This week (December 6-10)

Congress: The Senate and House are in session.

SFC hearing: The Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth will hold a hearing on "Promoting Competition, Growth, and Privacy Protection in the Technology Sector" on Tuesday, December 7 (at 9:30 a.m.).

Oversight hearing: The House Ways and Means Oversight Subcommittee will hold a hearing on "The Pandora Papers and Hidden Wealth" on Wednesday, December 8 (at 10:00 a.m.).

Last Week (November 29-December 3)

Reconciliation outlook: Senate Majority Leader Chuck Schumer (D-NY) said this week that he wants the Senate to vote on the Build Back Better Act (H.R. 5376) budget reconciliation bill by Christmas and that he plans for floor consideration the week of December 13, but also warned that passing the BBB reconciliation bill won't be easy. And while Schumer has expressed his desire to get the bill completed this month, key members of Congress are expressing skepticism about whether this timetable is realistic. Likely the two most closely watched senators on the reconciliation effort, Senators Kyrsten Sinema (D-AZ) and Joe Manchin (D-WV), have not explicitly backed the bill and both have expressed the view that consideration will continue into 2022. Punchbowl News reported that Senator Sinema "has been privately telling colleagues she doesn't believe the Build Back Better Act will pass until after Christmas." This isn't Sinema's request or hope, but rather her prediction, according to the report. CNN reported December 2 that Senator Manchin is also skeptical that the bill can pass this year and is "seeking changes to some of the provisions in the tax title of the bill." The report also said Senator Manchin is seeking to pare down the bill, including provisions on paid family leave, a methane fee on emissions from energy producers, an enhanced electric vehicle tax credit for cars manufactured by unionized shops, and a Medicare expansion to cover hearing aid costs. Manchin emerged from a meeting with Senate Democrats November 29 and told reporters, "It's going to be a long month," regarding a potentially grueling December with a packed agenda and deadlines. In a Politico report, Manchin reiterated previous concerns with the reconciliation bill, saying, "I heard an awful lot over the Thanksgiving break that prices were high, and people were very much upset about that and concerned about: Is inflation going to get worse?"

Prior to the fast-moving action to extend government funding through February 18, House Ways & Means Committee Chairman Richard Neal (D-MA) said December 1 that completion of the reconciliation bill this year was threatened by the funding and debt limit deadlines. Chairman Neal said while "it's desirable to get it done" before the end of the year, "there's a series of issues that have to be completed in the next couple weeks, so we should be addressing those pretty forcefully," according to the Daily Tax Report. He noted that the ARPA's Child Tax Credit expansion to include monthly payments expires at the end of the year and would need to be extended regardless. Tax Notes reported, "House Ways and Means Committee Democrats coming out of their weekly caucus meeting December 1 seemed to think it might just take a Christmas miracle for the Senate to act before the holiday on their party's marquee tax bill," citing Reps. Don Beyer (D-VA), Ron Kind (D-WI), and Earl Blumenauer (D-OR).

Manchin is not the only senator trying to reshape the House bill. Senate Finance Committee Chairman Ron Wyden (D-OR) reiterated November 29 that he wants to push for a billionaire's tax to be in the package and said he wants changes in energy provisions. The House bill reflects a hybrid of the House approach of working within the current system through 2026 and Wyden's technology-neutral proposal thereafter.

SALT: The state and local tax deduction cap appeared to be the tax issue most under discussion in relation to the reconciliation bill. Senator Bernie Sanders (I-VT) wants to eliminate the cap for those with under about $400,000 in annual income, while Senator Robert Menendez (D-NJ) wants a higher cap. There have been suggestions that Senator Sanders wants the proposal to raise money, which Senator Menendez opposes. The staff of the Joint Committee on taxation has estimated the proposal in the House-passed BBB to lift the cap to $80,000, with no income limits, actually raises a small amount of revenue over 10 years. Members are balancing relief for residents of high-tax states versus the perception that the bill's benefits are tilted toward the wealthy. The Hill reported Senator Jon Tester (D-MT), who has expressed concerns about SALT cap relief, as saying following a meeting of members, "There is a path forward … We're not using the House version." Senator Michael Bennet (D-CO), a Finance Committee member who has expressed concerns about SALT cap relief, was part of the meeting and said the House proposal is "terrible." SALT has long been speculated to be a target of Republican vote-a-rama amendments aimed at putting Democrats on the spot for allegedly cutting taxes for the wealthiest Americans. Senator Shelley Moore Capito (R-WV) said she will offer an amendment to strike any SALT cap relief because "I don't want to subsidize the billionaires in these states — the 10 biggest states — that are going to be getting the largest amount of benefit."

CAMT: The House reconciliation bill's 15% minimum tax on book income, covering corporations with annual adjusted financial statement income over $1 billion, remains controversial. Politico reported December 1: "Green energy companies say they would lose investment write-offs under the proposal, blunting efforts to combat climate change. Heavy manufacturers are worried too, saying the plan would strip away long-standing deductions for buying machines and equipment … Insurance companies, meanwhile, say they don't even use the accounting system the minimum tax proposal relies upon." The story said lawmakers seeking changes are constrained by the prospect of helping some industries and not others and creating a revenue gap in the bill.

In support of the proposal, Senator Elizabeth Warren (D-MA) tweeted November 29: "At least 70 public corporations made over $1 billion in global profits in 2020 while paying less than 15% of those profits in taxes. My plan for a Corporate Minimum Tax — which the House just passed as part of #BuildBackBetter — will get these giants to pitch in a fair share."

Senator Rob Portman (R-OH), a Finance Committee member like Warren, delivered remarks on the Senate floor December 2 outlining potentially harmful consequences of the minimum tax on book income, which he said would "drive inflation higher" and cause problems for pension plans, an issue he has a long history with. "Under this proposal, a qualifying company ends up paying a new tax on certain investment gains, potentially due to just a change in interest rates in their employee pension funds. So, this is a new tax," he said. "Right now, if the pension fund has an income gain, that would not be taxed. But under this proposal, it would be, under the book tax proposal. So, it's basically a tax on the pensions."

Global tax: The OECD is expected to soon release the final Pillar Two model rules in coordination with the OECD-led global tax deal. Tax Notes reported Pascal Saint-Amans, OECD's top tax official, as saying December 1 an agreement on technical work for the model rules has been reached but discussions continue on some aspects. He anticipates that the model rules will be released soon but did not give an exact date. He said the separate OECD commentary on the model rules, which needs "to make these extremely dry rules better understood," is taking more time to complete. It could be released in the next few weeks and the EU is expected to release a draft directive based on the model rules prior to year's end. Meanwhile, Bloomberg reported that EU Economy Commissioner Paolo Gentiloni told the European Parliament's tax subcommittee November 30 the EU should be able to agree by mid-2022 on a rule to implement the global minimum corporate tax rate agreement. The story said: "Each EU country must implement the Pillar Two rules in its own legal code in line with an EU directive, a type of law that sets minimum standards each country in the bloc must comply with The European Commission, the EU's executive, has said it will publish the proposed directive Dec. 22."

FTC regs: Final rules on the foreign tax credit could be released soon as they are currently under review by OMB/OIRA. The 2020 proposed regulations would fundamentally revamp the rules for determining the creditability of a foreign tax, among other things. Treasury officials have said publicly that the final regulations will be published in two packages, one by the end of this year, dealing with creditable taxes, and another sometime in 2022 relating to other aspects of the 2020 proposed regulations.

Debt limit: CBO projected November 30 that, if the debt limit remained unchanged and if the Treasury transferred $118 billion to the Highway Trust Fund on December 15, as currently planned, the Treasury would most likely run out of cash before the end of December. CBO also said, "The Secretary of the Treasury may have the authority to defer all or part of the transfer to the Highway Trust Fund. If payments were made to the Highway Trust Fund only in the amounts needed for immediate use, the government would be able to pay its obligations for a few weeks longer than it would if the payments were made in full — until sometime in January." There have been suggestions that Republicans, who say they won't vote for a debt limit increase, could facilitate Democrats acting on their own by waiving procedural hurdles in the Senate. Punchbowl said one approach would be for Republicans to agree to limit the "vote-a-rama" that caps debate on reconciliation bills. "The government will not default," Senator McConnell said November 29. "We're having useful discussions." During a Nov. 30 Senate Banking Committee hearing, Treasury Secretary Yellen said she has high confidence that Treasury would be able to finance the government through December 15, but there are scenarios where Treasury wouldn't have funds beyond that date. Yellen added, "I didn't say there is no way we can make it past Dec. 15."

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