April 18, 2021
Americas Tax Policy: This Week in Tax Policy News for April 16
This week (April 19-23)
Congress: The House and Senate are in session.
SFC hearing: On Tuesday, April 20 (10:00 a.m.), the Senate Finance Committee holds a hearing , “Combatting Inequality: The Tax Code and Racial, Ethnic, and Gender Disparities.” Witnesses include Harvard’s Mihir Desai , who has called for changes to the TCJA.
W&Ms hearing: on Wednesday, April 21 (noon), the House Ways & Means Committee holds a hearing , “In Their Own Words: Paid Leave, Child Care, and an Economy That Failed Women.”
EY Webcast: On Thursday, April 22 (4 p.m.), join EY tax and tax policy leaders for “Potential US international tax reform: A discussion of Biden’s Made in America Tax Plan, OECD BEPS 2.0 developments and other recent proposals.” Register .
Last week (April 12-16)
Jobs Plan/Tax Plan: President Biden has begun congressional outreach on the $2 trillion-plus American Jobs Plan proposed alongside the Made in America Tax Plan, which includes corporate tax increases like a 28% rate, a minimum tax based on book income, and changing TCJA international provisions. In an April 12 meeting with a bipartisan, bicameral group of members of Congress, Republicans argued against raising corporate taxes and in favor of a narrower package, the Wall Street Journal (WSJ) reported, adding that the President “showed an openness to breaking his proposal into smaller parts and considering different ways to pay for it.” The President previously said he is “willing to negotiate” on a corporate rate increase lower than 28%. Republicans have consistently said they aren’t likely to support rolling back portions of their signature tax law, the TCJA, and consider infrastructure items beyond transportation, broadband, water, and power.
Bipartisan efforts: Senators of both parties are testing the waters to see if a bipartisan agreement can be reached or if Democrats need to rely on the budget reconciliation process, which requires the votes of virtually all House Democrats and all 50 Senate Democrats plus VP Harris. The WSJ reported on a bipartisan virtual meeting April 15 on a potential roads & bridges proposal in the $600 billion-$800 billion range. Senator Capito said, “I think what you’re going to see … is a conceptual Republican bill that we think addresses the core issues that we’ve talked about, along with the way that we would say you could pay for it without raising taxes.” She said on PBS, “We know the gas tax is a declining resource. So, let’s look at things like vehicle miles traveled or ways that electric vehicles would pay their fair share for the use of the roads. And so I think we’re going to have to get creative here…” Likewise, Senator Susan Collins (R-ME) was cited by the WSJ as saying “we need to be creative,” and that coming up with pay-fors is easier with a smaller package. Senator Chris Coons (D-DE), a close Biden ally, said of a potential two-part approach, “We would take, let’s say $800 billion, of it out, move that as a bipartisan bill, partly paid for with fees, and then several weeks later pass by reconciliation a Democrat-only bill that would do the rest of that agenda.” He previously said it is “likely we will end up” relying on reconciliation to pass much of the proposal. House Speaker Nancy Pelosi (D-CA) said she would expect the infrastructure plan to be bipartisan as it historically has been: “If we have to go to reconciliation, that’s a lever, but I hope it’s not something that we need to do.” Senator Joe Manchin (D-WV), a red-state moderate whose vote would be key for a reconciliation bill in the 50-50 Senate, has appealed for participation from Republicans, said he doesn’t believe “budget reconciliation should replace regular order in the Senate” (but doesn’t rule out using it), and called for a 25% corporate rate. An analysis of the Manchin-focused outlook in Sunday’s Washington Post suggested that Democrats must weigh paying for the bill to assuage deficit concerns v. the risk for Democrats up for reelection in 2022 voting to raise taxes.
Timing: Regarding timing for the Jobs Plan, Speaker Pelosi has said House T&I Chairman Peter DeFazio (D-OR) “thinks that we can do our part in the House probably in the month of May, at least his committee would be ready at that time. I would hope that our part in the House would be largely done before the 4th of July. Whether the whole package can be done then, we just don’t know …. we want to do it before the August break.” Punchbowl news reported Chairman DeFazio as suggesting his Committee could mark up its portion of the bill the fourth week in May and looking ahead to the fiscal year-end expiration of the highway authorization as a hard deadline. DeFazio said April 15, “[T]here is only one part of [the president’s proposal] that has a drop dead date and that’s surface transportation. And a drop dead date of October 1st. So, that’s my major focus.” Government funding also expires September 30.
Tax changes called for: An April 11 New York Times story said, “Knowing that the measure will include tax changes to help pay for some of the plan, some moderate Democrats from high-tax states have pushed for a repeal of the so-called SALT cap…” It said, “others have warned that Mr. Biden’s proposal to increase corporate taxes to 28 percent from 21 percent is too steep” and Ways & Means Chairman Richard Neal (D-MA) has “suggested bringing back Build America Bonds created after the Great Recession to help states and cities borrow money for infrastructure projects.” The $10,000 TCJA state and local tax (SALT) deduction cap continues to feature prominently in the outlook for the bill, in terms of keeping Democrats together for possible enactment under budget reconciliation. On April 13, 17 of 19 NY delegation Democratic members told House leaders, “we will not hesitate to oppose any tax legislation that does not fully restore the SALT deduction.” Bloomberg April 15 reported on House members forming a bipartisan group – with 21 Democrats and nine Republicans as founding members – to push for repeal of the cap, quoting Ways & Means member Tom Suozzi (D-NY) as saying, “We are trying to build a diverse group of people.”
GILTI CbC: An editorial in the April 16 WSJ, “The Country-by-Country Tax Canard,” said “The Biden plan would go country-by-country, meaning that for each jurisdiction in which a company does business it would have to compute its Gilti taxable profit, work out any local tax credits, and then figure the tax due. Progressives favor this approach because they think the aggregate method allows companies to use higher tax payments in high-tax jurisdictions to offset tax windfalls in low-tax jurisdictions. But it’s not that simple.” The WSJ said the CbC proposal would “introduce vast new complexity” and remove the “mitigation” of “a flaw in the 2017 version of Gilti …” that “doesn’t allow companies to carry losses forward or back.”
Families Plan: President Biden is set to detail a second plan, the American Families Plan, in coming weeks that’s likely to be paired with tax increases targeting individuals, expected to include increasing the top individual rate, changing stepped up basis and possibly the estate tax, and capital gains changes. The two bills could stay separate or be combined, and the expectation is that the Families plan will reflect predominantly Democratic issues, while the infrastructure plan has broader support. House Speaker Pelosi has said, “I think we will have two bills.”
Biden address: President Biden will address a Joint Session of Congress on Wednesday, April 28, following the customary invitation by the Speaker on April 13. (Note, a president’s first-year address is not referred to as a State of the Union speech.) He was previously set to unveil his infrastructure plan in the speech, and while that has already happened, it is expected he will make the case for Congress to act. The White House submitted to Congress a $1.5 trillion FY2022 spending plan April 9 but the full budget, which is expected to have more details on the Made in America Tax Plan and other tax items in a Treasury green book, won’t be released until later, possibly in May. Congress will process an FY 2022 budget after that, which will be important for unlocking the budget reconciliation process (though it may be possible to do more reconciliation under the FY2021 resolution based on signals from Senate Leader Schumer’s office). The green book will likely reflect all the tax proposals of the Biden administration and be much more substantial than the 17-page April 7 Treasury report on the Made in America Tax Plan. The last green book, under President Obama for FY2017, ran nearly 300 pages and covered over 100 tax provisions.
TCJA cliffs: Fourth-ranking Senate Republican Roy Blunt (R-MO) April 12 introduced the Permanently Preserving America’s Investment in Manufacturing Act (S. 1077), to permanently extend the allowance for depreciation, amortization, or depletion for purposes of determining the income limitation on the deduction for business interest. The TCJA 163(j) EBIT v. EBITDA cliff at year’s end was a focus of a March 16 SFC manufacturing hearing along with the Section 174 R&D amortization change, which is addressed in a House bill, the American Innovation and R&D Competitiveness Act of 2021 (H.R. 1304).
Fossil fuels bill: On April 15, Senator Bernie Sanders (I-VT) and Rep. Ilhan Omar (D-MN) introduced the End Polluter Welfare Act (S. 1167) to eliminate dozens of tax provisions for oil, gas, and coal in a plan they said could raise $150 billion over 10 years. It is the latest example of a bill introduced in Congress to reflect a tax proposal from the Administration, though this bill appears to go beyond what the White House envisions. President Biden’s Made in America Tax Plan calls for elimination of fossil fuel subsidies without listing provisions, but an April 7 Treasury report suggested that part of the plan would raise $35 billion/10 years. For reference, the Obama administration’s proposal to eliminate fossil fuel tax preferences in the FY2017 budget was projected to raise about $38 billion/10 years.
Brady retiring: Top House Ways & Means Republican Kevin Brady (R-TX) April 14 announced that his current 13th term will be his last, acknowledging that a GOP rule keeping him from serving in the top spot on the Committee in the next Congress, possibly returning as chairman, influenced the decision. Rep. Brady’s chairman’s mark kicked off consideration of the TCJA in 2017 and he shepherded the package through a multi-day markup and bicameral negotiations. His 2015 PATH Act made several extenders provisions permanent, facilitating tax reform by keeping the cost of extensions from requiring revenue in the reform bill. Rep. Brady is widely described by the press corps as one of the nicest members in Congress and he has been a fixture on the Republican congressional baseball team. The announcement touched off a race for the top Republican spot on the Committee, among Reps. Devin Nunes (R-CA), Vern Buchanan (R-FL), Adrian Smith (R-NE), and potentially others. In a statement, Rep. Buchanan said, “At the appropriate time, it would be an honor to be considered for the chairmanship of the Ways and Means Committee when we win back the House in 2022.”
Tax gap: Addressing the tax gap issue that has vexed House and Senate tax writers for at least 15 years, IRS Commissioner Charles Rettig said during an April 13 filing season Senate Finance Committee hearing that while the last published estimate of the gap was $441 billion per year based on info for 2011-2013, at that time people were “generally unaware of the term cryptocurrency, bitcoin and all.” Rettig said, “I think it would not be outlandish to believe that the actual tax gap could approach and possibly exceed $1 trillion per year.” An April 14 Washington Post opinion column said: “Unpopular as it might be to say so, especially at this time of year, the least painful way for the government to raise money is to give the Internal Revenue Service a bigger budget. Least painful, that is, for law-abiding taxpayers… Just this once, we might see a spurt of bipartisanship, since tax cheats aren’t popular. Not only did Sen. Ron Wyden (D-Ore.) call Rettig’s figure ‘jaw-dropping,’ the committee’s ranking Republican, Sen. Mike Crapo (Idaho), endorsed addressing the ‘large tax gap.’ Alas, cross-party cooperation isn’t likely on much else when it comes to raising revenue.”
Guidance plan: Treasury/IRS invited recommendations for items to be included on the 2021-2022 PGP.
Overview: The staff of the Joint Committee on Taxation released its annual Federal tax system overview.