With the tax deadline less than a month away and the economy still reeling and millions unemployed, the Treasury Department and the IRS should act now to extend the tax filing deadline to Oct. 15.
In late March, Treasury Secretary Steven Mnuchin, at the direction of President Trump, delayed Tax Day from April 15 to July 15. This move provided tax relief to millions of individual and business taxpayers and avoided imposing a $300 billion tax increase on the struggling economy.
That tax relief, and a series of other steps taken by federal policymakers, have helped to some extent. But we are still amid an unprecedented economic collapse, with historic increases in unemployment, and the last thing we should be doing right now is draining $300 billion out of the economy.
Although we may have hit bottom, the damage to our economy has been severe, and we face a long road to recovery. The economic pain and suffering is widespread, and we still have a long way to go before jobs, household income, and business activity can recover.
Economic growth fell at a 5% annual rate in the first quarter, and second-quarter economic growth is falling rapidly, with most forecasters projecting economic growth to fall at an annual rate of between 30% and 40%. It makes no sense to force millions of taxpayers to send billions of dollars to the IRS when the economy is falling off a cliff.
Small businesses, which provide nearly half of all jobs, have been devastated by the economic collapse. Many of them are struggling to survive, posing a major threat to millions of jobs. Extending the tax filing deadline for another three months would, in effect, be an interest-free loan to these small businesses and other taxpayers.
A tax filing delay is a cost-effective way to help the economy. Since the taxes will eventually be paid, the long-term fiscal impact on the federal budget will be minimal. But the short-term fiscal impact on the economy and struggling taxpayers will be significant.
The National Treasury Employees Union has called for an extension of the filing deadline to Oct. 15, citing both economic and health conditions. The union argues that another three-month delay will give taxpayers needed economic relief and provide IRS employees more time to return to work safely and process the returns.
The National Taxpayers Union has also called for a delay until Oct. 15. The organization notes that with the economy still in dire condition, an extension will provide taxpayers a short-term loan until the economy improves. They also point out that many IRS employees are still working remotely and that most tax preparation clinics and accounting firms are still closed.
Mnuchin has said that the economy is still experiencing significant damage and that it definitely needs additional fiscal stimulus. He also has pledged to use all of the fiscal tools available to him to restore the economy to where it was before the coronavirus hit.
Extending the filing deadline for another three months is one fiscal tool that should be implemented right away. If the deadline is not extended, the economy and millions of taxpayers, including many struggling small businesses, will face a tax increase of hundreds of billions of dollars. Delaying Tax Day for another three months will give taxpayers and our economy a cash cushion and fiscal relief until economic growth is restored.
Bruce Thompson was assistant secretary of Treasury for legislative affairs during the Reagan administration and director of government relations for Merrill Lynch for 22 years.
