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September 12, 2021

Americas Tax Policy: This Week in Tax Policy News for September 10

This week (September 13-17)

Congress: The Senate is back in session from the August recess.

The House is out of session, but the Ways & Means Committee is set to mark up Build Back Better Act tax proposals September 14-15.

Key dates

September 9-15

Ways & Means budget reconciliation bill markup; tax title may be out September 11-12 weekend

September 15

Target for committees to report reconciliation portions (no penalty for missing deadline)

September 27

House deadline to vote on infrastructure bill

September 30

Government funding, highway authorization expire


If the debt limit is not modified, when Treasury would likely run out of cash (Treasury)

Last week (September 6-10)

Outlook: The House Ways & Means Committee began a markup of its portion of the Build Back Better Act reconciliation bill, but not the tax provisions, which are set for consideration September 14-15. House Ways & Means Committee Chairman Richard Neal (D-MA) said September 9 he will "probably" release highly anticipated tax proposals to be part of the reconciliation bill at some point over the September 11-12 weekend, Bloomberg Government reported. Politico said Neal staff "softened that up a bit — noting that the committee aims to release the tax proposals in the next few days, but the exact timing is still up in the air."

Negotiations continued between House and Senate leaders and the White House on the overall size of the reconciliation bill and on the amount to be paid for by tax increases, and there are differing views among Democrats, including between Neal and Senate Finance Chairman Ron Wyden (D-OR). The two chairmen have long taken different approaches, with Neal mostly silent on tax increases he may propose and Wyden releasing several proposals on issues like international tax and, most recently, partnership taxation and a 2% excise tax on stock buybacks. The Hill September 9 reported that Neal on Thursday night acknowledged differences with the Senate but insisted the two sides are making progress toward an agreement. "We might not be quite aligned yet with the Senate but we certainly are coordinating. We're in the same ballpark. They know where we are and we know where they are," he said. Punchbowl News reported September 8 that "tax rates for multinational corporations and treatment of capital gains have split Democrats between their moderate and progressive factions in both chambers." A story in the September 8 Washington Post cited an unnamed Democratic House member as saying Democrats, who have been aiming for a corporate tax increase closer to 25% (as opposed to 28%), "have yet to build enough support for other tax hikes targeting investments or corporate income earned abroad. 'The money is just not there,' the lawmaker said, expressing a belief that the package is likely to come down closer to $2 trillion." Reporting on the partnership and buyback proposals September 10, the Wall Street Journal said, "The latest plans come as Democrats debate among themselves exactly how much in taxes they want to raise — and who should pay more. Proposals on international corporate taxes and capital gains have faced internal opposition from Democrats, leaving lawmakers looking through the tax code for revenue-raising alternatives that might face less resistance."

The portion of the reconciliation package being drafted by the tax committees is just part of a larger bill that includes the products of numerous committees considering other spending cut priorities relating to health care, climate, caregiving, and education. Because the bill will only have Democratic support, House leaders only have a few votes to spare to achieve passage of the product being developed by committees this week and next. In the Senate, all 50 Democrats plus VP Harris will be necessary to pass such a bill. Getting all Democrats on board is proving a challenge. A main question is the impact of Senator Joe Manchin's (D-WV) September 2 call for not just a pause in consideration of the reconciliation bill, but a limit on its overall size. Axios reported September 7 that "[Manchin] has privately warned the White House and congressional leaders that he has specific policy objections to President Biden's $3.5 trillion social-spending dream — and he'll support as little as $1 trillion of it … At most, Manchin will support $1.5 trillion, sources familiar with the discussions say."

During the September 9 Ways & Means markup, Democrat Stephanie Murphy (D-FL) — who as part of a group of centrists has pushed for paying for the bill, pre-conferencing with the Senate, and going slow to avoid unintentional consequences in a final bill — said she couldn't vote for the separate titles (each of which is voted on separately) without more information. She summarized in tweets, "While I support many provisions in the Build Back Better Act, it's being rushed through my committee before we know exactly what's in it, what it's going to cost, & how we're going to pay for it. Without the full text of the bill, I simply cannot make an informed, substantive decision. I'm also frustrated it hasn't been pre-conferenced w/the Senate."

Senate: Finance Committee Democrats held a virtual meeting on the tax provisions September 9. Chairman Wyden said after the meeting that Democratic tax writers were on the same page, Politico reported. "We're committed to raising the revenue needed to pay for critical priorities for American families, and I'm feeling good about where we are as members return to Washington next week," he said. While Chairman Wyden has released a number of proposals in the past months (including legislative text), when a full package of Senate tax proposals could be released is unclear. On process, Committee Republicans are wary of Democratic leaders bypassing Committee consideration, saying in a September 7 letter, "Failure to hold a full, open markup, as our House Ways and Means and Energy and Commerce Committee counterparts are doing, would amount to a massive and unfortunate concession to the House, as well as to Congressional leadership. It would also serve to further erode the American people's trust in the Senate as an open and effective institution, substituting a secretive process behind closed doors for a productive public dialogue."

Stock buybacks: Wyden and Senator Sherrod Brown (D-OH) September 10 unveiled the Stock Buyback Accountability Act to assess a 2% excise tax on the amount spent by a publicly traded company on buying back its own stock. "A few decades ago, a majority of Wall Street capital funded the real economy — wages, machinery, research, new construction. Today, much of that capital is funneled back to wealthy executives in the form of stock buybacks … " Senator Brown said in a release. Buybacks were a target of Democrats following the TCJA, and Chairman Wyden revived that criticism. "Rather than investing in their workers, mega-corporations used the windfall from Republicans' 2017 tax cuts to juice their stock prices and reward their wealthiest investors and their executives through massive stock buybacks," he said. The excise tax would not apply to the extent the stock buyback is used to fund an employee pension plan, an ESOP, or similar vehicle, is used for employee stock plans, or is below a de minimis threshold. Special rules address the treatment of foreign corporations, while inverted corporations are fully subject to the excise tax. The New York Times reported that the stock buyback proposal is projected to raise about $100 billion and both that and the partnership proposal are "likely to be included in the Senate's far-reaching budget bill to offset some of its $3.5 trillion in social policy spending."

Partnerships: Also on September 10, Chairman Wyden released a Pass-Through Reform Discussion Draft aimed at "partnership tax complexity" and said it could provide funding for the human infrastructure budget reconciliation bill being developed in Congress. "Raising more than $172 billion for priorities like child care and paid leave by closing off these loopholes is a no-brainer," he said. A Finance Committee spokesperson told Tax Notes that the draft legislation is on the "revenue menu" for the bill. Senator Wyden was critical of partnership tax rules and low audit rates during a June hearing with IRS Commissioner Rettig. A summary of the draft said, "The provisions of the discussion draft remove optionality that is unnecessary for business ends and close certain tax loopholes that allow investors and corporations to pick and choose when to pay tax." The draft includes provisions to:

  • provide a technical clarification that, following enactment and implementation of the centralized partnership audit regime, partnerships can, at times, be subject to entity-level taxation;
  • create a special allocation rule for certain related party partnerships;
  • require that all partnerships use the remedial method for IRC Section 704(c) allocations;
  • require revaluations of partnership property for change in the economic arrangement of partners;
  • repeal the seven-year time period for the application of the mixing bowl rules;
  • clarify that the disguised sale rules are self-executing;
  • treat proceeds for reimbursement of capital expenditures as disguised sale proceeds;
  • provide that a partnership is not terminated if any part of the business is carried on by a prior partner or by a person related to one;
  • remove the requirement that inventory be substantially appreciated in order to be treated as ordinary income property for purposes of treating a partnership distribution as a sale or exchange;
  • require that all debt be shared between the partners in accordance with partnership profits;
  • require basis adjustments of partnership property for disparities between the partnership's basis in its property and the partners' basis — similar to the Camp Tax Reform Act of 2014;
  • require basis adjustments at the time of a partnership distribution of money or other property;
  • require basis adjustments resulting from transfers of partnership interests;
  • revise IRC Section 163(j)(4) so that the interest limitation rule applicable to partnerships and S corporations would become a true entity-level limitation; and
  • repeal the exception for RICs recognizing gain on distributing appreciated property to shareholders.

International tax: As international changes have remained under consideration for the budget reconciliation bill, Democrats have been making various demands about their inclusion and policy details. In a September 7 letter, 41 House Democrats led by Rep. Lloyd Doggett (D-TX), a longtime critic of US international tax policy, called for "establishing a GILTI rate as near as possible to the domestic corporate tax rate. If the domestic rate is raised to only 25%, the GILTI rate should remain at 21% as requested by the Biden administration. We certainly should not increase the incentive for outsourcing jobs by lowering the GILTI differential below the 75% in the Biden proposal, which would mean 19% if paired with a 25% domestic rate." It also called for applying GILTI on a per country basis and properly allocating expenses to foreign income. Beyond Doggett, the only other Ways & Means members on the letter are Reps. Judy Chu (D-CA) and Jimmy Gomez (D-CA). The letter was in sync with a September 7 Treasury web post by Itai Grinberg, Deputy Assistant Secretary for Multilateral Tax, and Rebecca Kysar, Counselor to the Assistant Secretary for Tax Policy, "Why the United States Needs a 21% Minimum Tax on Corporate Foreign Earnings," that said the current 10.5% GILTI rate is "far less than small businesses pay on Main Street - which earn all of their profits at home - or the tax rates faced by workers - who bear an increasing share of the tax burden as the corporate burden dwindles." The post also defended using tax changes to pay for climate change mitigation, education, infrastructure, and R&D. A Treasury readout said during a September 9 virtual meeting with G7 finance ministers, Treasury Secretary Janet Yellen "expressed how the Biden-Harris Administration is pleased with the progress the U.S. Congress is making to strengthen the U.S. international tax rules, with a committee markup on the reconciliation legislation beginning today. The Secretary noted the generational importance for Congress to seize this historic opportunity to end the race to the bottom by enacting a U.S. minimum tax rate on foreign earnings of at least 21% on a per-country basis."

However, opposition to this aggressive approach to changing the GILTI rules and making them effective sooner rather than later previously came from a group of 10 moderates, including Committee Member Brad Schneider (D-IL). They told Chairman Neal they opposed aggressive and immediate changes on international provisions like GILTI given that US companies are facing stiff global competition from foreign based MNEs that are not subject to similar limitations and probably will not be until their headquarter jurisdictions adopt global minimum tax rules being developed by the OECD.

Debt limit: Secretary Yellen September 8 told Congress that without addressing the debt limit, "the most likely outcome is that cash and extraordinary measures will be exhausted during the month of October."

IRS: The IRS released the Department of Treasury 2021 - 2022 Priority Guidance Plan.


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