March 13, 2022
Americas Tax Policy: This Week in Tax Policy for March 11
This week (March 14-18)
The House and Senate are in session. Senate business includes nominations, including Shalanda D. Young to be Director of the Office of Management and Budget (she is currently acting director).
On Thursday, March 17 (10:00 am), the House Ways & Means Committee will hold a hearing, "Oversight Subcommittee Hearing with IRS Commissioner Rettig on the 2022 Filing Season."
Also on Thursday, March 17 (at 10:00 am), the Senate Finance Committee will hold a hearing on "Examining Charitable Giving and Trends in the Nonprofit Sector." Witnesses include Daniel Cardinali, President and CEO of Independent Sector, and Gene Steuerle of the Urban-Brookings Tax Policy Center.
Last week (March 7-11)
Reconciliation: Democrats in Congress are still working to identify a budget reconciliation proposal that can pass the Senate following Senator Joe Manchin's (D-WV) comments that he could support a bill with revenue split between deficit reduction and spending, probably mostly on climate and energy initiatives. Senator Manchin repeated last weekend on Meet the Press, as he often has, that unanimous Democratic opposition to the 2017 TCJA means they should change the tax system. "If you have one thing that you are all united on, fix it," he said. Regarding a reconciliation bill and other aspects of the congressional agenda, and following President Biden's lead in labeling planks of a possible reconciliation bill as cost-cutting measures, Majority Leader Chuck Schumer (D-NY) released a letter March 7 saying, "this month and in April, many Senate committees will hold new hearings and mark-ups on Democrats' cost-cutting proposals," and, "in reconciliation, Senate Democrats have introduced additional legislative proposals to lower the rising cost of energy, prescription drugs and health care, and the costs of raising a family." Politico described the letter as the "first concrete signal of a revival of Democrats' stalled party-line domestic agenda" and said it "marks a clear step toward a resuscitated spending plan that might be more in line with the parameters set out last week by" Senator Manchin.
Punchbowl reported that during House Democrats' issues conference/retreat in Philadelphia, Rep. Pramila Jayapal (D-WA), chair of the Congressional Progressive Caucus, said regarding the issue of resurrecting a reconciliation bill from the demise of the House-passed Build Back Better Act: "I'm in the business of being an optimist in Congress, but I can't tell you for sure that there is [a path forward] and I think we just have to figure it out and see what's possible. I do think that … the hard reality of 50 votes in the Senate and 218 votes in the House is the reality we'll have to focus in on. And the fact that there are some really good possibilities for things we can do where we are very much in line with Sen. Manchin. There's also a Venn diagram of what Sen. Manchin supports and what Sen. [Kyrsten] Sinema supports. And where's that? Where is that sweet spot? We thought we had it. Obviously, that didn't work, but we're working on it." The New York Times said, "Gone is the talk of a transformative agenda to remake the country's social safety net that was once going to be the centerpiece of Democrats' sales pitch to voters. The words 'Build Back Better' were all but forbidden among the groggy lawmakers who arrived after only a few hours of sleep." Bloomberg Government reported Rep. Jayapal as saying she could agree to a slimmed-down social policy proposal but that House Democrats "can't keep holding out forever." She said, "We probably have another month or two to see if we can come up with something, and if not, let's move to the executive actions."
Senator Manchin said March 11, "any bill he would support would need to include investments in new nuclear reactors and geothermal, for instance, alongside wind and solar," and he would need any bill "to include a longer tax credit phasedown for hydrogen, incentives for getting transmission lines built faster — and he's open to electric vehicle tax credits, but only if they're matched by credits for hydrogen as well," Politico reported. "Hydrogen should be a major focus, he said, including as an alternative fuel for vehicles and as a replacement for gas. The hydrogen tax credit should be extended from the proposed six years to 10, he said. Congress should also look into how pipelines can be retrofitted to support hydrogen as a replacement for natural gas, according to Manchin," the report said . "He also supports incentivizing a faster build-out for transmission lines, but wants to make sure utilities pay back credits for building transmission infrastructure."
Government funding: The FY2022 omnibus appropriations bill is no longer an opportunity to advance tax proposals on extenders and TCJA cliffs, as no tax title was included in the $1.5 trillion, 2,741-page measure to fund the government through the remainder of FY2022. "There's so many different tax provisions that people wanted that unless they got theirs, they didn't want the others to get in," Senator Ben Cardin (D-MD) said in Roll Call. "It's difficult to get a tax section agreed to." The long-negotiated spending bill's approval does take the issue off the agenda and allows Congress to turn to other business.
Global tax: The Treasury Legislative Affairs team responded to Senate Finance Republicans' February 17 letter to Secretary Yellen raising concerns with global tax negotiations at the OECD, including global talks over developing a new tax right for market jurisdictions that could lead to the elimination of more targeted digital service taxes and how the so-called Pillar One rules might impact US Treasury revenue. The Republican letter also focused on proposals in the House-passed BBBA that would in certain respects tighten the GILTI rules in order to bring GILTI into alignment with the global minimum tax under Pillar Two before other countries take any action on a minimum tax. The Republican letter also suggested US Treasury had not fully consulted with Congress regarding the negotiations. The March 1 Treasury letter maintained that US Treasury has met numerous times with congressional tax staff regarding the negotiations relating to Pillar One, and that implementation of Pillar One should be accomplished on a bipartisan basis. The letter focused mainly on Pillar One, stating that issues raised in the Republican letter on Pillar Two would be covered in another letter that is forthcoming. Addressing Pillar One concerns raised by the Senators, the letter said, "we continue to believe that any U.S. revenue impact would be relatively small to non-existent" and negotiations regarding revenue sourcing and elimination of double taxation are ongoing. "The parameters for elimination of double taxation are particularly fluid," the letter said. "Several methods are under discussion, and the design of a related element, the so-called marketing and distribution safe harbor (MDSH), is also unresolved." Bloomberg Tax reported, "The letter didn't answer Crapo on how many U.S.-based companies would be affected directly by the reallocation of tax rights envisioned in the agreement, or what would happen if the deal wasn't in place by the end of next year. [Deputy Under Secretary of the Treasury Jonathan] Davidson also wasn't specific on how the administration intended to secure Congress's approval of the pact." Politico Morning Tax reported March 10: "Crapo dismissed the letter as full of 'high-level platitudes' and pushed back on the 'repeated but yet-to-be-substantiated claim' that the OECD deal will have a limited impact on revenues. 'Treasury once again failed to provide substantive responses to our important questions regarding the effect of the agreement on U.S. businesses and jobs,' Crapo" said.
ECOFIN: Tax Notes reported March 10, "During a preparatory meeting of the Economic and Financial Affairs Council, eight member states opposed the French EU Council presidency's compromise proposal on implementation of pillar 2 of the OECD's global tax deal." The ECOFIN meets March 15 to further debate a draft directive released by the OECD in December. The goal of the French Presidency of the EU is to gain unanimity on a final directive this spring so that EU members can transpose the EU directive into their own domestic law. Some are raising concerns over the link between Pillar One and Pillar Two, and whether a link that both be implemented at the same time can be legally binding, as well as implementation of the Pillar Two rules by the agreed deadline of January 2023. The nonconsenting members are Estonia, Hungary, Latvia, Luxembourg, Malta, Poland, Slovakia, and Sweden. The French Presidency continues to state it believes it can reach agreement.
Bluebook: The staff of the Joint Committee on Taxation March 8 released its Bluebook for the 116th Congress, with the following note: "Known formally as the General Explanation of Tax Legislation Enacted in the 116th Congress, the Bluebook provides explanations of more than 200 tax provisions across eight different Acts, starting with the Taxpayer First Act (Public Law 116-25) and ending with the Consolidated Appropriations Act, 2021 (Public Law 116-260). For each provision, the Bluebook includes a description of present law, an explanation of the provision, and the effective date." It is available only via download.
FTC regs: Bloomberg Tax March 8 reported foreign tax credit regulations "are too restrictive and burdensome overall, business groups say. But companies that have operations and pay taxes in developing countries could feel the sharpest pinch because those countries are more likely to levy 'novel' kinds of taxes on U.S. companies that won't qualify for the U.S. foreign tax credit under the new rules, [practitioners] say." A March 4 letter on the issue from trade associations is available here. Treasury officials recently met with Congressional tax staff to brief them on the rules and take questions and had a similar meeting with business groups.
Energy: Senator Sheldon Whitehouse (D-RI) March 10 introduced the Big Oil Windfall Profits Tax under which large oil companies that produce or import at least 300,000 barrels of oil per day (or did so in 2019) would owe a per-barrel tax equal to 50% of the difference between the current price of a barrel of oil and the pre-pandemic average price per barrel between 2015 and 2019. The quarterly tax would apply to both domestically produced and imported barrels of oil.
Grantor trusts: House Ways and Means Oversight Subcommittee Chairman Bill Pascrell (D-NJ) March 8 called on Secretary Yellen to issue regulations on irrevocable grantor trusts to limit abuse of the "loophole" related to stepped-up basis. Chairman Pascrell sponsors a bill related to the issue (H.R. 2286).
Competitiveness: On the issue of competitiveness, some members say the $52 billion in funding for CHIPS Act semiconductor R&D in both the America COMPETES Act approved by the House in February and the U.S. Innovation and Competitiveness Act (USICA) that passed the Senate in 2021 should move as a standalone measure given geopolitical pressures and uncertainty over how soon a House-Senate conference agreement on the broader bills passed by each chamber can come together. Axios reported March 8: "In a letter today, some 140 lawmakers, led by Sens. Mark Warner (D-Va.), John Cornyn (R-Texas) and Reps. Doris Matsui (D-Calif.) and Michael McCaul (R-Texas), urged congressional leaders to approve just the $52 billion for semiconductors on its own. They called on leaders to 'immediately begin negotiations to allow votes in the House and Senate as soon as possible.'" An eventual COMPETES/USICA agreement has been mentioned as a possible vehicle for addressing the IRC Section 174 TCJA requirement for five-year amortization of R&D, rather than expensing.