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March 30, 2022

What to expect in Washington (March 30)

The Senate Foreign Relations Committee approved a tax treaty between the US and Chile during a March 29 business meeting, according to a tweet from Ranking Member Jim Risch (R-ID): “I’m glad SFRC came together today to approve a tax treaty w/ #Chile. Tax treaties are an integral part of the U.S. tax landscape. They prevent double taxation for U.S. taxpayers, help eliminate uncertainty, fight fraud, & encourages U.S. businesses to explore new opportunities.” The Committee posted a Senate Advice and Consent Subject to a Declaration document that included a reservation to account for enactment of the base erosion and anti-abuse tax (BEAT) in the 2017 TCJA and to change the Relief from Double Taxation article. The next step for the treaty is ratification by the full Senate, though there is no indication of when that will be. An EY Tax Alert has additional details.

Budget – President Biden’s FY2023 Budget doesn’t have many implications for potentially blossoming reconciliation talks, and in fact assumes enactment of the House-passed Build Back Better Act (BBBA) to stay out of the way of any new version. The Budget’s tax proposals are mostly provisions that fell out of the BBBA along the way plus some new starters like a “billionaire’s tax,” applicable to those worth over $100 million, of “a minimum of 20 percent on all of their income, including unrealized investment income that currently is untaxed.” That $360 billion proposal has already been shot down for use anytime soon by Senator Joe Manchin (D-WV), who said of the unrealized income aspect in The Hill Newspaper, “You can’t tax something that’s not earned. Earned income is what we’re based on… There’s other ways to do it.”

Americans for Tax Fairness released a comparison of the Biden and SFC Chairman Wyden billionaires’ taxes.

Another new Budget proposal would replace the BEAT with part of the OECD Pillar Two rules, called the Undertaxed Profits Rule (UTPR). Both domestic corporations that are part of a foreign-parented multinational group and domestic branches of foreign corporations would be disallowed US tax deductions in an amount determined by reference to the low-taxed income of foreign entities and foreign branches that are members of the same financial reporting group (including the common parent of the financial reporting group). A US domestic minimum top-up tax would be part of the rules to protect US revenues from the imposition of UTPR by other countries: “[T]he proposal would provide a mechanism to ensure U.S. taxpayers would continue to benefit from U.S. tax credits and other tax incentives that promote U.S. jobs and investment.” It’s not clear, however, how those benefits would be preserved, nor is it clear how this top-up tax would interact with the 15% minimum tax on book income that is included in the pending BBBA, which the budget assumes has been enacted.

Reconciliation – Senator Manchin has recently expressed a rekindled interest in an energy-focused package, after previously saying he could back a bill that splits revenue, including from tax changes, between deficit reduction and spending on climate initiatives. Concerns about leaving out social spending on priorities like childcare and universal pre-K are bubbling up again, however. Politico Playbook reported March 29 that a letter being circulated by Rep. Katherine Clark (D-MA), who serves in House Democratic leadership, and Senator Elizabeth Warren (D-MA) will call on the President to push a reconciliation bill “that lowers the cost of child care for families, expands access to pre-K, and invests in the early childhood workforce and infrastructure.” Still, Manchin “is unlikely to sign off on any reconciliation bill that includes the care items.” Senate Majority Leader Chuck Schumer (D-NY) said March 29 “it’s a high priority” to still use reconciliation to enact elements of the Build Back Better plan, but “there’s a ways to go” to meet Senator Manchin’s demands, according to Bloomberg.

Retirement - The House March 29 approved 414-5 the Securing a Strong Retirement Act (H.R. 2954), a Ways & Means-based bill that includes an expansion of auto-enrollment and an increase in the ‘catch-up’ contribution limit for individuals age 62-64, plus parts of the Education & Labor RISE Act (H.R. 5891) like a provision to help people locate lost pension accounts when they change jobs. Other provisions include enriching the startup credit for small businesses, boosting the Saver’s Credit to provide a greater incentive for modest-income workers to save, increasing the required minimum distribution age from 72 to 75 (phased in), and letting employers match workers’ student loan repayments with retirement plan contributions.

There is a bipartisan, bicameral push for a follow-on ‘2.0’ version of the 2019 SECURE Act. During a Senate HELP Committee hearing yesterday, Chairman Patty Murray (D-WA) highlighted a Senate proposal for a ‘lost and found’ retirement account registry and said she is looking to achieve the right balance on the issue of lifetime incomes in defined contribution plans in legislation she expects to release soon with Ranking Member Richard Burr (R-NC). House legislation on that issue allows fiduciaries to make default investment arrangements in annuity contracts. Senators Ben Cardin (D-MD) and Rob Portman (R-OH) sponsor a bill (S. 1770) similar to the House-passed bill and the Finance Committee wants to contribute to the package.

Witnesses at the HELP hearing also said the pandemic highlighted the need for emergency savings accounts with auto enrollment, which could help keep workers from dipping into retirement savings in times of need.

Competitiveness – The Senate March 28 voted to amend the America COMPETES Act (H.R. 4521) with the text of the Senate-passed USICA (S. 1260) so the two chambers can go to conference and resolve differences between the bills. House leaders expect to soon vote to go to conference. The House version includes trade and other provisions not supported by Republicans, and Politico noted those “are expected to be dropped during the conference committee, where the Senate will hold most of the leverage, since the final bill must pass with Republican votes in that chamber. “

Trade - The House Ways & Means Committee will hold a hearing on the “Biden Administration’s 2022 Trade Policy Agenda” today, March 30, 2022 (at 10:00 a.m.), and the Senate Finance Committee will hold a similar trade hearing on Thursday, March 31 (at 10:00 a.m.).

Banking - The Senate passed, 50-49, a “motion to discharge” Fed Board nominee Lisa Cook’s nomination on the Senate floor, after the Banking Committee tied 12-12, clearing the way for a final vote. The vice president’s vote wasn’t needed because Sen. John Kennedy (R-LA) didn’t vote.

Friday, April 1 (12:00 p.m.), is the EY Webcast, “Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments.” Register.


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For additional information concerning this Alert, please contact:
Washington Council Ernst & Young
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