13 February 2020 Secretary Mnuchin testifies at Senate Finance Committee During the Senate Finance Committee's FY 2021 budget hearing with Treasury Secretary Steven Mnuchin February 12, the partisan debate continued over the drop in corporate tax receipts and how much the Internal Revenue Service's regulations implementing the international provisions of the Tax Cuts & Jobs Act (TCJA) contributed to the change in the Congressional Budget Office's (CBO) revenue baseline. Chairman Chuck Grassley (R-IA) pushed back against that notion at the hearing, following a floor speech on the issue February 11 during which he attributed the CBO's adjustments (the CBO's recent estimates attributed $110 billion in the drop in corporate revenues to the international provisions) to economic factors and changes in government data, such as: (1) overstated Bureau of Economic Analysis estimates of corporate receipts between 2016 and 2018, which, when corrected, translates to lower tax receipts; (2) economic factors, like recent trade actions and tariffs, the strengthening of the US dollar and the softening of foreign economies, all of which affect expected corporate profits; and (3) "everything we're learning about implementation of the new tax rules, including regulatory guidance, new forms and instructions and modeling improvements to better reflect updated economic projections." In his opening statement at the hearing, Ranking Member Ron Wyden (D-OR) said, "it recently came to light that the Trump administration — acting on their own — found a way to milk the 2017 tax law to create more than $100 billion in shiny new corporate tax loopholes." The "loopholes," he said, are not in the enacted bill, rather "are the product of tricky regulatory maneuvering — some of which looks to me like it goes beyond the Treasury's legal authority." Senators Wyden and Sherrod Brown (D-OH) February 12 introduced a bill to try to prevent the Treasury from finalizing proposed regulations that would call for a global intangible low-taxed income (GILTI) high tax exception. Specifically, the Blocking New Corporate Tax Giveaways Act would clarify that high-taxed amounts are excluded from tested income as part of the GILTI calculation only if such amounts would be foreign base company income or insurance income. A February 11 letter from the Treasury Department Office of Legislative Affairs to Senator Wyden said the concerns over the TCJA regulatory process seem to be rooted in a December 30 New York Times article, "How Big Companies Won New Tax Breaks from the Trump Administration," regarding the GILTI high tax exception and exceptions to the base erosion and anti-abuse tax (BEAT) concerning capital requirements imposed by US banking regulators on foreign headquartered banks. The letter states in detail how the regulatory process related to those provisions has been open, transparent and free from improper influence. Chairman Grassley told Secretary Mnuchin the idea that the regulatory process occurred in secret is hard to understand given the notice and comment period relating to all agency regulations, and that he doesn't see how the agency can implement the law without listening to stakeholders. He asked whether Treasury decisions about tax reform regulations have been developed through departmental analysis and consistent with legislative intent. Secretary Mnuchin said, and repeated at several points during the hearing, that Treasury's job is to implement the law consistent with congressional intent, and he noted the notice and comment period. Chairman Grassley cited the factors behind CBO's downward adjustment from his earlier floor speech, noted that the issue was discussed during a February 11 House Ways and Means Committee hearing, and suggested it is too early to determine the impact of the tax reform law on tax receipts. Senator Rob Portman (R-OH) expressed support for the proposed GILTI high tax exception and suggested it is "ridiculous" to label it as a giveaway in part because it would only apply to foreign earnings above a foreign effective tax rate of 18.9%. He noted that this rate is much higher than the 13.125% effective tax rate that members thought would be the minimum tax threshold under GILTI. "I would say if anything your approach has been cautious," he said to Secretary Mnuchin. As a general matter, "I think you have done a very good job of trying to implement what was a complicated tax bill … particularly on the international side," Senator Portman said, noting that the ideas that shaped the international portion of the bill were developed on a bipartisan basis in the years leading to its enactment, despite the TCJA ultimately being opposed by Democrats. Senator Pat Toomey (R-PA) expressed concern over digital services tax (DST) proposals that European nations are trying to impose on US companies, and said he hopes the recent truce with the French over the issue through this year allows room for a broader international tax agreement, which would be best crafted within the OECD. Secretary Mnuchin said the issues are complex but the President has been clear that DSTs are an unfair attack on US companies, and that neither France nor the UK will be collecting DSTs this year while a multilateral solution is sought. "We are actively working on that and that is a priority for us for the balance of this year," the Secretary said. Senator Toomey also raised the need to correct the TCJA drafting error regarding the depreciation of qualified improvement property (QIP) to clarify that it is 15-year property under the modified accelerated cost recovery system and 20-year property under the alternative depreciation system and is eligible for 100% bonus depreciation. Secretary Mnuchin said there is bipartisan agreement that this was a drafting error, that it cannot be fixed through Treasury regulations, and it is "our number one request to get a congressional fix for." The Senator said he is also preparing legislation that would make permanent TCJA expensing provisions, which are phased down after 2022. Secretary Mnuchin agreed that full expensing is good for the economy. Senator Maggie Hassan (D-NH) mentioned her bipartisan legislation with Senator Thom Tillis (R-NC), the Research and Development Tax Credit Expansion Act (S. 2207), to modernize the R&D credit for startups, and asked Secretary Mnuchin whether Treasury is willing to look at that issue. Mnuchin said he is and will have his office follow up. "What we are really focusing on is companies that don't have a tax liability yet," Senator Hassan said. Senator John Thune (R-SD) noted that the Administration addressed worker classification in its latest budget proposal, and discussed his New Economy Works to Guarantee Independence and Growth (NEW GIG) Act of 2017 (S. 1549), legislation that addresses the classification of workers — independent contractors versus employees — and creates a safe harbor for those who meet a set of objective tests that would qualify them as an independent contractor, both for income and employment tax purposes. Senator Thune also said that in the post-Wayfair world there is the potential for discriminatory duplicative taxes on digital goods and services including online downloads of music, literature, movies, mobile apps and cloud computing services, and said he has worked with Ranking Member Wyden to introduce the Digital Goods and Services Act (S. 765). Asked whether he agrees that more certainty on these and other interstate commerce issues is needed after the Wayfair decision, Mnuchin said he looked forward to working with him on that issue. "Well, we're going to give you that opportunity. We are going to have a hearing on that real soon in the Senate Commerce Committee," Senator Thune said. Secretary Mnuchin promised regulations within weeks regarding the Section 45Q carbon capture tax credit, following a February 11 New York Times story on the absence of guidance regarding the credit. Senator Debbie Stabenow (D-MI) encouraged support for the Rehabilitation for Multiemployer Pensions Act (H.R. 397), also known as the Butch Lewis Act, to address the multiemployer pension crisis, which was passed by the House last year. Chairman Grassley and Senator Wyden's opening statements, Secretary Mnuchin's testimony, Treasury's letter to Senator Wyden, and the Blocking New Corporate Tax Giveaways Act are attached.
Document ID: 2020-0361 | ||||
