January 16, 2022
Americas Tax Policy: This Week in Tax Policy for January 14
This week (January 17 - 21)
Congress: The House and Senate are in session, beginning on Tuesday, January 18, following Monday's federal holiday. The Senate will forgo a recess next week to consider voting rights bills and rules changes in a bid to pass the bills over Republican opposition, rather than working the weekend. The House and Senate will then both be in recess the week of January 24.
President Biden will hold a formal news conference on Wednesday, January 19, at 4 p.m.
Last week (January 10 - 14)
BBBA update: Next steps on the Build Back Better Act (BBBA) remain unclear after Senator Joe Manchin (D-WV) reportedly signaled to Democratic leaders they need to go back to the drawing board and rescinded a December offer for spending on health, climate, and universal pre-K (that offer apparently did not include an extension of the Child Tax Credit (CTC) expansion). In addition, the offer "included proposed tax hikes that Sen. Kyrsten Sinema (D-Ariz.) had already ruled out," the Washington Post reported, suggesting he proposed changes from the tax increases in the House-passed bill. Senator Sinema's views propelled a pivot away from rate increases in October. Negotiations between the White House and Senator Manchin soured in December after White House statements were viewed as blaming inaction on Senator Manchin, who has since listed a litany of objections to the bill: the one-year CTC expansion masks the roughly $1.5 trillion cost if it is later extended over the 10-year budget window, the CTC needs a work requirement and lower income threshold, inflation, geopolitical unrest, Omicron uncertainty, etc. Senator Manchin said the December 2021 inflation report released January 12, showing a 7% increase in the consumer price index over a year prior, was "very, very troubling," reiterating previous concerns he made regarding the BBBA, CNN reported. Congress has moved on to other issues, including voting rights bills and associated Senate rules changes and a brewing omnibus appropriations bill to fund the government beyond February 18 and through the remainder of FY2022, which could be a vehicle for members seeking additional COVID-related funding for suffering businesses.
House Democratic members, who have been put in the position of voting for tax increases in a bill that cannot currently pass the Senate, still see something getting done. Tax Notes January 12 reported Ways & Means Chairman Richard Neal (D-MA) as saying of Senator Manchin, "I think the challenge we've had with [the bill] is we know what Joe's against, we just need now for him to tell us what he's for … That's the issue here. I still think this is entirely workable." House Budget Committee Chairman John Yarmuth (D-KY) said he would like to see a renewal of efforts, along with a name change, because BBBA sounds like infrastructure. "I still think we're going to end up passing something," Yarmuth said. "It will have fewer elements, more robust funding."
Democratic leaders are describing the situation as an effort to achieve 50 votes, without directing any frustration toward Senator Manchin or other members. White House Press Secretary Jen Psaki said January 10, "Well, our conversations are continuing behind the scenes at a staff level … We need 50 votes in order to get that legislation done. And we need to figure out what that looks like to get that legislation done." On January 11, Psaki refuted that "there is a push to get Build Back Better passed by the State of the Union" address on March 1, saying, "We have not set a deadline … We are, of course, behind the scenes, engaged closely with staff, with members across the Democratic Party, and that work will continue … " She also pushed back against the characterization that talks had stalled with Senator Manchin, saying, "I would just say that we're not going to detail, in any specifics, conversations we have with Senator Manchin or other members." Asked on "The View" January 11 about not getting the BBBA and other items done, Senate Majority Leader Chuck Schumer (D-NY) said, "Well, some of it we have gotten done, and we did do the [American Rescue Plan] bill … With 50 votes, we need to get every Democrat, and it's a broad caucus, running from Bernie Sanders to Joe Manchin on board."
Expired provisions: The longer the BBBA takes, the greater the chances there could be pressure on Congress to extend expired tax provisions, some of which have extensions embedded in the BBBA. However, it remains unclear at what point supporters of extending those expired provisions will be ready to pivot to trying to get them onto another legislative vehicle, and what that vehicle might be. Many of the expired provisions are energy incentives. The BBBA would also delay (until after 2025) the TCJA requirement for amortization of research and experimental expenditures starting in tax years beginning after December 31, 2021. The staff of the Joint Committee on Taxation has prepared a list of Federal tax provisions that expired in 2021 or are scheduled to expire in the future.
Child Tax Credit: The ARPA CTC expansion to $3,000 ($3,600 for children under 6) is phased out above $150,000 in income for married couples. The Wall Street Journal reported January 14, "Some lawmakers and aides are looking at lowering those income thresholds in the new effort, according to the people, one of whom said a possible cutoff for the expanded credit could be $50,000 for individuals and $100,000 for married couples. Democrats are also contending with Mr. Manchin's demand that Congress tie the benefit to work." The BBBA includes a one-year extension through 2022 at a cost of $185 billion, though Senator Manchin has criticized the temporary approach because of the expectation that lawmakers would renew the benefit at a cost of nearly $1.6 trillion over 10 years, which bumps up against his ceiling for the cost of the entire bill. "It won't be easy for Democrats to squeeze a permanent extension of an expanded child tax credit into the Build Back Better legislation, given Mr. Manchin's insistence on a cap of around $1.8 trillion in programs over a decade," the WSJ story said. "The larger the credit gets and the more years it is extended, the more that other programs — such as child care, prekindergarten, healthcare and climate change — could get squeezed." The Bipartisan Policy Center January 10 proposed a package of reforms to "increase the CTC's value, compared to permanent law, to $2,200 per child (or $2,800 for children under age 6), better target the credit, expand access to families most in need, and retain the credit's connection to work and the strong anti-poverty impacts of encouraging employment."
Opportunity Zones: Senate Finance Committee Chairman Ron Wyden (D-OR) announced he is launching an investigation "into the Opportunity Zone Program and whether it has delivered on Republican promises to create jobs and drive investment in low-income communities, rather than just create a loophole for wealthy investors to avoid paying taxes." He cited Government Accountability Office (GAO) findings concerning the lack of reporting requirements. A Ways & Means subpanel held a hearing on the issue in November prompted in part by GAO findings on compliance/reporting challenges.
FTC regulations: An EY International Tax and Transaction Services Alert, "Foreign tax credit regulations revamp creditability rules for foreign income taxes and include several other key changes," is available here.
Global tax: An OECD commentary related to Pillar Two model rules is forthcoming, perhaps in February. With the BBBA stalled, there are concerns about how the US can enact the 15% GILTI rate and country-by-country calculation necessary to bring the US into compliance with the OECD-led global tax deal. A January 10 WSJ editorial said that in order to avoid double taxation of US companies, "foreign governments will have to recognize Gilti (and tax payments made to Treasury under Gilti) as equivalent to the OECD minimum tax." It further said, "EU bureaucrats last month released their draft directive instructing the 27 EU countries on how to implement the OECD minimum tax in domestic laws. The draft specifies that to count as equivalent to the minimum tax, a foreign government's (read: America's) global tax regime must be calculated on a country-by-country basis. And if Europe doesn't treat Gilti as equivalent to its own minimum tax, U.S. companies could get taxed twice, paying both Gilti and the European minimum levy." The UK, meanwhile, launched a public consultation on the Pillar Two rules, aiming to develop draft legislation this summer and include in a finance bill this fall, with the global minimum tax — the income inclusion rule — intended to take effect in April 2023.