June 3, 2021
What to expect in Washington (June 3)
There is the potential for progress on a global tax agreement at the G7 meeting at week’s end. “Treasury Secretary Janet L. Yellen will try to secure international support this week for a broad agreement that aims to put an end to global tax havens when she makes her first trip as President Biden’s top economic diplomat to the Group of 7 finance ministers summit in Britain. Such a pact has been elusive for years…” the New York Times reported June 2. “A Treasury Department official said on Wednesday that it was not certain that a consensus would be reached this week on details like a minimum tax rate but expressed optimism that the negotiations were moving in a positive direction.”
Bloomberg reported, “European officials are considering a proposal from Joe Biden’s administration to make companies with at least $20 billion in annual revenue pay more of their tax bill in places they operate, while being less enthused that the U.S. offer would limit levies to just 100 firms…”
In a related development, on June 2, the USTR announced additional tariffs on goods from Austria, India, Italy, Spain, Turkey, and the UK stemming from Section 301 investigations of Digital Service Taxes (DSTs) from those countries, but they are suspended up to 180 days “to provide additional time to complete the ongoing multilateral negotiations on international taxation at the OECD and in the G20 process.“
Infrastructure – President Biden and Senate Environment & Public Works (EPW) Ranking Member Shelley Moore Capito (R-WV) met Wednesday without an announced breakthrough on bipartisan infrastructure talks, and they will meet again on Friday after Capito briefs Republicans today, the Washington Post reported. The Administration is signaling they won’t wait much longer for a deal and want progress by the time Congress returns June 7 from this week’s recess. “There is a time limit on this ... you’re not going to play this back and forth much longer,” Energy Secretary Jennifer Granholm told CNBC Wednesday. Senate GOP leader Mitch McConnell (R-KY) Wednesday continued to suggest unspent COVID funds be tapped as a pay-for.
Politico this morning: “Biden wants $1 trillion in new spending and is set on corporate tax hikes to help pay for it, while the latest GOP counteroffer included only $257 billion in new spending in their $928 billion infrastructure plan. But still, Republican negotiators are considering making another counteroffer when Capito and Biden talk tomorrow.”
The House Transportation & Infrastructure Committee will mark up a surface transportation bill next week. The Senate EPW Committee has already reported a bill and these are the bedrock measures that could support a broader infrastructure package as Congress faces a September 30 expiration of the highway authorization. “Next week, Congressman DeFazio is going to be marking up the American Jobs Plan in the House — something a lot of members and Democrats in the House are quite excited about,” White House Press Secretary Jen Psaki said June 2.
Tax – The latest Democrat to express concern about President Biden’s tax increase proposals, which have taken on a fuller shape since the release of the FY2022 budget, is House Ag Chairman David Scott (D-GA), who told the White House in a June 2 letter that he is concerned over the effect of the proposals on farmers, ranchers and other small businesses, Bloomberg reported. Some budget provisions have considerations for such concerns, like stepped-up basis, under which “Payment of tax on the appreciation of certain family-owned and -operated businesses would not be due until the interest in the business is sold or the business ceases to be family-owned and operated.” Last week, Senator Mark Warner (D-VA), formerly a technology investor, expressed opposition to equalizing tax rates for income and capital gains for wealthy individuals. “Full equalization, I don’t think, makes much sense. At some point you start losing money,” Warner said, Bloomberg reported. Others, like Ways & Means Chairman Richard Neal (D-MA), aren’t commenting on tax increases until there is an idea of what can pass the Senate and a consensus among House Democrats.
Bloomberg Tax also reported June 1 that a Treasury official conceded last week the Administration hadn’t been specific about the budget proposal to replace foreign-derived intangible income (FDII) with other research tax incentives, and said the Department wants to work with Congress on the issue. Ideas floated include “eliminating a change in how companies record their R&D costs that’s scheduled to take effect next year and would cost companies more in taxes,” referring to the Section 174 requirement that R&D expenses be amortized over five years beginning in 2022.
On Friday, June 4 (12:00 p.m. ET), is the EY Webcast, “Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments.” COVID-19 and the resulting economic crisis have made reacting to tax developments more complicated than ever. Join us for the next webcast in our series as we discuss how businesses can navigate the tax policy environment and continue to effectively operate their tax function in this time of crisis and change. Panelists will provide updates on: (i) The US economy and tax policy; (ii) Breaking developments; and (iii) What’s happening at the IRS. Register.