June 19, 2022
Americas Tax Policy: This Week in Tax Policy for June 17
This week (June 20-24)
Congress: The House and Senate are in session. There are no hearings in the tax-writing committees, though the Finance Committee is holding a retirement markup. After June 24, the Senate is in recess for two weeks, and the House has one Committee Work Week and one recess week.
Retirement: The Senate Finance Committee will mark up its Enhancing American Retirement Now (EARN) Act, which is intended to be incorporated into 'SECURE 2.0' retirement legislation, on Wednesday, June 22 (10 a.m.). Chairman Wyden released a summary of the bill June 17. The staff of the Joint Committee on Taxation has prepared a description of the Chairman's Mark and the estimated budgetary effects of the proposals.
Last week (June 13-17)
Reconciliation: President Biden is projecting confidence that Congress can pass a reconciliation bill addressing prescription drug pricing and clean energy tax credits. There have been meetings this week suggesting movement toward a bill, and the top Democratic Senate tax-writer says he is actively involved in regular negotiations:
- "I'm spending a significant amount of time every day on it. I can't get into all the negotiations. I believe we're going to get there," Senate Finance Committee Chairman Ron Wyden (D-OR) said in a Politico report. "Sen. Schumer makes these calls, but I think it's just really key to get this done before the August break."
- President Biden said in a June 16 AP interview, "I believe I have the votes to do a number of things. One, prescription drugs. Reduce utility bills … I think we'll be able to get the ability to have a tax incentive for winterization." He also thinks "we're going to be able to have a fair tax system" and he will have the votes "to have a minimum tax on corporations of 15%" and "tax increases on [the] super wealthy."
- Senate Majority Leader Chuck Schumer (D-NY) and House Speaker Nancy Pelosi (D-CA) met with President Biden June 15 to discuss "plans for fighting the global problem of inflation that is affecting every major economy, such as bringing down prescription drug and energy costs, and adding to the historic deficit reduction we have accomplished," the White House said.
- Asked during a news conference June 16 about the appearance that "you were meeting on reconciliation," Speaker Pelosi said in part, "Everything that was in the [House-passed] reconciliation bill is great. So, if we just have some of it, that'll be very good and we look forward to that, but I just don't know. As I think you know from the dynamic around here, Senate negotiations: very closely held, as it is on the guns [legislation] right now, as they write the legislation to match the priorities that they put forth. We hope that the priorities will survive the legislative writing of the bill."
- Senator Schumer also reportedly met twice with Senator Joe Manchin (D-WV) this week, and a Wall Street Journal reporter tweeted about purported Democratic meetings with the Senate Parliamentarian over a possible reconciliation bill.
Inflation: Inflation and what Democrats are doing to address it seem to be both playing a part in reigniting reconciliation talks and threatening to be an impediment, with Republicans continuing to suggest Democratic spending, particularly the American Rescue Plan Act, was a cause of the current high prices:
- House Ways & Means Committee Ranking Member Kevin Brady (R-TX) said on Fox Business News June 16, "So we have four or five now countries around the world lowering their business rates to fight inflation. We have a White House and Senate Democrats who want to drive tax hikes up, those are going to land on consumers, on workers … The $1 trillion-$1.3 trillion in tax hikes [Democrats] are looking at land on main street businesses, on American-made energy … So, they're going to make inflation worse at every turn. And it is not — I'm just telling you — [reconciliation] is not dead yet over there [in the Senate]."
- House Ways & Means Committee Republicans, including Brady, have proposed, in order to fight inflation, repurposing unspent COVID relief funds, making TCJA provisions permanent, negotiating better trade agreements along the lines of the USMCA, and increasing American energy production.
- Senate Finance Committee members Chuck Grassley (R-IA) — a former Chairman — James Lankford (R-OK), John Barrasso (R-WY), and Steve Daines (R-MT) June 14 introduced the Middle-class Savings and Investment Act (S. 4393) to increase the married filing jointly income threshold for the ACA-enacted Net Investment Income Tax (NIIT) from $250,000 to $400,000, expand the 0% tax bracket for long-term capital gains and qualified dividends, expand the Saver's Credit for retirement, and extend the $10,000 State and local tax deduction cap.
- The Wall Street Journal: "The [House and Senate GOP inflation] policies offer a preview of the fall midterm election campaign, where inflation is likely to be one of the core issues on voters' minds as Republicans try to regain control of the House and Senate. But in the closely divided Congress, it is difficult to design politically viable legislative proposals that remove money from the economy or significantly reduce costs for businesses and households."
- For his part, President Biden is increasingly incredulous about the role of Democratic-authored spending in the inflation crisis. In the AP interview, he said of the 2021 ARPA COVID relief bill, "the idea that it caused inflation is bizarre." The President also said, "If it's my fault, why is it the case in every other major industrial country in the world that inflation is higher?"
FTC regulations: In a June 16 letter to Treasury Secretary Janet Yellen, House Ways & Means Committee Republicans expressed concern about the short period of time between issuance of the foreign tax credit (FTC) regulations and their effective date, and "Treasury's delay in providing necessary clarifying guidance," and suggested extending the implementation window for the entire final regulations package until January 1, 2023. It follows an earlier bipartisan letter and members raising the issue during the Yellen budget hearings.
Global tax: At the June the 17 European Union Economic and Financial Affairs Council (ECOFIN) meeting, Poland dropped its opposition and supported the Pillar 2 minimum tax directive. However, Hungary opposed over the economic situation in Europe, with an official saying, "Interest rates and inflation are rapidly increasing, supply chains are also disrupted," Politico reported. The French presidency of the EU Council ends at the end of the month. The Czech Republic has the presidency from July 1 to December 31, 2022.
Meanwhile, the UK Financial Secretary to the Treasury issued a letter June 14 confirming that the UK will implement Pillar 2 legislation that will apply to accounting periods beginning on or after December 31, 2023. This delay in the effective date (previously April 2023) comes after hearing concerns from the business community during a months-long consultation on the issue that ended in early April.
Oil & gas tax: Reports on June 14 said Senate Finance Committee Chairman Wyden plans a proposal for a 21% additional tax on the excess profits of oil and gas companies with more than $1 billion in annual revenue. The 21% tax would be in addition to any regular income tax due and profits over 10% of current year expenses would be considered excessive, Reuters reported.
Competitiveness: There had already been the expectation that a USICA-COMPETES competitiveness conference agreement would follow the Senate bill to keep requisite Republican support, and now the House bill's Democratic provisions on trade, climate, etc. are likely to be dropped out of political necessity:
- Punchbowl reported June 16 that Democrats are aiming to streamline the scope of the conference to reach agreement before the July 4 break and complete a bill before the August recess, out of fear that, if not by then, it won't get done before the midterms. The talks "seem to be increasingly focused on billions of dollars in funding to boost chip manufacturing, the National Science Foundation and research security … [and] add provisions dealing with bolstering supply chains, which … the Senate bill was silent on," the report said.
- In her June 16 news conference, Speaker Pelosi said, in the negotiations on the bill, "we are narrowing it down to where we have our agreement, that we can just proceed … and now just narrowing further those areas where further negotiation is necessary. And we put out the word that we wanted to have, from our chairs, what they see as the remaining issues to be negotiated."
- The Senate will need the votes of 10 Republicans, and Bloomberg has reported the conference could be hampered by Republicans reluctant to give Democrats a win before the midterm elections and wary of "soft on China" perceptions.
WTO: The World Trade Organization (WTO) 12th Ministerial (MC12) concluded June 17 in Geneva by reaching agreement on a wide-ranging, albeit limited, multilateral trade deal, the first such agreement to be reached at the WTO in nearly 10 years. WTO trade negotiators raced against the clock, and objections from Indian trade officials, to conclude their talks as the MC12 headed to overtime. The multilateral agreement includes new restrictions on fishing subsidies, establishes a limited IP waiver for Covid-19 vaccines, extends the e-commerce tariff moratorium until 2024, protects the United Nation's World Food Programme and begins a process for WTO reform. "The outcomes demonstrate that the WTO is in fact capable of responding to emergencies of our time," WTO Director General Ngozi Okonjo-Iweala said as the ministerial concluded. "They show the world that WTO members can come together across geopolitical fault lines to address problems of the global commons and to reinforce and reinvigorate the institution."
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