May 1, 2022
Americas Tax Policy: This Week in Tax Policy for April 29
This week (May 2-6)
Congress: The Senate is in session, but the House is out. Upon returning to session on Monday, May 2, the Senate’s first roll call vote (at 5:30 p.m.) will be a procedural motion related to the nomination of Joshua Frost to be Assistant Secretary of the Treasury for Financial Markets. The agenda also includes votes on 28 nonbinding motions to instruct conferees to the competitiveness conference.
On Wednesday, May 4 (at 2 p.m.), the Senate Finance Subcommittee on Taxation and IRS Oversight will hold a hearing, “Laws and Enforcement Governing the Political Activities of Tax-Exempt Entities.” A Joint Committee on Taxation report, “Present Law and Background Relating to the Federal Tax Treatment of Political Campaign and Lobbying Activities of Tax-Exempt Organizations,” was posted April 29.
Last week (April 25-29)
Reconciliation: Senator Joe Manchin (D-WV), whose vote has long been considered essential in getting an economic package through Congress, continues to express interest in a climate-focused reconciliation bill that addresses tax changes and deficit reduction, and is now also apparently testing whether Republican members would sign on to a bipartisan energy bill. “If I can find something bipartisan, we don’t need reconciliation,” Manchin said in an April 25 Bloomberg report that said such a package could seek to reform the federal oil and gas leasing process, aid domestic pipelines, increase “domestic production of energy in the near term and provide incentives for climate-related projects in the longer term.” Senator Manchin repeated April 26 that he wants to increase the corporate tax rate to 25% and the capital gains rate to 28%, get rid of unspecified tax “loopholes,” and apply half of any revenue toward deficit reduction, saying it’s the “only way you’re going to fight inflation.” Rate increases are opposed by Senator Kyrsten Sinema (D-AZ), seemingly blocking a path to simple-majority enactment in the Senate. Democratic leaders continue to call for tax changes as a means of improving the economy. Senate Majority Leader Chuck Schumer (D-NY), who met with Senator Manchin this week over what to do to confront inflation, seemed to favor the Democrat-only, reconciliation route for a bill. “If you want to get rid of inflation, the only way to do it is to undo a lot of the Trump tax cuts and raise rates,” he said. “No Republican is ever going to do that. So, the only way to get rid of inflation is through reconciliation.” Asked about the prospects for a recession, given the April 28 GDP report showing a contraction of 1.4% in the first quarter, the President said, “you always have to be taking a look and no one is predicting a recession now… some are predicting there may be [a] recession in 2023. I’m concerned about it, but I know one thing: that, you know, if our Republican friends are really interested in doing something about dealing with the economic growth, they should help us continue to lower the deficit… They should be willing to work with us to have a tax code that is actually one that works…” As an opinion piece in Yahoo! News noted, beyond Manchin and Sinema, “A handful of Senate Democrats in close re-election races don’t want to do anything remotely controversial with their seats on the line.” And the tax-hiking approach continues to be criticized by Republicans, just as it was in the run-up to the House-passed Build Back Better Act (BBBA), which relied on proposals other than rate increases. Senate Republican leader Mitch McConnell (R-KY) said April 28, “This is literally Democrats’ economic agenda for your family: High prices and less money…First they hurt you with inflation, and now they want to hurt you with tax hikes.” In response, Democrats, including the President, are eager to point out the tax increase proposals of Republican Senator Rick Scott (R-FL).
According to an April 26 Washington Post story, “Manchin privately told lawmakers in recent days that he wants Congress to approve a bipartisan energy deal in response to Russia’s invasion of Ukraine, which would complicate an already difficult timeline for a broader spending proposal.” An unnamed White House adviser was quoted as saying, “There’s real fear inside the building that Manchin’s stonewalling will run out the clock on Biden’s legislative agenda throughout the rest of the year, leading the administration and congressional Democrats into November without anything else to offer voters.” The story said, “In recent weeks, White House officials have quietly tried gauging Manchin’s interest in a package that would consist primarily of clean-energy initiatives, prescription drug reform and higher taxes on the rich and corporations, the people said. The ideas discussed internally include more than $500 billion of deficit reduction…” The House-passed BBBA includes around $1.4 trillion in tax increases over the next 10 years, so conceptually there is more than enough revenue to offset the cost of such a deficit reduction initiative along with a climate/energy package, if the key players – namely, Manchin, Sinema, and the President – can reach an agreement on the details. The ability of Democrats to process an FY 2022 budget reconciliation bill expires at the end of the current fiscal year, on September 30, and, practically, it appears that a deal, if it is going to come together, needs to happen this summer, before the August congressional recess.
Energy: The exact nature of the apparent dual-track reconciliation and bipartisan approach Senator Manchin is pursuing isn’t clear. Politico suggested Manchin is looking at reconciliation and bipartisan bills as separate possibilities: “Just because Joe Manchin is launching bipartisan talks on an energy and climate change package doesn’t mean he’s throwing in the towel on Democrats’ long-sought party-line social spending and tax bill… While Manchin isn’t ready to torpedo all prospects for a party-line bill this year the way he quashed the $1.7 trillion package once called ‘Build Back Better,’ he flatly rejected any effort to set a new timeline...” It’s unclear how quickly a bipartisan compromise on energy issues could come together and whether 10 Republicans would support it as the midterm elections, trending in their favor, approach. Senator Manchin chairs the Senate Energy and Natural Resources Committee, has made comments about aiding domestic energy production previously, and high prices and concerns over US dependence on Russian energy have reportedly given him more leverage to push for changes. He and Ranking Member Lisa Murkowski (R-AK) met with other senators from both parties April 25 to, according to Senator Manchin’s office, “gauge bipartisan interest in a path forward that addresses our nation’s climate and energy security needs head on.” Other attendees of the meeting included Senators Kevin Cramer (R-ND), Brian Schatz (D-HI), Tom Carper (D-DE), Mark Warner (D-VA), Mark Kelly (D-AZ), and John Hickenlooper (D-CO), according to the Bloomberg report. The April 28 Wall Street Journal said, “Forging an agreement on energy policy that can win broad support from Democrats, who prioritize aid for clean energy sources such as wind and solar power, and Republicans, who want to support fossil fuels, will be challenging. Sen. [Cramer], who attended the meeting [with Manchin], said Republicans would oppose any plan that resembles Democrats’ previous plans for reducing carbon emissions. ‘That leaves maybe a fairly narrow band depending on what price people are willing to pay,’ Mr. Cramer said.”
Global tax: The OECD/G20 Inclusive Framework on BEPS public consultation meeting on the Implementation Framework of the global minimum tax was held April 25. There were 73 submissions with over 500 pages of comments on administration of the rules. The OECD and the Inclusive Framework sought input on four questions that were outlined in the invitation, which was released on March 14 along with the GloBE Rules and Commentary that were released on the same day. The meeting focused on the mechanisms necessary to ensure that tax administrations and multinational enterprises can implement and apply the GloBE Rules in a consistent and coordinated manner. At the end of the session, the OECD Secretariat also addressed some technical questions related to the GloBE Rules.
Competitiveness: The Senate April 28 voted 67-27 to go to conference with the House on the America COMPETES/USICA competitiveness bills and agreed to hold votes next week on 28 nonbinding motions to instruct conferees. These could include a motion by Senator Maggie Hassan (D-NH) calling for preserving R&D expensing, rather than the IRC Section 174 five-year amortization that took effect this year. Senator Bernie Sanders (I-VT), who opposes the $52 billion in CHIPS Act funding in the bill, has a motion calling for beneficiaries of semiconductor funding to be prohibited from engaging in stock buybacks and outsourcing.
Auto relief: Senator Sherrod Brown (D-OH) April 28 introduced a bipartisan bill (S. 4105) to provide tax relief to auto dealers experiencing inventory shortages due to global supply chain issues, addressing the Last-In First-Out (LIFO) inventory method that “can result in a large tax bill for dealerships that don’t maintain a minimum level of inventory at the close of the year. The Supply Chain Disruptions Relief Act would provide a statutory determination that the requirements for a qualified liquidation under Section 473 have been satisfied for new motor vehicle dealers that have had a reduction of new vehicles held in LIFO inventory.” A bipartisan companion bill (H.R. 7382) was introduced in the House April 4 by Rep. Dan Kildee (D-MI), and Bloomberg Tax reported Kildee as saying he would try to get relief for car dealers on the competitiveness bill.
PGP: In Notice 2022-21, the Treasury Department and the Internal Revenue Service (IRS) invited the public to submit recommendations for items to be included on the 2022--2023 Priority Guidance Plan.