June 14, 2021
What to expect in Washington (June 14)
A gas tax increase is out of the current proposal by the 10-Senator bipartisan infrastructure group that includes Senator Joe Manchin (D-WV), and a “provision for electric vehicles to pay their fair share of using our roads and bridges” is in, Senator Susan Collins (R-ME) said on Face the Nation Sunday, adding that ”we won’t be undoing the 2017 tax reform bill.” Other pay-fors are “implementation of an infrastructure financing authority that’s very similar to the state revolving funds that we used for sewer and water projects” and repurposing some unused COVID funding, she said.
On CNN State of the Union Sunday, House Speaker Nancy Pelosi (D-CA) continued to push the tax gap as a revenue source, saying, “We certainly know that there's money to be had by at least making people pay their taxes. I’m not even talking about those who abuse the system. I’m just talking about those who illegally do not pay their taxes specifically.” She said if the Manchin/Collins group’s proposal “is something that can be agreed upon, I don’t know how we can possibly sell it to our caucus, unless we know there is more to come,” i.e. a follow-on budget reconciliation bill with human infrastructure and other Democratic priorities.
Politico reported this morning that those assurances would need to come from moderate Democratic Senators Manchin and Kyrsten Sinema (D-AZ), that they would support a follow-on “reconciliation package [that] would likely include sweeping climate provisions, a massive investment in family and child care and higher corporate taxes.”
Democratic senators are becoming restless with the bipartisan talks given the short amount of legislating time before September and threat of inaction on climate change. Senate Finance Committee Chairman Ron Wyden (D-OR) told The Washington Post he would reject a deal that did not address the climate crisis or raise taxes on multinational corporations. Senator Sheldon Whitehouse (D-RI), also on Finance, said in Axios he’s anxious about climate legislation. “An infrastructure package that goes light on climate and clean energy should not count on every Democratic vote,” Senator Martin Heinrich (D-NM) tweeted June 9.
The Wall Street Journal (WSJ) reported, "House Budget Committee Chairman John Yarmuth (D., Ky.) said he was working on a fiscal year 2022 budget resolution that he hoped to send to the House floor for a vote by the end of July," matching the timeframe for the resolution’s consideration in the Senate. The budget will unlock the reconciliation process for a Democratic infrastructure or human infrastructure bill (or both).
Debt limit – Yarmuth and Senate Budget Committee Chairman Bernie Sanders (I-VT) “said Democrats were considering whether to try to raise the debt limit with or without the support of Republicans, who have often demanded spending cuts in exchange for their approval on increasing the borrowing limit. Democrats could approve an increase in the debt limit through reconciliation, though it is unclear if they will attempt to do so before the Aug. 1 deadline,” the WSJ report said. Extraordinary measures can extend the must-act date for the debt limit beyond August 1, when the debt limit is reinstated after a two-year suspension.
Global tax – The communique to close the G7 meeting said, “We need a tax system that is fair across the world. We endorse the historic commitment made by the G7 on 5 June. We will now continue the discussion to reach consensus on a global agreement on an equitable solution on the allocation of taxing rights and an ambitious global minimum tax of at least 15 percent on a country-by-country basis, through the G20/OECD inclusive framework and look forward to reaching an agreement at the July meeting of G20 Finance Ministers and Central Bank Governors.”
President Biden said June 13: “We also agreed to take important steps that are going to support global economic recovery by laying the foundation for an equitable global economy. Critically, the G7 leaders endorsed a global minimum tax of 15%. So many corporations have been engaged in what are essentially tax havens, deciding that they would pay considerably less than other — in other environs around the world. But this is going to make sure there’s a minimum tax. I’m going to move on this at home as well — a minimum tax for corporations to pay for the profits they make anywhere in the world.”
An editorial in the June 12 WSJ asserted that despite the lack of words like “tech” or “digital” in descriptions of the G7 tax agreement, “Yes, It’s a Global Tax on American Tech.” The editorial said the agreement builds on OECD negotiations “for taxes that would apply specifically to digital companies. That remains the clear intent. The exemption of profits up to a margin of 10% is a clue. In only a few industries do companies consistently achieve profit margins above that threshold. Digital services is one such industry, and negotiators are carving out exclusions for other industries that otherwise would have to pay the tax.”
Tax – A June 12 New York Times (NYT) story, “Private Inequity: How a Powerful Industry Conquered the Tax System,” reported that the IRS, after years of budget and staff cuts, “rarely conducts detailed audits of private equity firms,” who “have deployed vast webs of partnerships to collect their profits,” making “the structures notoriously complicated for auditors to untangle.” IRS officials told tax-writing committees about the lack of enforcement resources last week, and Commissioner Charles Rettig stressed the need to hire agents with experience. During a June 8 hearing, Senate Finance Chairman Wyden noted low partnership audit rates, saying, “You’ve got a better chance of being struck by lightning than being audited if you’re a partner in a partnership.”
There will be plenty of tax discussion in the tax-writing committees this 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.
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 this week.
Health - On Tuesday, June 15 (10 a.m.), the SFC holds a hearing, “Mental Health Care in America: Addressing Root Causes and Identifying Policy Solutions.”
On Friday, June 18 (12:00 p.m. ET) is the EY Webcast, “Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments.” Register