August 5, 2022
What to expect in Washington (August 5)
Senator Kyrsten Sinema (D-AZ), the key 50th vote for a reconciliation bill in the evenly split Senate, announced late August 4 that she will support the Inflation Reduction Act (IRA) health-climate-tax bill that the Senate intends to consider this weekend, after she secured changes to the package. "We have agreed to remove the carried interest tax provision, protect advanced manufacturing, and boost our clean energy economy in the Senate's budget reconciliation legislation. Subject to the Parliamentarian's review, I'll move forward," she said. The bill as announced July 27 would have increased the carried interest holding period for capital gains treatment to five years (up from three).
The Washington Post reported following the announcement, "She also said they had made additional changes to a second provision that aims to impose a new minimum tax on corporations that currently pay nothing to the U.S. government. The revisions would benefit manufacturers … As part of it, Democrats opted to seek a new 1 percent tax on corporate stock buybacks, a move that would make up at least some of the revenue that might have been lost as a result of the changes."
Bloomberg reported, "The deal struck by Sinema, a pivotal Democratic vote in the Senate, would pare back a proposed 15% corporate minimum tax by creating an exemption for depreciation tax deductions." The Wall Street Journal (WSJ) said, "The changed deal would preserve the benefit of accelerated depreciation for at least some manufacturers … " The report also cited second-hand accounts of Senator Sinema saying the carried interest tax increase didn't make sense because the private equity industry will finance projects for the recent infrastructure and semiconductor bills.
Sen Joe Manchin (D-WV) said of the reconciliation bill August 4, "We will land the plane … I'm not sure exactly when … but we'll land it," CBS News reported. Majority Leader Chuck Schumer (D-NY) announced that the Senate will next convene at noon on Saturday, August 6; the final version of the reconciliation bill will be introduced on Saturday; and a motion to proceed to the IRA is expected on Saturday afternoon.
Twenty hours of debate will follow, culminating with the vote-a-rama rapid-fire series of amendment votes, possibly setting up final passage late Sunday night or overnight into Monday. Politico today reported Senator Chris Coons (D-DE) as saying the vote-a-rama is "going to start later than we imagine, it's going to run longer than we would hope and it's going to be more painful getting out of here than any of us have any reason to expect."
Politico Morning Tax said this morning, "Lawmakers have completed the Byrd Bath for the entire bill except for the Finance Committee's section. They're still working on that, though that should wrap up today."
Senator Sinema's announcement, capping more than a week of speculation over whether she would support the bill and with what changes, seemed to secure requisite support for the plan that can pass the Senate with only Democratic votes. It also appeared to set a glidepath to enactment for a reconciliation bill that's been discussed by Democrats in Congress for over a year. If the Senate passes the measure, the House is expected to reconvene to approve the bill mid-next week.
Republicans remain critical of the bill, however. In a WSJ op-ed published before the announcement suggesting there will be depreciation exemptions for some manufacturers, Senator Rob Portman (R-OH) repeated Republican arguments that the corporate alternative minimum tax (CAMT) would be passed on to average Americans through lower wages and higher prices. He also said, "The U.S. tried a minimum book tax in the 1986 tax reform, and Congress repealed it in 1989 because lawmakers realized the dangers of mixing reporting for tax and financial purposes. Two such dangers are that it creates an incentive for companies to alter their financial statements to reduce taxes and risks politicizing the body in charge of setting accounting standards, the Financial Accounting Standards Board, which should be kept free from lobbying."
The Congressional Budget Office released a cost estimate August 3 showing the legislation as unveiled July 27 would result in a net decrease in the deficit totaling $102 billion over the 2022—2031 period.
Foreign tax credit regulations — An EY Alert, "Technical corrections to foreign tax credit regulations offer relief from cost recovery rules and include other impactful changes," has been posted here.
Competitiveness — The White House announced that President Biden will sign the CHIPS & Science competitiveness bill on Tuesday, August 9.
Congress — Members have been paying tribute to Rep. Jackie Walorski (R-IN), who was killed in a tragic automobile accident August 3 along with her communications director and district director. Rep. Walorski has been a member of the Ways & Means Committee since 2017. House Republican Leader Kevin McCarthy (R-CA) said, "Jackie was a dear friend, trusted advisor, and the embodiment of integrity who achieved the admiration and respect of all her colleagues in the House." Former VP Mike Pence tweeted that he and wife Karen Pence "are heartbroken by the tragic passing of our dear friend Rep. Jackie Walorski. She served Indiana in the Statehouse and the Congress with integrity and principle for nearly two decades and will be deeply missed." Ways & Means Ranking Republican Kevin Brady (R-Texas) said, "Jackie was always so proud of her team - she couldn't say enough about them. Losing Zach Potts & Emma Thomson today - young people doing great things for Indiana & our nation - just makes it all even harder."
On Thursday, August 11, 2022 (1:00-2:15 p.m.) is an EY update on the Inflation Reduction Act of 2022, an in-depth discussion of the potential international tax implications of its corporate alternative minimum tax (CAMT) proposal, and discussion of the potential business implications of recent technical corrections to the foreign tax credit (FTC) regulations. Register