September 25, 2022
Americas Tax Policy: This Week in Tax Policy for September 23
This week (September 26-30)
Congress: The House and Senate are in session with a September 30 deadline to extend government funding. Both chambers are expected to be in session until a one-week recess the week of October 3. Following that recess, the Senate is scheduled to then come back for two weeks, while the House is set to remain out of session until after the elections. There had been some speculation that Senate leaders could give back some of that time and members up for re-election will want to be campaigning at home. Majority Leader Chuck Schumer (D-NY) said following the regular Tuesday party lunches regarding the schedule: "We will be meeting in October. There's one week we can't meet because of the Yom Kippur holiday but we'll be meeting in October. [The National Defense Authorization Act] will be part of what we do."
Last week (September 19-23)
The big picture: The only must-pass item for Congress prior to the elections is the continuing resolution (CR) to fund the government, and lawmakers appear on track to approve a CR through December 16 by the September 30 deadline. Senator Joe Manchin's (D-WV) energy permitting reform proposal is likely to be stripped from the CR after a vote next week given opposition from both progressive Democrats who oppose the measure, or at least want a longer runway to its enactment, and Republicans still upset with Manchin over his support for the Inflation Reduction Act (IRA). A mostly clean CR could then advance through the Senate and House. It is expected to include Ukraine funding and a five-year reauthorization of the Food and Drug Administration's (FDA) user fee program.
Year-end tax bill: A CR through December 16, as opposed to into next year as some Republicans demanded, would create the need for another government funding bill to be sent to President Biden by mid-December, creating a vehicle to potentially carry year-end tax and retirement legislation, depending on how the political winds are blowing following the elections. Top contenders to be addressed in a year-end bill include the TCJA cliffs that took hold this year on IRC Section 174 — requiring five-year R&D amortization rather than expensing — and on the IRC Section 163(j) interest deduction calculation, the phasedown of bonus depreciation after this year, and some non-energy tax extenders. Senate Finance Committee Ranking Member Mike Crapo (R-ID) was among the 14 GOP signatories of a letter this week calling for a CR into 2023 to ward off "lame-duck spending," and to potentially give Republicans a stronger hand in spending and other negotiations should they win control of one or both chambers beginning in the Congress.
Still, a Politico report on trade issues this week noted that "Crapo has previously said he hoped some trade provisions could be included in a year-end tax extenders bill." It said that timeline was reiterated on Tuesday by House Ways and Means Chair Richard Neal (D-MA), who said that "many of the tax considerations will be done in the end" of the Congressional session and Crapo "knows what my priorities are" when it comes to trade. "I talked to him about them weeks ago," he said in the report. The article mentioned Trade Adjustment Assistance, the Generalized System of Preferences, and Miscellaneous Tariff Program.
A key to the negotiations over a year-end tax package will be whether Democrats push for tax relief for lower-income families, such as an expanded Child Tax Credit (CTC), to go with tax extenders that are more business-oriented, and whether Republicans and Democrats can reach a compromise on this. Serious negotiations will not kick in until after the November election.
TCJA permanency: House Republican leaders September 23 unveiled their "Commitment to America" platform in Monongahela, PA, near Pittsburgh. Documents call for plans to "increase take-home pay, create good-paying jobs, and bring stability to the economy through pro-growth tax and deregulatory policies." House Republican Leader Kevin McCarthy (R-CA) said unwinding the IRA's IRS funding increase would be the first bill on tap if Republicans are in control of the House next year.
On a related note, Rep. Vern Buchanan (R-FL), one of three members vying for the Ways & Means chairmanship in the next Congress if control of the House flips to Republicans, introduced the TCJA Permanency Act (H.R. 8913) to make permanent the bill's tax cuts for individuals and small businesses. "Buchanan's legislation also includes a number of important updates to a previous iteration of this bill, including several technical fixes and expanded eligible uses of 529 savings plans to help parents and students," a press release said.
Global tax: President Biden cited the OECD-led global tax agreement in his address to the United Nations General Assembly in New York September 21, a setting that doesn't typically include tax mentions. "With partners in the Americas, Africa, Europe and the Middle East and the Indo-Pacific, we're working to build a new economic ecosystem, where every nation gets a fair shot in economic growth that is resilient, sustainable and shared," he said. "That's why the United States is championing a global minimum tax, and we will work to see it implemented, so major corporations pay their fair share everywhere."
On Tuesday, September 20, the Ways & Means Committee voted 24-16 to adversely report to the House a resolution of inquiry, H. Res. 1269, directing the Treasury Secretary to provide documents relating to the impact of the OECD Pillar One agreement. Rep. Kevin Hern (R-OK), the author of the resolution, said Treasury has not divulged information and has deprived the Joint Committee on Taxation information to produce their own estimates.
An EY Tax Alert, "OECD holds public consultation meeting on Progress Report on Amount A of Pillar One," is available here.
The government of new UK Prime Minister Liz Truss announced a growth plan to, among other things, cancel a corporate tax increase, "keeping it at 19%," and cut taxes for homebuying. "Breaking sharply with the era of the previous prime minister, Boris Johnson, the new chancellor of the Exchequer, Kwasi Kwarteng, promised the dawn of a new age of lower taxation, with the scrapping of one planned tax rise and the reduction of levies on home purchases to try to fire up the real estate market," the New York Times said.
Regulations: Bloomberg Tax reported an official with the IRS LB&I division as saying at a conference hosted by the Tax Executives Institute September 20 that IRS and the Treasury Department are working to provide "quick guidance" on provisions of the Inflation Reduction Act and notices of proposed rulemaking should be published "very soon." Also, IRS is "actively working on" guidance related to a provision in the 2017 tax law on the amortization of research and development expenditures, expected to address substantive concepts and questions that have been raised about the change of accounting method.
Elections: The midterm elections continue to be a focus of attention and speculation, especially given what's at stake with control of the House and Senate. Gaining control of the House continues to seem more possible for Republicans, who only need a net gain of five seats (presuming the vacant Indiana seat stays Republican) with more than 30 held by Democrats that are rated as toss-up or lean-to/likely to go to the other party. The Senate is more difficult to handicap, and even Senate Republican Leader Mitch McConnell (R-KY) said Tuesday it could remain evenly split. "The country is 50-50 and I think the outcome for the Senate is likely to be 50-50. We've got a bunch of hard-fought races. We're all giving it our best on both sides, and I think it's a jump ball," he said.
An editorial in Monday's Wall Street Journal said, "Democrats have a good chance of adding to their majority in the Senate and even keeping it in the House," and if they do, "Major tax increases will also be back in play. Ways and Means Chairman Richard Neal recently told a Bloomberg reporter that Democrats will raise individual and corporate tax rates if they keep power. Treasury Secretary Janet Yellen said in a recent speech that the Administration's goal is to return 'tax rates for high earners and corporations to historical norms.' How high is 'historical'? Mr. Neal's original proposal in 2021 raised the corporate rate to 26.5%, and the individual rate to 39.6% from 37% at $400,000 in income and 42.6% above $5 million, and imposed a tax on capital gains at death. With two more Senators, expect those rates to go much higher."