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March 6, 2022

Americas Tax Policy: This Week in Tax Policy for March 4

This week (March 7-11)

Congress: The House and Senate are in session. House Democrats are holding an issues conference/retreat in Philadelphia during the latter half of the week, with President Biden expected to deliver remarks. House Democrats are aiming for the chamber to clear a government funding measure in the early part of the week, prior to the expiration of current funding on March 11.

Last week (February 28 - March 4)

Reconciliation: There is some new hope for progress on a retooled post-Build Back Better reconciliation package, as Senator Joe Manchin (D-WV) suggested March 2 he could accept a bill that splits revenue, raised from both reforming the tax system and lowering prescription drug costs, between deficit reduction and spending on 10-year policies, probably dealing mostly with climate change. He repeated that Democrats’ unanimous dissatisfaction with the 2017 TCJA tax reform should spur agreement on rolling back some of its provisions to provide revenue, and that reconciliation is for “getting your financial house in order.” He further said, “The one thing that we as Democrats all agreed on was the 2017 tax cuts were weighted unfairly. So if you want to fix the tax cuts and make everyone pay their fair share, whether it’s the very wealthiest or the corporations that pay nothing — I think the president identified that last night — then you have to fix the tax code,” as reported by The Hill. “Then you find out what revenues you have from that if you fix it,” he added. He said, “Half of that money should be dedicated to fighting inflation and reducing the deficit,” though it isn’t clear what measures would counter inflation. Immediately following the State of the Union Address – during which President Biden, without mentioning the Build Back Better Act (BBBA) by name, recast the bill’s planks on climate change, health care, and social spending as measures that could cut consumer costs to respond to inflation concerns – Manchin had said, “Nothing’s changed… There might be parts they want to talk about. I don’t know. That was a little bit far.” In comments seen as potentially seeking to appeal to Senator Manchin, President Biden said during the address that his plan to fight inflation with elements of the BBBA on energy etc. “will lower your costs and lower the deficit” and that all Americans agree that the tax system is not fair and must be fixed. The President continued to call for “corporations and the wealthiest Americans” to start paying their “fair share” and highlighted both the proposal for a 15% minimum tax rate for corporations and the OECD global tax agreement, saying “we got more than 130 countries to agree on a global minimum tax rate so companies can’t get out of paying their taxes at home by shipping jobs and factories overseas.”

The Hill story said Senator Manchin declined to take a position on the wealth surtax included in the House-passed BBBA amid Senator Kyrsten Sinema’s (D-AZ) objection to rate increases. (He previously urged Senator Sinema to reconsider her opposition to rate-based changes.) The New York Times cited a Sinema spokeswoman as saying the Senator’s stance on tax issues shouldn’t be an impediment to a deal because she “embraced tax increases large enough to finance a ‘narrow plan.’” The story said President Biden’s pivot away from describing a large package as Build Back Better was a welcome change to some lawmakers, including Senator Jon Tester (D-MT), who said while the moniker had garnered opposition, its elements like childcare and climate change were appealing to constituents. “So I think he struck the right tone,” he said. In a March 3 Washington Post story, Rep. Pramila Jayapal (D-WA), chair of the Congressional Progressive Caucus and one of several House leaders who called for a reconciliation bill in a letter earlier this week, ”said progressives are ready to talk to Manchin about his framework, and signaled a deal is possible… A good starting place, she said, would be to agree to specifics on what revenue generators can get Manchin’s support — and can get 50 votes in the Senate — and then talk about what to fund with them… ‘We’re open to putting some of it toward deficit reduction, and then climate,’ Jayapal said, adding that this framework could also include whatever other provisions Manchin might be willing to support with whatever is left over to spend.” There has also been reporting that some Democrats are frustrated with Senator Manchin’s remarks for seemingly prioritizing climate provisions over social spending, and some are simply exasperated by the back-and-forth over the reconciliation bill.

Climate: On the flip side, some Senators are willing to accept jettisoning social spending from the plan if the urgent opportunity on climate change can be seized. The Wall Street Journal reported March 4: “Sen. Sheldon Whitehouse (D., R.I.) said many Democrats feel they need to pass a climate package while the party still controls Congress and while emissions-reductions measures could prevent some of the worst consequences of climate change. ‘You can’t necessarily come back to it later,’ he said. ‘There are tipping points that are points of no return and there are few other public policy issues that are characterized by that kind of point-of-no-return problem.’”

Competitiveness: On the separate issue of competitiveness, the President said during the address that in order “to level the playing field” with other nations, it is important to pass the Bipartisan Innovation Act “that will make record investments in emerging technologies and American manufacturing,” which likely refers to a potential House-Senate agreement between the Senate USICA and House COMPETES bills. House Majority Steny Hoyer (D-MD) has said the situation in Ukraine means there is renewed urgency for ‘Make It in America’ legislation, referring to a potential USICA/COMPETES agreement.

Government funding: It looks increasingly possible that an additional continuing resolution (CR) will be necessary to fund the government past the current March 11 deadline. Punchbowl reported there are “hundreds of riders – individual policy issues – that are still outstanding in the negotiations” over an omnibus appropriations bill and that “raises the possibility of another CR being needed to allow the two sides to finish up.” The Administration’s $32.5 billion emergency supplemental, including $22.5 billion in additional COVID relief along with Ukraine funding, is complicating progress given lingering Republican concerns about more virus-related spending. On March 2, 36 Senators, led by Mitt Romney (R-UT), sent a letter to the President seeking more information about the allocation of previous COVID funds, and said answers are vital before Congress considers additional funding requests.

It is also looking increasingly challenging for lawmakers to add to the omnibus tax-related items including delaying the TCJA cliff involving the IRC Section 174 requirement for five-year R&D amortization rather than expensing, and a retirement policy package. A March 3 Bloomberg Tax story cited Senate Finance Committee Chairman Ron Wyden (D-OR) as “noncommittal about including a tax section in the upcoming government funding bill,” stressing that he supports the promotion of R&D but wanted to talk to other senators, and adding that the COVID and Ukraine funding have been the focus of negotiators. The story said, “Even the inclusion of the SECURE 2.0 retirement reform package, which enjoys strong bipartisan support, ‘would be a heavy lift,’ Wyden told reporters on Thursday.” Roll Call March 3 reported that House Ways & Means Committee Chairman Richard Neal (D-MA) and Ranking Member Kevin Brady (R-TX) are readying their bipartisan retirement bill and, while Brady said the omnibus is “plan A,” Neal said it could move as part of a larger package, through a stand-alone floor vote or under suspension of the rules. The story noted that “including the retirement bill in the spending package would mean adding a tax title, which could open up other tax issues” like the R&D issue. “But the outlook for those efforts was dimmer as of Wednesday,” it said.

Global tax: At the Federal Bar tax conference March 3, Treasury Assistant Secretary for Tax Policy Lily Batchelder said, “One of the biggest accomplishments of the Administration to date has been the global agreement to stabilize the international tax landscape.” She provided some background on the BEPS 2.0 project and discussed benefits of the deal for the US. The 15% GILTI rate and country-by-country calculation necessary to bring the US into compliance with Pillar Two of the OECD-led global tax deal were embedded in the House-passed BBBA. Asst. Sec. Batchelder said, “There is broad support across the Democratic caucus for these international tax proposals. And we are optimistic that we will meet our commitment to enact Pillar Two in 2022, as the many, many other countries that have joined the agreement move forward with their plans to do so as well.” She also addressed concerns the Undertaxed Payment Rule, which acts as a backstop to the global minimum tax, or Income Inclusion Rule, will negate the benefits of many business tax credits for US MNEs. Without giving any specifics, she said, “we remain entirely committed to working with Congress to ensure that tax credits and other tax incentives that promote US jobs and investment are protected.”

An EY Alert, “Updates on BEPS 2.0 project from OECD Tax Talks and G20 Finance Ministers meeting,” is available here.


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