January 6, 2021
What to expect in Washington (January 6)
In the January 5 Georgia Senate runoffs, Rev. Raphael Warnock defeated Senator Kelly Loeffler (R-GA), according to the AP and other news outlets. The second race, between Senator David Perdue (R-GA) and Jon Ossoff (D), remains too close to call (Ossoff is leading), and when a winner will be declared is uncertain. Senator Perdue issued a statement overnight saying in part, "this is an exceptionally close election that will require time and transparency to be certain the results are fair and accurate."
As a reminder, Georgia law does not require an automatic recount of votes, but a candidate can request a recount if the margin is less than or equal to 0.5%.
House Speaker Nancy Pelosi released a statement described as "following the election victories of Senator-elect Reverend Raphael Warnock and Senator-elect Jon Ossoff."
Democrats must win both races for a 50-50 split control of the Senate, with Vice President-elect Kamala Harris breaking ties. That would have enormous consequences for President-elect Biden in advancing proposals on economic stimulus, climate change, health care, etc., that Democrats want to pay for with tax increases (including in the corporate rate). Control of both chambers of Congress would allow some bills to be considered under the budget reconciliation process, which provides for simple-majority passage in the Senate, rather than the 60-vote filibuster threshold for most bills.
Beyond full-chamber leadership, Democratic control would also mean chairmanships of committees, which would affect which bills and issues are under consideration, including on tax. (The last 50-50 split was after George W. Bush was elected president in 2000 and required Senate leaders to negotiate an agreement on committee ratios and other issues.) As an editorial in the January 4 Wall Street Journal observed, "Ron Wyden, who would run the tax-writing Finance Committee, wants to tax gains in capital assets each year even if they aren't sold."
At 1:00 p.m. today (Wednesday), the House and Senate will convene for the Joint Session of Congress to count the electoral ballots for the President and Vice-President of the United States. A group of GOP senators is planning to join some House Republicans in challenging electoral votes in Arizona, Georgia and Pennsylvania. The New York Times reported, "Senators were still weighing whether to join House members to similarly challenge the outcome in Michigan, Nevada and Wisconsin." Both chambers must debate and vote on objections, creating the expectation the process could go late. Still, "I don't think we need to go all night," House Majority Leader Steny Hoyer (D-MD) said Monday.
"None of the challenges are expected to succeed in the Democratic-controlled House or the GOP-run Senate, where party leaders have opposed the effort and a growing number of Republicans say they won't join in," the Wall Street Journal reported.
The US action against France's Digital Services Tax (DST) in the form of an additional 25% ad valorem duty on specified French-origin goods, announced by the United States Trade Representative in July 2020, is set to take effect today, January 6, 2021. France has reportedly begun attempting to collect its DST from US tech companies, and negotiations regarding DSTs continue at the OECD level. Politico this morning reported that the USTR has not publicly confirmed that the tariffs will take hold and that France expects the European Union to respond if they do.
The Office of Management and Budget's Office of Information and Regulatory Affairs (OIRA) January 5 completed review on "Guidance Under Section 1061 [TCJA]," addressing carried interest.
Also on January 5, Treasury released additional final regulations (TD 9943) on the business interest expense limitation under IRC Section 163(j), which was modified in the 2017 Tax Cuts and Jobs Act (TCJA), and in the March 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Read the EY Breaking Tax News.
The latest in the webcast series, "Tax in the time of COVID-19," is this Friday, January 8 from 12:00-1:00 p.m. ET. The coronavirus (COVID-19) and the resulting economic crisis — all occurring in an election year — have made reacting to tax and trade developments more complicated and more difficult. Panelists will provide updates on: (i) elections, US economy and tax policy; (ii) what's happening at the IRS; and (iii) breaking developments. Register.