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April 25, 2021

Americas Tax Policy: This Week in Tax Policy News for April 23

This Week (April 26 - 30)

Congress: The Senate is in session. The next two weeks will be House Committee Work Weeks, meaning hearings and committee business will be held but no floor votes.

Biden address: President Biden will address a Joint Session of Congress on Wednesday, April 28.

SFC climate hearing: On Tuesday, April 27 (10 a.m.), the SFC will hold a hearing, "Climate Challenges: The Tax Code's Role in Creating American Jobs, Achieving Energy Independence, and Providing Consumers with Affordable, Clean Energy " Witnesses:

  • Jason Walsh, Executive Director, BlueGreen Alliance Washington, DC
  • Maria M. Pope, President and CEO, Portland General Electric, Portland, OR
  • Alex Brill, Research Fellow, American Enterprise Institute, Washington, DC
  • Kevin Sunday, Director of Government Affairs, PA Chamber of Business and Industry, Harrisburg, PA

SFC subpanel fairness hearing: Later on Tuesday, April 27 (2:30 p.m.), the Senate Finance Fiscal Responsibility and Economic Growth Subcommittee will hold a hearing, "Creating Opportunity Through a Fairer Tax System " Senator Elizabeth Warren (D-MA) chairs the subcommittee. Witnesses haven't been announced.

Last Week (April 19 - 23)

Families plan: The New York Times April 22 reported that President Biden's American Families Plan to be outlined April 28 or sooner will focus on "human infrastructure" with proposals on universal pre-kindergarten, free community college tuition for all, expanded subsidies for child care, and a national paid leave program for workers, plus extensions of the expanded Child Tax Credit and EITC. Tax proposals that are included, according to the report:

  • raising the top marginal income tax rate to 39.6%;
  • raising the capital gains rate to 39.6% on people earning more than $1 million;
  • eliminating stepped up basis; and
  • increasing IRS enforcement.

Tax increases still being debated for the plan include capping itemized deductions for "wealthy taxpayers" and increasing the estate tax, the NYT said. A Bloomberg report said Biden plans to propose "almost doubling the capital gains tax rate for wealthy individuals to 39.6%, which, coupled with an existing surtax on investment income, means that federal tax rates for investors could be as high as 43.4%, according to people familiar with the proposal." (By comparison, the Obama administration's FY2017 budget proposed to increase the highest long-term capital gains and qualified dividend tax rate from 20% to 24.2% with the 3.8% net investment income tax (NIIT) continuing to apply, such that the maximum total capital gains and dividend tax rate including the NIIT would rise to 28%.) An editorial in the April 23 Wall Street Journal said of the 43.4% rate, "that's merely the federal rate. Add 13.3% in California and 11.85% in New York (plus 3.88% in New York City), which also tax capital gains as regular income, and you are heading toward the 60% rate range. Keep in mind this is on the sale of gains that are often inflated as assets are held for years without adjustment for inflation. Oh, and Mr. Biden also wants to eliminate the step-up in basis on capital gains that accrues at death. All of this would add up to the highest rate on capital income since before the Steiger capital-gains tax cut of 1978."

Timing: On the rollout of the plan, White House Press Secretary Jen Psaki said April 22, "You can expect that he'll outline the details of the American Families Plan in his joint session address to Congress next Wednesday, April 28." The expectation was the plan would be detailed earlier, and it still may, but it's not yet final. "We're still finalizing what the pay-fors looks like … " Psaki said. "There are alternative views or there are proposals that don't exist yet on how to pay for it. That will be a part of the discussion." Axios reported of the tax changes for individuals April 23, "The proposal, to be announced ahead of Biden's address to Congress next Wednesday, is an opening bid for Hill negotiations." The report also said, "Officials haven't yet made clear whether the capital gains rate would apply in 2022 — or in 2021." On other timing, Punchbowl News reported the plan is still for the American Jobs Plan, relating to infrastructure, to be marked up at the committee level in the House at the end of May or early June. House Budget Committee Chair John Yarmuth (D-KY) continues to say he'll wait until the White House releases its full 2022 budget proposal before acting on a budget resolution for FY 2022, which would create the committee instructions and budget guidelines for a budget reconciliation bill, and he expects to see their proposal around Memorial Day (May 31). The President's budget will have specific details on his tax proposals in a Treasury green book.

Jobs Plan: President Biden continued congressional outreach on the American Jobs infrastructure plan proposed alongside tax changes including a corporate tax rate increase to 28%, which was a main topic of discussion during an April 19 meeting. The President said, "I've noticed everybody is for infrastructure. The question is: Who's going to pay for it? And that's what we're going to try to work out today, at least in this bipartisan group of members of the House and Senate … " In reports based on comments from attendees:

  • Sens. Mitt Romney (R-UT) and John Hoeven (R-ND), the only 2 GOP senators in the meeting, told Biden they are opposed to increasing the corporate tax rate to pay for the plan, Axios reported.
  • Rep. Charlie Crist (D-FL) said lawmakers discussed the potential for some "compromise wiggle room" on raising the corporate rate — "You could see a 2 or 3% increase, maybe not all the way to 28 but 25" — while Sen. Jeanne Shaheen (D-NH) said the group also raised the possibility of creating a national infrastructure bank and closing the current gap between taxes owed and taxes paid to help bring in revenue, the Wall Street Journal (WSJ) reported.
  • Politico said Biden stood by the 28% corporate rate but left the door open to continue negotiating, Rep. Crist said Biden didn't "rule it out" but said "he feels pretty strongly about that," and Rep. Norma Torres (D-CA) said "the President challenged Republicans who said they're not comfortable with the corporate tax increase [to] put a plan on the table, a real plan with a pay-for" by mid-May.

Corporate tax increases: The topic of tax increases was raised during the Senate Finance Committee's April 20 hearing "Combatting Inequality: The Tax Code and Racial, Ethnic, and Gender Disparities," including by witness Mihir Desai of Harvard, who in testimony raised concerns about literature that exaggerates the "purported hidden hundreds of billions in offshore tax havens" and feeds "a common and mistaken narrative today — that somehow responsible fiscal policy is just about getting the rich and corporations to pay their fair share via novel instruments including a wealth tax and multilateral cooperation on corporate tax policy." During Q&A, Desai said, "I think it would be useful to be careful about heavily raising taxes on corporations, and, in particular, on their global activities. I think the notion that somehow there is a lot of revenue to be gained, easy money to be gained, by changing corporate rates I think is not well-founded … when American corporations succeed around the world they succeed at home. So, I think we need to kind of get away from the idea that somehow corporations are the ones that are not necessarily paying their fair share. I think that whole way of thinking about the world … . doesn't actually reflect the fact that more than half the corporate tax is borne by workers rather than capital." Ranking Member Mike Crapo (R-ID) said, "It will be increasingly challenging to return to an economy as robust as we saw before the pandemic with the endless streams of tax hikes and regulation that the current Administration continues to propose."

International tax: SFC member Rob Portman (R-OH) made a point similar to Crapo's in a WSJ op-ed, "Tax Hikes Will Stifle the Recovery," saying the Biden plan would increase the combined federal and state corporate tax rate to 32.8%, "the highest rate in the developed world," and double the tax on GILTI, making it more costly for US companies to operate and compete globally, "resulting in lost American jobs." An April 20 Washington Post story on corporate taxes said the "evolution from tangible goods to intangible products such as intellectual property, patents, brand names, goodwill and trademarks is challenging the traditional model of corporate taxation, leading to attempts to raise revenue from companies in novel ways. European governments are pushing a new digital services tax for Internet-age leaders such as Facebook and Google, which earn enormous profits in countries where they have limited or no physical presence. 'Having a global economy that's so dependent upon intangible assets creates more opportunity to shift activities and shift income,' said Michael Mundaca, U.S. national tax department leader for Ernst & Young. 'Sixty years ago, you needed a factory or a business somewhere. Now you can realistically say the return to an asset created by smart people thinking about things can be in 50 different places.'"

GOP infrastructure plan: Senate Environment & Public Works Ranking Member Shelley Moore Capito (R-WV) along with other ranking members on committees of jurisdiction over infrastructure — Roger Wicker (R-MS) of Commerce, Science, & Transportation, Pat Toomey (R-PA) of Banking, Mike Crapo (R-ID) of Finance, John Barrasso (R-WY) of ENR — April 22 proposed, as an alternative to President Biden's $2 trillion-plus American Jobs Plan, a $568 billion infrastructure proposal, with $299 billion for roads and bridges and billions more for public transit, airports, broadband, etc. Members said tax increases wouldn't be part of the plan but didn't prescribe pay-fors, though Capito mentioned a vehicle-miles-traveled tax. Senate Finance Committee Chairman Ron Wyden (D-OR) said of the plan, "Republicans' package is far too small to fund the investments the American people need and strongly support. It's just a quarter of what President Biden has proposed, and it's not a serious effort to do anything at all about the climate crisis. Yesterday, I unveiled my Clean Energy for America Act, and today President Biden pledged that the United States would cut its emissions in half by 2030. Republicans respond with a plan that includes no investments in our clean-energy future."

Wyden energy bill: Chairman Wyden's April 21 energy bill proposes to eliminate fossil fuel tax incentives and replace the dozens of energy tax incentives in the Code currently with a simpler set of provisions that encourage clean electricity & transportation and energy efficiency. The bill would provide an emissions-based, technology-neutral tax credit for clean electricity production, either as a production tax credit of up to 2.5 cents per kilowatt hour or an investment tax credit of up to 30%, with investments in grid improvements like stand-alone energy storage and high-capacity transmission lines qualifying for the full-value investment tax credit. The storage and grid improvement credit would offer the option to opt-out of normalization for regulated utilities. Clean fuels and zero and net-negative emission fuels qualify for a credit of up to $1.00 per gallon. The 200,000 unit per-manufacturer EV cap would be repealed, and the credit would be made refundable. For fossil fuels, the bill:

  • repeals incentives including expensing of intangible drilling costs, percentage depletion, deductions for tertiary injectants, and credits for enhanced oil recovery, marginal oil wells, coal gasification, and advanced coal projects;
  • reinstates the current taxation of multinational oil companies' non-extraction income and "ensures multinational oil companies are not specially exempted from the 2017 tax law's global minimum tax;" and
  • repeals the special treatment of fossil fuels under the publicly traded partnership rules.

FTT: On April 21, Senator Bernie Sanders (I-VT) proposed the College for All Act — to guarantee tuition-free community college for all students and allow students under income thresholds to attend other institutions — and said it should be paid for by the Tax on Wall Street Speculation Act (S. 1283) that would impose a tax of 0.5% on stock trades, a 0.1% fee on bonds, and a 0.005% fee on derivatives, raising up to $2.4 trillion over the next decade. Rep. Barbara Lee (D-CA) introduced the bill in the House (H.R. 2735). Another financial transactions tax proposal in the Senate would impose 0.1% on sales of stocks, bonds, and derivatives.

PPP: The Treasury Department and the Internal Revenue Service April 22 issued Revenue Procedure 2021-20 for certain businesses that received first-round Paycheck Protection Program (PPP) loans but did not deduct any of the original eligible expenses because they relied on guidance issued before the enactment of tax relief legislation in December of 2020.


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