July 15, 2024 This Week in Tax Policy | July 15, 2024 This Week (July 15-19) Congress: The House and Senate are out this week for the Republican National Convention in Milwaukee, WI. As the Senate went out of session for the week July 10, Majority Leader Chuck Schumer (D-NY) took procedural steps toward potential confirmation votes as soon as the week of July 22 on two Tax Court nominees: Kashi Way, who is Legislation Counsel at the Joint Committee on Taxation, and Adam Landy, a Special Trial Judge. The Tax Court nominations were part of a first tranche reported out favorably by the Finance Committee June 13, and the Committee held a hearing July 10 to consider the additional nominations of Jeffrey Samuel Arbeit (currently Legislation Counsel with the staff of the Joint Committee on Taxation), Benjamin A. Guider III, and Cathy Fung to be Tax Court judges. Currently, six of the 19 Tax Court seats are vacant. Upon returning the week of July 22, the House is expected to focus on FY2025 appropriations bills. Last Week (July 8-12) 2025 tax cliff: Tax and other policy matters in Washington are being overshadowed by broader issues in the presidential race, but Republicans and Democrats continue to debate the degree to which 2001/2012/2017 tax cuts contributed to the worsening deficit and debt picture and how TCJA provisions expiring at the end of 2025 should be extended, mainly whether extensions should be paid for, in full or in part. Democrats are focused on tax increases on corporations and wealthy individuals. President Biden's primetime post-NATO summit news conference July 11 didn't veer too far into tax policy, like the first debate before it, but the President, in response to a question about his legacy, did restate one of the tenets of his campaign, which is that "the wealthy [have] got to start paying their taxes." He has previously criticized the cost of the TCJA — estimated by the Congressional Budget Office (CBO) to be $4 trillion over 10 years, before interest costs are factored in — and Republicans for wanting a wholesale extension of the individual and pass-through provisions that expire and some policies that are scheduled to become more onerous for corporations after 2025. This mirrors the partisan debate in Congress, where Democrats are more pointedly blaming tax cuts for deficit impacts following the June 18 CBO Budget & Economic Outlook showing higher deficits and debt than previously projected, in the current year and over the 10-year budget window. During a July 9 Senate Budget Committee on the CBO outlook, Chairman Sheldon Whitehouse (D-RI) said "you can ascribe an enormous amount of our problem" to the extension of the 2001 Bush tax cuts in 2012. Appropriations Chair Patty Murray (D-WA) said at the hearing, "the single biggest driver of our national debt since 2001 has been Republican tax cuts" and topping their agenda in 2025 is a TCJA extension. Treasury Secretary Janet Yellen was in lockstep with that message regarding the deficit impact of the TCJA during a June 9 House hearing. She said, "it was a tax cut that had a very large impact on the deficit and the national debt. So, it was costly. It was regressive. It did not pay for itself. And in a way it concealed its true costs by including delayed raisers, phase-outs, and sunsets, some of which Congress will have to deal with next year. We did not see an investment boom that was promised by the Act … " Revenue offset targets: Republicans have identified some sources of potential revenue for TCJA extensions should they opt to include offsets, including Ranking Member Chuck Grassley (R-IA) at the Senate Budget hearing this week calling for reviewing Inflation Reduction Act (IRA) energy tax credits and "ending the law's subsidies for luxury EVs and other regressive giveaways." Press stories are focusing on energy, health, and nonprofit policies as targets. The energy issue isn't clear cut: odds of full or near-full repeal of IRA energy credits are low, as many projects are in GOP-led districts; Republicans, particularly from the Midwest, support credits for biodiesel, alternative fuel, and carbon capture and storage; and repealing tax credits for solar and wind projects is opposed by some Republican members. A story in the July 12 Bloomberg Daily Tax Report (DTR), "Energy Credits a Sticking Point in GOP's Hopes for Tax Package," said the Republican split over whether to roll back energy credits created and expanded by the IRA "could be a potential snag in GOP efforts" to plan for a major tax package in 2025. Credits related to carbon oxide sequestration, biofuel, hydrogen, and nuclear energy have Republican support, and others have generated new energy facilities and jobs in districts represented by Republican lawmakers, the report noted. "I cannot imagine a world, if we have the House, the Senate, and the presidency, where we do not pull up by its roots, many, if not all of the tax subsidies for green energy corporations," Rep. Jodey Arrington (R-TX), Budget Chairman and a member of the House Ways and Means Committee, said in June, according to the report. But "there's also people in the party who want to keep some of them, so it's going to depend on who's in charge and how big the majority is," said Rep. Andrew Garbarino (R-NY) in the story. Politico reported July 12, "Republicans are eyeing higher taxes on universities, hospitals and other tax-exempt groups to help cover the massive cost of re-upping their expiring tax cuts. Their antipathy toward tax hikes notwithstanding, they have a slew of proposals to increase a special excise tax on university endowment earnings … they're also considering going beyond that, to dun tax-exempt groups that can look a lot like for-profit businesses." The endowment tax has been scrutinized by House Ways & Means Committee members since at least 2015 and was part of one bill approved by the Committee this week addressing campus protests. In the Politico report, Ways & Means Chairman Jason Smith (R-MO) said, "I am sure that next year, in the Super Bowl of tax, the endowment tax is going to be top and center of who should fit within it and who should not." The story said more generally, "Aside from nonprofits, Republicans are also considering higher tariffs, raising the corporate tax rate and rescinding Democrats' electric vehicle subsidies to help defray the cost of any plan." Further, "Commercial banks have long complained credit unions don't have to pay income taxes, though they serve a similar purpose, and tax-exempt hospitals sit alongside taxable ones. Lawmakers across the political spectrum … have complained nonprofit hospitals don't provide enough charitable care to justify their tax exemption." A July 8 DTR report, "Obamacare Premium Benefits Targeted as GOP Pushes for Tax Cuts," said: "Conservatives, fighting for tax cuts, are building a case for letting Obamacare's premium tax credits expire next year, potentially leaving nearly 4 million people uninsured. People in low-to-moderate income households can get a refundable tax credit to buy health insurance through Affordable Care Act marketplaces, a provision Democrats expanded in 2021. The following year, Democrats extended the expansion through the end of 2025. President Joe Biden has called for making the expanded tax credit permanent … 'It's going to draw a lot of attention about how we proceed forward,' Rep. Kevin Hern (R-Okla.) said. 'There's a lot of money being spent so we got to figure out every avenue to get after this.'" 2024 tax bill: Press reports have suggested a Senate vote is possible during the pre-August work period on the House-passed Tax Relief for American Families and Workers Act (H.R. 7024) that would expand the Child Tax Credit and the Low-Income Housing Tax Credit (LIHTC); address the TCJA pre-cliffs on Section 174 5-year R&D amortization, 163(j) interest deductibility, and bonus depreciation; and provide disaster relief and tax treaty benefits with Taiwan. It's unlikely the bill will pass but will put Republicans on record and give Democrats up for re-election this year, like Senator Sherrod Brown (D-OH), campaign material. There are only two workweeks remaining for Congress prior to the August recess, with both chambers out the week of July 15 for the Republican National Convention in Milwaukee, WI. Punchbowl News reported July 12 that Majority Leader Chuck Schumer (D-NY) is still weighing how to use the pre-August stretch on the Senate floor, other members are more resolute, and there is still the question of breaking off pieces like the disaster relief that the House passed separately. "I want to get this done before Congress breaks for August," Senate Finance Committee Chair Ron Wyden (D-Ore.) told reporters this week, the report said. "I'm pulling out all the stops to do it, and many of my colleagues feel very strongly about it." Ways & Means campus protests, 529 markup: The House Ways & Means Committee July 9 approved along party lines bills related to campus protests (H.R. 8913, H.R. 8914) and 529 education plans (H.R. 8915), and Rep. Carol Miller's (R-WV) May 16 Congressional Review Act (CRA) Resolution (H. J. Res. 148) that disapproves of Treasury's May 3 Clean Vehicle Credit rulemaking (TD 9995), which is seen as having a good chance of passing Congress. Backers of the EV CRA resolution said that while the Inflation Reduction Act (IRA) states that beginning in 2025, any electric vehicles with batteries containing any critical minerals or components from a foreign adversary are ineligible for tax credits under IRC Sections 30D and 25E, the final rule released by the Biden administration allows foreign materials for eligible EV manufacturing. The resolution would force the Administration to re-write the rule in a different manner as to exclude adversaries from receiving US tax credits. It passed the Committee 25-14 along party lines, though it does have an off-Committee Democratic sponsor, Rep. Jared Golden (D-ME), and Senator Joe Manchin (D-WV) introduced the Senate version. If the CRA resolution passes the House, the Senate could be compelled to take it up even without the support of Democratic leadership, and all votes under the CRA are simple majority votes, not the filibuster-proof 60-vote threshold. With Senators Manchin and Sherrod Brown (D-OH) in favor, it would be expected to pass and be sent to the President and likely vetoed. "Depending on how the congressional calendar unfolds, Senate supporters of the effort likely have until sometime in September to call up the resolution, according to rules for fast-tracking CRA resolutions," Punchbowl News reported. The Senate must act on a disapproval resolution during a 60-days-of-Senate-session period, which begins on the date the rule has been submitted to Congress and published in the Federal Register, according to the Congressional Research Service. The Education and Workforce Freedom Act (H.R. 8915), to allow tax-exempt distributions from 529 plans to be used for additional educational expenses in connection with attendance at K-12 school (including homeschool) and for 529s to be used to pay for expenses associated with obtaining or maintaining recognized postsecondary credentials and licenses, passed the Ways & Means Committee 23-13. The Protecting American Students Act (H.R. 8913), which intends to incentivize universities to either enroll more American students or spend more of their endowment funds on those students to avoid being subject to the Endowment Tax, passed 24-13. The University Accountability Act (H.R. 8914), to levy a financial penalty against schools that have a civil judgment entered against them by a federal court for violating a student's civil rights, passed 24-12. Regulations: The Supreme Court's June 28 6-3 ruling overturning the 40-year Chevron case precedent, in Loper Bright Enterprises v. Raimondo, held that federal courts must "exercise their independent judgment in deciding whether an agency has acted within its statutory authority … " It is anticipated that corporations could newly challenge environmental, workplace safety, and other regulations. A June 28 Politico story that focused on the tax implications said the ruling "promises to curb the IRS's regulatory authority and spur increased litigation of controversial tax rules crafted by the agency." During the July 10 Senate Finance Committee hearing to consider the additional Tax Court nominations, Ranking member Mike Crapo (R-ID) asked, in light of the Supreme Court decision overturning the Chevron precedent, "how would you face this challenge of scrutinizing regulatory actions … [and] would you be willing to rule that a treasury regulation is invalid if the guidance does not align with the statutory language and the legislative history?" (The witnesses all answered in the affirmative.) On a related note, House Majority Leader Steve Scalise (R-LA) July 10 announced Committee activity in wake of the Supreme Court's decision in Loper Bright Enterprises v. Raimondo overturning Chevron deference, saying, "Committees are sending letters to their corresponding federal agencies to demand the review of various overreaching regulations." Stock buyback excise tax: An EY Alert on June 28 Treasury and IRS final regulations (TD 10002) regarding the reporting and payment of the excise tax on repurchases of corporate stock, "Final regulations on reporting and paying stock repurchase excise tax apply to filings due beginning October 31, 2024," is available here. IRA guidance tracker: This list describes select IRS guidance related to the Inflation Reduction Act (IRA). CAMT
Stock buyback excise tax
Domestic Content Bonus
EVs
Sustainable Aviation Fuel
Transferability
Direct pay
Alternative Fuel Vehicle Refueling Property Credit
IRC Section 45V clean hydrogen credit
IRC Section 45X Advanced Manufacturing Production Credit
IRC Sections 45Y, 48E clean electricity credits
IRC Section 45Z Clean Fuel Production Credit
Low-income Communities Bonus Credit
Advanced Energy Project Credit
IRC Section 48 ITC
IRC Section 45L Energy Efficient Home Credit
Wage and apprenticeship
Energy Community Bonus Credit
IRC Section 45J Nuclear Credit
CHIPS Act IRC Section 48D Advanced Manufacturing Investment Credit
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