July 16, 2021
What to expect in Washington (July 16)
Majority Leader Chuck Schumer (D-NY) said the Senate will take a procedural vote on Wednesday, July 21, in relation to the as-yet-unreleased bipartisan infrastructure bill that, with routine transportation spending, is expected to near $1 trillion in investment. Discussions over pay-fors continued without resolution July 15, before Senators left Washington for the weekend, and the $40 billion investment in IRS enforcement funding to narrow the tax gap is said to be on the ropes and likely to be removed or scaled back.
Senator Schumer also set Wednesday as the day by which the entire Senate Democratic caucus must agree to move forward on the FY2022 Budget Resolution, for which Budget Committee Democrats and Schumer have announced plans to allow for a $3.5 trillion health, climate, and caregiving bill fully paid for without announcing other details and amid uncertain support from key moderates. Even when settled, the budget will not be policy-prescriptive, and what combination of tax increases and other pay-fors to fund the reconciliation bill, and to what extent, may remain in flux until late summer or fall.
Senator Schumer is trying to pass the infrastructure bill and budget resolution in the three weeks remaining before the scheduled start of the August recess.
Infrastructure – A Washington Post report, “Schumer sets new infrastructure deal deadline as IRS provision faces strong blowback,” said the tax gap investment “seemed in particular political peril Thursday amid sustained GOP opposition. Its potential absence from the final package left lawmakers scrambling to find other ways to cover the costs of their long-sought infrastructure investments, because some senators from both sides have maintained that they are not willing to support an agreement that adds to the deficit.” The report said regarding the tax gap component, “lawmakers crafting the deal said they hoped to put strong safeguards in place to prevent abuse. Those safeguards still seemed insufficient by Thursday, prompting Senate aides … to say it will probably be removed from the final legislative package.”
Republicans like Senators John Barrasso (R-WY), Ted Cruz (R-TX), and Marsha Blackburn (R-TN) have expressed concerns over privacy and weaponizing the IRS.
Axios reported, “Sens. Jon Tester (D-Mont.) and Mark Warner (D-Va.) confirmed the group is now discussing potential alternatives to the IRS provision.” However, “Sources familiar with the meeting say it may not be dropped in its entirety but peeled back.” The report said, “The group said it plans to continue negotiating throughout the weekend, with the goal of producing legislative text by the time the Senate returns on Monday,” and noted that even when text is agreed to, it will take days to get a CBO score, which some members will need to determine their support.
Reconciliation bill – Informal summaries of what a Democrat-only reconciliation bill would provide for have referenced Polluter Import Fees as a pay-for, without any additional detail. A New York Times (NYT) story drew comparisons to a newly announced EU carbon border tax and said while the US proposal has not been detailed, “in theory, a carbon border tax would require companies that want to sell steel, iron and other goods to the United States to pay a price for every ton of carbon dioxide that is emitted during their manufacturing processes. If countries can’t or won’t do that, the United States could impose its own price.” It said such a proposal could draw a WTO challenge. “Some lawmakers believe a border carbon tax could soften Republicans and others who oppose climate change policies,” the report said.
Senate Finance Committee Chairman Ron Wyden (D-OR) and other members have released some tax increase proposals consistent with those of the Biden administration, including an international tax framework. The House Ways & Means Committee mostly has not and Chairman Richard Neal (D-MA) has said he will remain guarded until there is a better sense of what can pass Congress. (The exception is that the Finance Committee has approved a bill that would streamline current clean energy incentives and provide new ones, and a Ways & Means bill would expand and extend current incentives.) A separate NYT story cited Chairman Wyden as saying, “that he was preparing to overhaul a deduction for companies not organized as corporations, like many small businesses and law firms. Such a change would cut small businesses’ taxes but raise additional revenues from wealthy business owners.”
The story said Polluter Import Fees “could violate Mr. Biden’s pledge not to raise taxes on Americans earning less than $400,000 a year, if the tax is imposed on products such as electronics from China.” Senator Wyden was quoted as saying “We’ve not heard that argument.” More generally, it said, “To fully finance the bill, it is expected to include higher taxes on overseas corporate activities to alleviate incentives for sending profits overseas, higher capital gains rates for the wealthy, higher taxes on large inheritances and stronger tax law enforcement.”
Global tax – An editorial in today’s Wall Street Journal, “Congress Goes AWOL on Global Taxation,” described the BEPS 2.0 process as a threat to Congress’s constitutional power. “Despite their flaws, current global rules broadly try to hand taxing authority to the jurisdiction where a company’s investors and managers have taken risks, engaged in product development or research and the like,” it said. The emerging global tax agreement would “allow sclerotic European countries to tax successful U.S. firms solely by dint of housing consumers rather than encouraging investment and risk-taking—while blunting the benefit of any incentives Congress wants to provide,” the editorial said. Further, “By binding the U.S. to the OECD’s complex system for calculating a minimum tax, Ms. Yellen is limiting the ability of a future Congress to change tax rates and the exemptions, deductions and other rules of the U.S. code.”
Today, July 16 (12:00 p.m.), is the EY Webcast, “Tax in the time of COVID-19: update on legislative, economic, regulatory and IRS developments.” Register