May 15, 2022
Americas Tax Policy: This Week in Tax Policy for May 13
This Week (May 16-20)
Congress: The House and Senate are in session. The Senate stands adjourned until 3:00 p.m. on Monday, May 16, following which they will take a procedural vote related to the nearly $40 billion Ukraine funding bill that was approved by the House late Tuesday but hit a snag in the Senate Thursday, as Senator Rand Paul (R-KY) called for Inspector General-level oversight of how the money is spent.
In the House, Speaker Nancy Pelosi (D-CA) announced, “Next week on the Floor of the House, we will have another piece of our ‘lowering costs for the American people’ legislation… the Consumer Fuel Price Gouging Prevention Act” to enable the President “to issue an energy emergency declaration, making it unlawful to increase gas and home energy prices in an exploitive and excessive way...”
Hearings: On Wednesday, May 18 (10:00 a.m.), the House Ways & Means Oversight Subcommittee will hold a hearing on “Taxpayer Fairness Across the IRS.”
Elections: On May 17, the Pennsylvania primaries are being held, including for the Senate race for the seat being vacated by Pat Toomey (R-PA). Democratic candidates include Lt. Gov. John Fetterman and Rep. Conor Lamb (D-PA), with Fetterman leading significantly, according to the Washington Post. Republican candidates include Dr. Mehmet Oz, David McCormick, and Kathy Barnette, who the New York Times said is “a hard-right conservative” who “is suddenly surging in the polls.”
Last Week (May 9-13)
Reconciliation: The week began with an NBC News story citing unnamed sources familiar with Senator Joe Manchin’s (D-WV) thinking as saying Democrats shouldn’t wait for him to release a specific reconciliation proposal; rather, the White House should assemble a package he can support and hand that off to Democratic leaders in Congress. Sources said it would be out of character for Senator Manchin to write a partisan bill, and that the White House wants a reconciliation bill more than he does. The story noted, “Manchin reiterated his support Monday for a filibuster-proof bill, saying his priority is to combat inflation. ‘My main thing is inflation, fighting inflation with tax reforms … We ought to get rid of this debt and start, in a responsible way, handling our finances.’” Senator Manchin has continued to call for tax rate increases that are opposed by Senator Kyrsten Sinema (D-AZ), which led to the House-passed BBBA relying on other non-tax rate increases to offset the cost of the legislation. “Asked whether his specific tax rate proposals are essential to win his vote, Manchin said: ‘I’m just saying you’ve got a chance to get your financial house in order, you got a chance to start paying down your debt and taking inflation serious enough to change the trajectory,’” NBC reported.
In laying out his plan for addressing inflation and drawing contrasts with Republican policies – particularly the tax increase proposals of Senator Rick Scott (R-FL) – President Biden delivered remarks May 10 calling for action on specific tax, energy, and prescription drug proposals. “My plan is to lower everyday costs for hardworking families and lower the deficit by asking large corporations and the wealthiest Americans to not engage in price gouging and to pay their fair share in taxes,” he said. Regarding specific energy proposals, the President said, “To reduce our dependence on foreign oil and reckless autocrats like Putin, I’m working with Congress to pass landmark investments to help build a clean energy future as well — from tax credits for businesses to produce renewable energy to tax credits for families to make their homes more energy efficient.” The White House issued a fact sheet enumerating recommended policies, including:
Expiring provisions: There are lingering questions about what legislation can carry tax provisions this year – a bill to emerge from the House-Senate Bipartisan Innovation Act competitiveness bill conference committee that is anchored by $52 billion in semiconductor funds, a revived reconciliation bill, or a year-end tax bill that could be part of year-end appropriations package – and in the future, including as the expiration of TCJA provisions approaches in 2025. A May 11 Law360 story discussed how “the upcoming expiration of the GOP’s 2017 tax overhaul law could present Democrats with an opportunity to force action” on a global minimum tax. Sen. Ben Cardin (D-MD) said movement on the OECD global tax deal in Congress is likely to run concurrently with Democrats’ desire to reopen the TCJA and that Finance Committee members have had general discussions about Pillar Two but have not taken any specific actions. “Two things are going on. You have the movement toward a minimum international tax, which makes sense to level the playing field. Secondly, we have the adjustments we have to make because of the policies of [the] 2017 tax law that we strongly disagree with,” he said. EY’s Ray Beeman was quoted as saying of lawmakers being required to deal with the TCJA tax provisions that will expire in 2025, “I think it’s going to have a force of attraction and suck in every other issue that people have with international tax, corporate rates and more.”
This followed earlier reporting in the Washington Post that the overwhelming Senate vote on a motion to instruct conferees to the Bipartisan Innovation Act to preserve R&D expensing, rather than the Section 174 five-year amortization that took effect this year, is a preview of upcoming battles on expiring TCJA provisions. The story said while liberals “argued Democrats should not agree to reinstate it without some concession from the GOP, such as an extension of the Child Tax Credit or an increase in the corporate tax rate … Democrats’ willingness to support the measure raises questions about dozens of similar debates that await as provisions of Trump’s tax law begin to expire. A popular deduction on interest expenses, for instance, is set to shrink. Another fight looms over tax deductions on large capital investments. Global tax rates on large corporations are set to increase in 2026.”
Competitiveness: Despite most senators from both parties voting for the motion on R&D, the first meeting of the House-Senate Bipartisan Innovation Act competitiveness bill conference committee May 12 revealed a rift over how much tax policy, if any, to include in the bill. Both the chairman and ranking member of the Senate Finance Committee – Sens. Ron Wyden (D-OR) and Mike Crapo (R-ID) – made clear Thursday that they will seek to add a new investment tax credit for semiconductor plants, included in the Facilitating American-Built Semiconductors (FABS) Act (S. 2107) that Wyden introduced last year. That provision was not included in either the House or Senate-passed versions. Sen. Crapo told reporters that including FABS would be “significant in … making sure our semiconductors are manufactured here.” Roll Call reported Senator Mark Warner (D-VA) as also advocating for the proposal: “We may have to wrestle with this one a little bit. I do think we need a tax title.” Wyden and Crapo both also support a delay in the 2017 TCJA’s Section 174 five-year amortization requirement to preserve R&D expensing that was in effect prior to this year. However, House Ways and Means Committee Ranking Member Kevin Brady (R-TX) said, “I see no need for a tax title in this Conference Report, especially one favoring a single industry. If at all, we should confront the brazen ‘Made in China 2025’ plan for industrial and technological dominance by unleashing all of America’s innovation and economic might across myriad industries.” (Brady’s statement was seen by many as referring to the FABS Act and not directed specifically to the R&D credit amortization proposal.) Senator Crapo acknowledged that adding any tax language could open the door to tax proposals from many other negotiators. “If we try to put any tax provisions in, then people will try to fill it up with all of their unrelated tax policies, and I’m against any unrelated tax policy,” Crapo told The Hill. “There were those who said [Thursday] that they didn’t want to see any tax provisions in the bill, so there’s still a big debate over that.” The conference committee is atypically large, with 107 conferees: 26 Senators (divided evenly between Democrats and Republicans) and 81 House members (50 Democrats joined by 31 Republicans).
Budget hearings: Customary post-Budget release tax hearings, which allow members to ask questions of the Treasury Secretary about Budget proposals, were not held at the Ways & Means and Finance committees following the release of the FY2023 Budget March 28 but may be scheduled soon. Politico Morning Tax reported, “[Secretary] Yellen tentatively is scheduled to testify before the Senate Finance Committee on June 7, according to congressional aides. She is also expected at a hearing with the House Ways and Means Committee around that time as well.”
Russia: Chairman Wyden and Senator Rob Portman (R-OH) May 12 introduced the Support Ukraine Through Our Tax Code Act (S. 4218) to disallow foreign tax credits and other tax benefits for companies that pay taxes to the Russian government, and for sanctioned individuals. A discussion draft was released last month, and a main difference is the period of application. Under the introduced bill, 90 days after becoming law, tax code section 901(j) would apply to Russia and Belarus, then any income taxes paid or accrued to Russia or Belarus, and attributable to the period after section 901(j) applies, would be ineligible as a foreign tax credit and a deduction. Under section 952(a)(5), income derived by a CFC from countries subject to section 901(j) is automatically treated as subpart F income, subject to the 21% corporate rate, and losses cannot be used to offset other income earned as global intangible low-taxed income (GILTI). Transition relief is provided to companies that have exited or are rapidly shutting down operations in the countries.