March 18, 2022
What to expect in Washington (March 18)
At least one long-lingering tax treaty, between the US and Chile, is on the move. The Senate Foreign Relations Committee put on the agenda of a business meeting on Wednesday, March 23, “The Convention between the Government of the United States of America and the Government of the Republic of Chile for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital.” The SFR Committee was considering holding a vote on the treaty in 2019, under Republican leadership, but it never materialized. Several Republican members urged Chairman Robert Menendez (D-NJ) to bring the convention to a vote in late 2021. Consideration of the prior batch of tax treaties (Switzerland, Luxembourg, Spain, Japan) faced objections from Senator Rand Paul (R-KY) that were overcome.
Reconciliation – Second-ranking Senate Democrat Dick Durbin (D-IL) has an ‘if it happens, it happens’ attitude toward a reconciliation bill getting done this year in the wake of the Senate stalemate over the House-passed Build Back Better Act, and he is not assuming that it will be part of the list of Democratic accomplishments ahead of the midterm elections. “If it turns out to be, great. Maybe it’ll surprise me. But I’ve been burned by this stove enough times. I’m not going to grab it another time,” he said in a Business Insider story. He added later, "We’ve had the football pulled so many times, I’m not gonna run up to it anymore.” Senator Durbin said he’d like to see a list of priorities from “two senators in particular,” an implicit reference to Senators Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ).
On the subject of inflation, which some Democrats want to tie to cost-cutting proposals that could be part of a reconciliation bill, the House Energy & Commerce Committee has asked oil and gas executives to testify before the Committee on Wednesday, April 6.
Tax – The House Ways & Means Oversight Subcommittee Hearing with IRS Commissioner Rettig on the 2022 Filing Season focused on the tax-return backlog crisis, an issue exacerbated by the pandemic that has caused a multitude of problems regarding refunds to individuals and businesses. Commissioner Chuck Rettig underscored the dire need for increased IRS funding, and a shift to more electronic tax return submissions, as it is far more efficient than paper. Congress recently enacted legislation to increase IRS funding by around 6%, but that is not nearly enough according to Commissioner Rettig.
Rep. Carol Miller (R-WV) mentioned her support for the reinstatement of the Employee Retention Tax Credit (ERTC; H.R. 6161). In the context of his comments about high gas prices, Rep. Steven Horsford (D-NV) said smaller/lower income businesses and individuals are disproportionately sought after by the IRS for tax purposes compared to corporations. Rettig explained this by noting the lack of resources within the IRS to go after the “bigs or super bigs,” and how they are “routinely outgunned in that space.”
The Senate Finance Committee hearing, “Examining Charitable Giving and Trends in the Nonprofit Sector,” focused on the role charities have played during the pandemic and the situation in Ukraine, and what Congress can do to encourage charitable giving, including reinstating the temporary $300 charitable deduction for nonitemizers that was in effect for 2020-2021. There was also discussion of the ERTC, which was important to the nonprofit sector. Daniel Cardinali, President and CEO, Independent Sector, encouraged Committee members to restore and increase the nonitemizer deduction, as well as restore the ERTC, pass the Legacy IRA Act, increase the charitable mileage rate, and strengthen the partnership between nonprofits and the Federal government.
Politico reported on a group of trade associations preparing to ask the Treasury Department to negotiate modifications to the OECD Model Rules that will preserve the full value of US tax credits meant to promote research and development, low-income housing and investments in economically disadvantaged areas. “’This is going to basically undermine a lot of tax credits for U.S.-headquartered companies that they’ve long enjoyed, long made use of, and it just didn’t make sense,’ said Barbara Angus, global tax policy leader at Ernst & Young and formerly chief tax counsel for the House Ways and Means Committee.”
Morning Tax also had an item about the letter saying the agreement appears to spare similar breaks in other countries. “’As proposed, the rule would leave the U.S. tax base particularly exposed compared with the tax treatment of foreign companies in their home jurisdictions,’ said Jake Colvin, head of the National Foreign Trade Council.”
Banking - The Senate Banking Committee March 17 moved four Federal Reserve Board nominations to the floor, including Chairman Jay Powell, vice chair nominee Lael Brainard, Lisa Cook and Philip Jefferson. The committee tied 12-12 on Lisa Cook, so her nomination must be discharged on the floor.
Health - On March 16, the Senate Finance Committee held a hearing, “Prescription Drug Price Inflation: An Urgent Need to Lower Drug Prices in Medicare,” during which Democrats called on Congress to pass reforms in the Build Back Better Act, including giving Medicare the power to negotiate drug prices, setting penalties for drugmakers whose prices rise faster than inflation, and capping out-of-pocket costs for insulin. Republicans, meanwhile, criticized proposals to give Medicare negotiating authority, saying such policies would result in rate-setting and harm pharmaceutical innovation.
Competitiveness – Majority Leader Chuck Schumer (D-NY) said March 17 the Senate would take the procedural step next week of amending the America COMPETES Act approved by the House with the text of the Senate-passed USICA, which is necessary for the two chambers to go to conference. He suggested a small group of Republicans is holding up progress on the bill and he hoped “to see an agreement to expedite this process soon.”
The House is out of session next week. There is a House Republican retreat in Florida during the latter half of the week.
Today, March 18 (12:00 p.m.), is the EY Webcast, “Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments.” Register.