June 11, 2021
What to expect in Washington (June 11)
The 10-Senator bipartisan infrastructure group that includes Senator Joe Manchin (D-WV) June 10 reached an agreement on a framework “to modernize our nation’s infrastructure and energy technologies” that “would be fully paid for and not include tax increases,” according to a statement from Senator Rob Portman (R-OH). “We are discussing our approach with our respective colleagues, and the White House, and remain optimistic that this can lay the groundwork to garner broad support from both parties and meet America’s infrastructure needs.” Punchbowl reported the framework is $579 billion in new spending above the baseline, $974 billion total/five years, and paid for with unspent COVID funds, an infrastructure bank, public-private partnerships, and gas tax indexing, which the Administration opposes.
Tax - The Senate Finance Committee June 10 voted 22-6 to approve the nomination of Lily Batchelder as Assistant Treasury Secretary for Tax Policy. A former chief tax counsel for the Committee, her full Senate confirmation could help President Biden move his tax agenda on the Hill and kickstart the reg process. Nays: Thune, Burr, Scott, Lankford, Sasse, Barrasso.
There will be plenty of tax discussion in the tax-writing committees next week with hearings on the President’s FY2022 budget featuring Treasury Secretary Janet Yellen: Wednesday, June 16 (10 a.m.) at the Senate Finance Committee, and Thursday June 17 (10 a.m.) at Ways & Means.
During a Tax Policy Center event June 10, Kim Clausing, Deputy Assistant Treasury Secretary, Tax Analysis, said mark-to-market taxation of capital gains is an area that deserves further study – and is being looked at by SFC Chairman Ron Wyden (D-OR) – and not “ready for prime time.” Proposals on taxation of capital income that are ready: the taxation of capital gains at ordinary income rates for those with more than $1 million in income and repeal of stepped-up basis. She described the tax plans presented by the Administration as those that could be readied in the first 100 days, and not the last word on the issue. Asked about the absence of a proposal addressing the IRC Section 199A deduction in the Biden plans released thus far, Clausing said there should be no inference that omission of a proposal in any area is a signal that it has been rejected. Regarding international tax proposals, Clausing said they are complementary with the multilateral negotiations at the G7, OECD, etc., and a multilateral tax agreement could remove arguments against the President’s proposals like eliminating the 10% return on tangible assets, i.e. that they would disadvantage US companies relative to global competitors. Clausing also said the revenue proposals serve three purposes: 1) raise revenue; 2) create more equity in the system; and 3) make the tax system more efficient.
The House Financial Services-passed Disclosure of Tax Havens and Offshoring Act (H.R. 3007) has been rolled into a broader bill, the Corporate Governance Improvement and Investor Protection Act (H.R. 1187), set for House consideration next week. The bill would require public companies with annual revenues of $850 million or more to disclose their total pre-tax profits, tangible assets and total amounts paid in state, federal and foreign taxes. The bill would also require companies to disclose a number of specific tax-related items for each of their subsidiaries, as well as on a consolidated basis, such as total accrued tax expenses, stated capital and total accumulated earnings. The disclosure legislation has an uncertain future in the Senate.
Tax gap – The June 10 House Ways & Means Select Revenue Measures and Oversight subcommittees’ joint hearing on the tax gap was similar to the IRS hearing at the SFC June 8. Democrats voiced support for President Biden’s budget proposals for more funding for IRS enforcement and technology alongside a proposal to have financial institutions perform additional reporting on inflows to and outflows from financial accounts. Republicans expressed concerns over the privacy aspects of the proposal, and additionally said a report this week based on leaked information about high-income and high-profile taxpayers demonstrates the dangers of providing more information to the IRS. Witnesses were Treasury’s Mark Mazur and Doug O’Donnell of IRS. O’Donnell made points similar to those Commissioner Rettig made to the SFC, including that there is a taxpayer-positive aspect to the increased reporting because the better the information IRS has, the better chance the agency will spot instances in which taxpayers are fully compliant and avoid audit. Mazur said that if $25,000 in inflows and $25,000 in outflows are reported, there is no need to audit; if there is a disparity in the amounts, that is something that needs to be looked at.
Five former Treasury Secretaries published a joint essay in the New York Times (NYT) June 9 saying, “We are convinced by the strength of our experiences that more can be done to pursue evasion in the ways outlined by President Biden’s recent proposal to increase the resources and information available to the I.R.S.” The essay cited cuts to IRS resources over the past 25 years and antiquated agency IT, and said, “We are convinced that better information-reporting requirements can be designed that will permit significant increases in revenue collection without imposing any burden at all on taxpayers and imposing no significant increase in regulatory burdens across the economy. Relying on financial institutions to relay some basic information about account holders is a sensible way forward.”
A June 9 NYT story said, “A jaw-dropping report by ProPublica detailing how America’s richest men avoided paying taxes has intensified interest in Congress, even among some Republicans, in changing the tax code to ensure that” the wealthy pay their fair share. It said SFC Chairman Wyden “said he was working on an array of proposals to get at the issue, possibly including a return to some kind of minimum tax, and would soon unveil specific proposals. ‘Billionaires are going to have to pay their fair share, every year,’ he said.” That probably refers to his proposal for annual mark-to-market taxation of capital gains, which he cited during the June 8 hearing on the IRS budget. The story also said, “The details of the report may bolster the cause of a wealth tax, pushed by Senator Elizabeth Warren” and “Mr. Wyden said he was also examining the approach.”
Global tax – A June 9 Washington Post op-ed by five current finance ministers – Sec. Yellen and those from Mexico, Indonesia, South Africa, Germany – on “Why we need a global corporate minimum tax” said “[W]e endorse a fairer allocation of taxing rights over the largest and most profitable corporations to replace the uncoordinated unilateral measures that have destabilized the international tax system in recent years. We also endorse the creation of a globally agreed-upon minimum tax that would ensure countries tax corporate income at least at a base level.”