May 31, 2022
Americas Tax Policy: This Week in Tax Policy for May 30
This week (May 30-June 3)
Congress: The House and Senate are out for the Memorial Day recess, returning the week of June 6.
Friday, June 3 (at 12 p.m.), is the EY Webcast , “Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments.”
With Congress in recess, This Week in Tax Policy won’t be published this week, but Alerts will be issued as events warrant.
Last week (May 23-27)
Reconciliation: Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV) have reportedly continued to meet over a possible slimmed-down reconciliation bill, and other Senate Democrats widely view a deal on reconciliation as one to be cut by Schumer and Manchin. Axios reported that new revenue could total $800 billion; Manchin is eager to authorize prescription drug price negotiation; and while he would like a corporate tax rate increase, “he’ll settle for establishing a domestic minimum rate of 15%.” Senator Manchin has continued to stoke interest in an energy/climate, tax, and prescription drug bill, saying at the World Economic Forum meeting in Davos, “There’s a responsibility and opportunity that we can do something” on issues like allowing Medicare to negotiate drug prices and paying down the national debt. Business Insider reported that Senator Manchin reiterated prior comments about Democrats unanimously opposing the 2017 TCJA, and said, “What we need is a competitive tax code that spins off enough for us in the United States to take care of ourselves, pay down our debt, and live within our means. You can’t do that with the existing tax code we have unless you slash everything to the bone.” In Davos, Manchin had an exchange with Senator Roger Wicker (R-MI), who said, “You’ve just heard it: If Democrats continue in government, they’re likely to chip away at the most successful tax cut the United States has ever seen,” he said. “The most regressive tax cut,” Manchin responded, according to the report. A report in The Hill newspaper May 24 said, “Democrats are once again pushing back the target date for getting a deal with Manchin. They now point to the start of the August recess as the new deadline, arguing that gives them most of August to draft legislation and the month of September to pass it on the floor.” Manchin recently said the only deadline is the September 30 expiration of reconciliation instructions.
Budget: The Congressional Budget Office (CBO) May 25 released The Budget and Economic Outlook: 2022 to 2032, projecting:
WSJ editorial: At the intersection of these first two developments is an editorial in the May 27 Wall Street Journal, “A Federal Budget Warning for Joe Manchin,” observing that revenues are up this year to 19.6% of GDP, the highest since 2000, but that spending is rising faster. “The last thing we need is a tax hike on top of another spending blowout that slows economic growth, grows public debt and makes managing it more difficult,” it said. Also, the editorial mentions several new laws that were supposed to be paid for and/or came in at a particular price tag that CBO is now saying is much higher:
Global tax: OECD Secretary General Mathias Cormann said in Davos Tuesday he is “quietly optimistic” about the success of the global tax agreement and, while an ambitious timeline was set to keep pressure on, he suspects it’s “most likely we will end up with a practical implementation from 2024 onwards,” which is a year later than nations had previously targeted. He said while the hope was to finalize an agreement on all remaining technical aspects of Pillar One by the middle of the year, it is now more likely by the end of 2022.
The Pillar Two minimum tax directive was not brought up for a vote during the European Union Economic and Financial Affairs Council (ECOFIN) meeting on May 24, with Poland still opposed. The next meeting is on June 17. Politico reported that French Economy Minister Bruno Le Maire predicted May 24 that Poland will abandon its opposition and agreement will be reached by the June 17 meeting. “Everyone knows the issues [and] I am convinced that these could be removed on the 17th of June,” he said.
On May 27, the OECD released and sought public comments on two consultation documents relating to tax certainty: a Tax Certainty Framework for Amount A and Tax Certainty for Issues Related to Amount A under Pillar One. Comments are due by June 10.
On May 26, the OECD published the public comments received on the Regulated Financial Services Exclusion under Amount A of Pillar One.
The Irish Consultation on Pillar Two Minimum Tax Rate Implementation opened on May 26 and the deadline for submissions is July 22.
Competitiveness: Conferees to the Senate USICA/House COMPETES China competition bill were aiming to reach agreement on the broad outlines of a package by May 25, though nothing was announced publicly to that effect. Two conferees continued Senate Republicans’ insistence that the final product would likely resemble their bipartisan Senate-passed version, rather than the partisan package put forward by House Democrats. Senator Todd Young (R-IN), one of the sponsors of the original Endless Frontier Act and subsequent versions, told Punchbowl on May 24 that a compromise is “going to require liberal House Democrats to understand this bill needs to resemble what we passed out of the Senate…. Democrats are going to have to internalize the reality that this is not a negotiation to meet halfway…” Another key sponsor of the Senate bill, Senator John Cornyn (R-TX), said the final negotiated bill is “not gonna look like the House bill. The quicker they go through the five stages of grief, the better. So I just think that’s the bottom line. I mean, I’m not making a threat. I’m just saying I think that’s the reality.” Separately, in an interview with Bloomberg Television from the Davos conference in Switzerland, Senator Young said, “I know we can get it done,” saying the conference could be concluded in a matter of weeks.
On May 23, Bloomberg reported that some House Democrats are wary about including tax provisions in the bill. Senate Finance Committee Chairman Ron Wyden (D-OR) and Ranking Member Mike Crapo (R-ID) want to add a tax credit for domestic fabrication of semiconductors, called the FABS Act (S. 2107), while others are pushing to renew R&D expensing that expired at the end of 2021. Some House Democrats fear that trying to do so would slow down the bill, and the report said there are concerns that adding provisions seen as benefiting corporations would be politically perilous for Democrats because of potential criticism from progressives. Others are worried that adding a tax title would open up the conference to demands from lawmakers to add other tax elements. House Ways & Means Committee Chairman Richard Neal (D-MA) previously said that the conference committee is “nowhere at all with the tax title,” Bloomberg reported. Neal said he was open to including the R&D expensing provision, but “it is a question of how we negotiate.”