May 23, 2021
Americas Tax Policy: This Week in Tax Policy News for May 21
This week (May 24-28)
Congress: The House won't vote again until the week of June 14, with a Committee Work Week next week, a one-week recess for Memorial Day, and a Committee Work Week starting June 7. The Senate will conduct floor business next week ahead of a one-week recess for Memorial Day. SFC Chairman Ron Wyden (D-OR) said the Committee would later this month mark up a clean energy package including his bill to consolidate incentives, add new ones, and end fossil fuels provisions, but a markup hasn't been set.
Assistant Secretary hearing: On Tuesday, May 25 (9:30 a.m.), the Senate Finance Committee will hold a hearing on nominations including Lily Batchelder for Assistant Treasury Secretary for Tax Policy, which will likely include detailed discussion on various tax issues. Batchelder has written on inheritance taxes and approaches to increasing taxes on wealthy Americans, among other topics.
Last week (May 17-21)
BEPS 2.0: The Treasury Department May 20 announced that they proposed to the Steering Group of the Inclusive Framework on BEPS, as part of meetings the previous two days regarding the OECD/G20 international tax negotiations, "that the global minimum tax rate should be at least 15%. Treasury underscored that 15% is a floor and that discussions should continue to be ambitious and push that rate higher. Treasury was heartened by the positive reception to its proposals and the unprecedented progress being made towards establishing a global corporate minimum tax." The Wall Street Journal (WSJ) reported, "The move could make it easier to reach the multilateral agreement that Treasury Secretary Janet Yellen has been seeking." Reuters reported, "A U.S. Treasury official said the Biden administration will continue to advocate for the highest rate possible above 15%, adding that the offer does not alter the 21% proposed U.S. minimum tax." An editorial in the May 20 WSJ said the OECD talks "seem most likely to settle near 12%-13%." President Biden's Made in America Tax Plan — released alongside the American Jobs Plan infrastructure proposal — proposes to increase the GILTI rate to 21% and end the exemption for the first 10% of profits earned overseas from tangible investments. However, a Treasury official recently noted that the Administration's GILTI proposal would leave in place the current 20% GILTI foreign tax credit haircut, which means the effective tax rate on GILTI can actually be as high as 26.25%. "The OECD is moving in the opposite direction, insisting on exemptions that are more generous than current U.S. law," the WSJ editorial said, and may "exempt some portion of profits arising from tangible investments." It said Congress should know the OECD may not back the Biden plan "as lawmakers decide if they want to impose a tax increase that will hamstring American companies in the global marketplace." Secretary Yellen re-upped the Administration's call for corporate tax hikes to pay for infrastructure during a U.S. Chamber of Commerce event May 18, saying, "We believe the corporate sector can contribute to this effort by bearing its fair share … At the same time, we want to eliminate incentives that reward corporations for moving their operations overseas and shifting profits to low-tax countries." The WSJ said Yellen repeated her call for a global minimum corporate tax to "stop the race to the bottom."
Budget: More details on President Biden's international tax and other proposals are expected in the Administration's FY2022 budget, which is now set for release on May 28, White House Press Secretary Jen Psaki confirmed May 21 (rather than May 27, as previously announced). Traditional plans for the Treasury Secretary and other officials to testify before tax-writing and other committees aren't clear because the release of the budget is right before a holiday weekend and one-week congressional recess.
Infrastructure outlook: The outlook for how President Biden's Jobs Plan infrastructure proposal may move in Congress, with Republican support or Democrat-only, and what proposals are included, waits on two things: (1) the release of the FY2022 budget, which will be accompanied by additional Treasury details on the tax proposals, for Democrats to factor into whether they support the proposed tax changes, and estimates of their revenue impact; and (2) talks between the White House and Republican senators led by Senate Environment & Public Works Ranking Member Shelley Moore Capito (R-WV) on a more traditional infrastructure package. A May 19 Bloomberg story on Democratic headwinds for President Biden's plan to end stepped-up basis — which is included in the separate American Families Plan "human infrastructure" proposal — and the potential for the proposal to be softened, included a statement from House Ways & Means Committee Chairman Richard Neal (D-MA) saying, "When Treasury releases its Green Book in the coming weeks, I look forward to reviewing the administration's various revenue proposals and working with other Ways and Means members to chart a path forward."
The White House provided a counteroffer to the Capito-led GOP group's updated infrastructure plan May 21, but at $1.7 trillion it is more than double the $800 billion size that Senate Republican leader Mitch McConnell (R-KY) said his members would accept. WH Press Secretary Psaki suggested the counteroffer "reflects our view that the Republican offer excludes entirely some proposals that are key to our competitiveness; key to investments in clean energy, and industries of the future, and rebuilding our workforce; including critical investments in our power sector, building and construction, workforce training, veterans hospital construction, and the care economy." With regard to paying for it, she said, "the intention is to reiterate the fact that the president's not willing to raise taxes on Americans earning under $400 a year through a gas tax or through user fees. He believes that the extraordinarily wealthy, that companies that — many of whom have not paid taxes in recent years — can afford a modest increase to pay for middle-class jobs." The Administration has signaled they are willing to test the waters of bipartisanship on infrastructure until around Memorial Day.
On Bloomberg TV May 20, Senator Capito put the odds of an eventual deal at better than 50%, and said the "next two weeks will probably be the critical time spot," while expressing pessimism at the July 4 target for congressional passage set by House Speaker Nancy Pelosi (D-CA). Senate EPW Chairman Tom Carper (D-DE) said he's negotiating with Capito on a possible bipartisan infrastructure markup. The House Transportation & Infrastructure surface transportation markup has slipped until after Memorial Day. Congress faces a September 30 expiration of the highway authorization. If a bipartisan deal is reached, it would probably be limited to traditional infrastructure plus other items like broadband and be mostly free of tax increases, though Democratic leaders are trying to also gain Republican support for revenue raising proposals aimed at narrowing the tax gap. A traditional infrastructure bill coming together in that fashion, with GOP support, could be followed by Democrats' working on a budget reconciliation bill later this year that includes additional elements of the President's proposals, including on "human infrastructure," and, presumably, tax increases that Republicans will not support.
The WSJ reported Senator Roy Blunt (R-MO) as saying attendees at the May 18 White House infrastructure meeting discussed public-private partnerships and possible fees on electric vehicles, while Senator Roger Wicker (R-MI) said he discussed a proposal to recreate in some fashion the Build America Bond program that was enacted for two years as part of the 2009 stimulus legislation.
House infrastructure hearing: The topics raised by Senators Blunt and Wicker featured prominently during a broad-ranging May 19 House Ways & Means hearing on "Leveraging the Tax Code for Infrastructure Investment," during which members discussed tax credits for housing and renewable energy and bonds for infrastructure projects. Chairman Neal applauded President Biden "for his initiative and leadership in putting forward the American Jobs Plan" but didn't directly address tax increase proposals. He called for the permanent revival of Build America Bonds, which he has long supported, along with reinstatement of advance refundings for tax-exempt bonds, and an expansion of private activity bonds. Reflecting a dynamic present in other congressional hearings, some Democrats defended tax increases proposed to pay for infrastructure and educational investment, while Republicans like Rep. David Schweikert (R-AZ) suggested it is ironic that Democrats propose to increase taxes on the wealthy but provide tax credits for EVs and solar panels that benefit people with higher incomes. Members discussed numerous bills they sponsor addressing infrastructure topics.
Senate infrastructure hearing: During a May 18 Senate Finance Committee hearing on "Funding and Financing Options to Bolster American Infrastructure," Democratic senators including Chairman Ron Wyden (D-OR) called for corporate tax increases. Senator Debbie Stabenow (D-MI) said corporate users of roads must pay their fair share, and zero is not it. Republicans continued to say they wouldn't entertain TCJA changes and pushed for a fee on EVs, arguing that drivers of the vehicles tend to be wealthier and benefit from a tax credit while not paying the gas tax. Senator Sherrod Brown (D-OH) suggested, as President Biden and Speaker Pelosi have, that the parties could come together on proposals narrowing the tax gap as a pay-for. There was significant discussion of bond-related issues, and Wyden said he and Ranking Member Mike Crapo (R-ID) both support a revival of Build America Bonds. Senator John Cornyn (R-TX) discussed the possibility of a vehicle-miles-traveled (VMT) tax for trucks. A CBO witness said a fee on EVs, which are 1% of vehicles on the road, wouldn't go a long way toward the amount of money lawmakers want to raise to offset the proposed increase in infrastructure spending. Members of both parties asked about broadband-related proposals, which Republicans seem amenable to including with a roads & bridges package given, as Senator Chuck Grassley (R-IA) noted, its increased societal importance during the pandemic. Senator Grassley, a former chairman who has overseen prior efforts to settle on pay-fors for transportation spending, expressed confidence in a bipartisan deal and the Biden-Capito negotiations, as has Banking Committee Ranking Member Pat Toomey (R-PA), who is also on Finance and said May 20, "In my view, it's possible for us to enact a bipartisan bill that responsibly boosts federal support for real physical infrastructure. If all sides are willing to negotiate in good faith, an agreement can be struck."
Tax gap: While Republicans refuse to entertain TCJA rollbacks or other tax increases to pay for the President's proposals, Democrats are trying to gain Republican support for a tax gap proposal that calls for additional information reporting by financial institutions relating to aggregate account outflows and inflows, and more money for IRS enforcement. The Treasury Department May 20 released a report with additional information on the Biden administration proposal to narrow the tax gap with increased IRS enforcement resources, more information reporting, and an overhaul of "outdated technology to help the IRS identify tax evasion." The report said, "The new reporting regime would build from the framework of the Form 1099-INT reports that taxpayers already receive from financial institutions when they earn more than $10 in interest from a bank, brokerage, or other financial institution. Financial institutions would simply report additional data on the financial accounts of these existing information returns. Specifically, the annual return would report gross inflows and outflows on all business and personal accounts from financial institutions, including bank, loan, and investment accounts but carve out exceptions for accounts below a low de minimis gross flow threshold. Other accounts that are similarly situated to financial institution accounts would also be covered under this new reporting regime — for example, payment settlement entities would also be required to report gross receipts and gross purchases. The reporting regime would also cover foreign financial institutions and crypto asset exchanges and custodians." The Treasury estimates the reporting proposal would raise $460 billion. While projected enforcement revenue can't be counted under budget rules used by Congress, information reporting proposals, like the 2010 FATCA requirements for foreign assets held by US account holders, do score. A May 20 Bloomberg Tax story said, "The new requirement for banks to report aggregate account inflows and outflows would likely get a revenue score from the Joint Committee on Taxation, if it amends the tax code and the committee determines it could increase compliance without giving the IRS additional resources, JCT's Chief of Staff Thomas Barthold said … "
IRS: The tax gap has taken on a new allure since IRS Commissioner Chuck Rettig's estimate that it may be $1 trillion per year in the age of cryptocurrency. A May 19 Washington Post story said Commissioner Rettig, whose term is up in November 2022, "has demonstrated his determination to keep the post in ways that have impressed Democratic officials. He surprised lawmakers in April when he pegged the 'tax gap' — the difference between what the IRS is owed and what it collects — as possibly greater than $1 trillion annually. The estimate appeared to some to represent a departure from the prior work of IRS career staff, but played into Democratic messaging about the potential gains of stepping up aggressive tax enforcement." The story more broadly noted observed that "Rettig has held the top job in the tax agency even as a new Democratic administration has dramatically shifted its direction. The Biden administration is slated to depend on Rettig to lead a major escalation of tax hikes and enforcement on the rich."
EU: The European Commission May 18 adopted a Communication on Business Taxation for the 21st century.