax bills next year, the I.R.S. confirmed on Tuesday.Tax rates are adjusted for inflation, which in typical times means incremental movements in the thresholds for what income is taxed at what rate. But after a year that brought America’s fastest price growth in four decades, the shift in rates is far more notable: an increase of about 7 percent.Other parts of the tax code will also be affected by the inflation adjustment. Those include the standard deduction Americans can claim on their tax returns.The shift would be slightly larger if not for a change Republicans made as part of President Donald J. Trump’s tax overhaul that was passed in 2017. It tied rates to a measure of inflation, called the chained Consumer Price Index, that typically rises more slowly than the standard Consumer Price Index. In September, chained C.P.I. was up about a quarter of a percentage point less, compared with the previous year, than standard C.P.I.In dollar figures, the shift will be largest at the highest end of the income spectrum, although all seven income brackets will adjust for inflation. The top income tax rate of 37 percent will apply next year to individuals earning $578,125 — or $693,750 for married couples who file joint returns. That is up from $539,900 for individuals this year. The difference: Nearly $40,000 worth of individual income is eligible to be taxed next year at a lower rate of 35 percent.Inflation F.A.Q.Card 1 of 5What is inflation? More