October 2, 2022
Americas Tax Policy: This Week in Tax Policy for September 30
This week (October 3-7)
Congress: The House and Senate are out of session until after the midterm elections. Senate Majority Leader Chuck Schumer (D-NY) announced Thursday that he would be giving back the scheduled two-week October work period that had the NDAA on the agenda, meaning members can remain in their states and campaign ahead of the elections. The Senate will return November 14 and members should be prepared for a busy agenda in the lame-duck session prior to year's end, Leader Schumer said.
This Week in Tax Policy won't be published regularly while Congress is away, but this and other WCEY Alerts will be published as events warrant.
Last week (September 26-30)
Congress: Both the House and Senate have approved the bill (H.R. 6833) to extend government funding through December 16 and Congress is now out of session until after the midterm elections. The December 16 deadline means another government funding bill must be passed and sent to President Biden by mid-December, creating a vehicle to potentially carry tax and retirement legislation. A year-end tax package could potentially address 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, non-energy tax extenders, and possibly other items.
It is widely recognized that the outcome of the midterm elections could influence whether there is a tax package that could be appended to an additional government funding extension beyond December 16 and into 2023, and what it will look like. Groups of Republicans came out against the prospect of "lame-duck spending" in arguing (unsuccessfully) for a continuing resolution into next year, and news stories have continued forecasting possible difficulty in clearing additional government funding and a debt limit increase likely to be required of Congress next year because of expected objections from conservatives under a potentially Republican-led House. (Gaining control of the House continues to seem more possible for Republicans, while some forecast the Senate as staying evenly split or close to it, with Democrats potentially gaining a seat, as Senator Joe Manchin (D-WV) — who has been under the spotlight for his 50th vote in the current split Senate — predicted this week.) It isn't yet clear whether a tax package could be hindered by some Republicans' aversion to spending in the wake of the Inflation Reduction Act, or the prospect that gaining control of the House and Senate would compel Republicans to wait on major decisions until they have a stronger hand in negotiations in 2023. Further, there is the question of how forcefully Democrats will push for tax relief for lower-income families, such as an expanded Child Tax Credit (CTC), to go with more business-oriented tax extenders.
In any event, Politico reported that Senate Appropriations Committee Chairman Pat Leahy (D-VT) and Ranking Member Richard Shelby (R-AL) — both of whom are retiring at the end of this Congress — have spoken about the potential omnibus spending bill for the remainder of fiscal 2023, and the expectation is there will be add-ons. "There's already talk about disaster aid for Florida and possibly Puerto Rico and Alaska being possibly wrapped into the massive spending bill that will be taken up during the lame duck session," the report said.
2023 speculation: Recent news stories have raised the prospect that a potential Republican majority in one or both chambers could make 2023 look something like the 2011—2013 period, when Republicans controlled the House under a Democratic President (Obama) and conservative members sought to extract concessions in exchange for their support of government funding and debt limit bills, leaving Congress lurching between fiscal deadlines. (Recall that conservative Republicans won spending reductions in exchange for allowing government funding in 2011, and a debt limit fight led to the Budget Control Act, the failed Supercommittee effort to reduce spending, and the resulting "sequestration" fallback spending caps that Congress routinely raised. More funding and debt suspense followed in 2013.) A story in the September 24 Washington Post said some conservatives are pressing House Republican leaders for rules changes to strengthen the power of rank-and-file members prior to leadership elections. "The undercurrent of tension serves as an early preview of the difficulty that House Republicans, who haven't had the reins of power since 2019, will face in the majority with various factions making demands of leadership on legislative priorities," the story said. "Recent polls suggest that GOP gains in the House could be smaller than previously expected — a worry for lawmakers who believe a new class of Trump allies could embolden the ultraconservative House Freedom Caucus and shore up their influence over leadership in a way that halted the passage of legislation in the [Boehner] and [Ryan] speakerships." A September 27 Politico story suggested the Freedom Caucus isn't currently planning to challenge Rep. Kevin McCarthy (R-CA) — the frontrunner for Speaker if Republicans win the House — with a rival candidate, but the group is willing to use its leverage to secure procedural demands.
Axios made a connection between the issue and the three-way race for the Ways & Means chairmanship among Reps. Vern Buchanan (R-FL), Jason Smith (R-MO), and Adrian Smith (R-NE). "Business leaders and Republican strategists say a key indicator of McCarthy's approach will be who is selected to chair the powerful House Ways and Means Committee, given the debt limit talks fall under its jurisdiction … " the report said. Jason Smith said "he thinks Republicans should leverage debt limit negotiations to 'reverse' the administration's 'radical' policies — including by sending a bill gutting the Democratic agenda to President Biden's desk and daring him to reject it."
CAMT: In remarks in the Rose Garden September 27, President Biden touted elements of the Inflation Reduction Act, particularly Medicare drug price negotiation and the corporate alternative minimum tax (CAMT). "Now corporations will have to pay a minimum corporate tax of 15%. Just 15%. We're not gouging anybody, 15% minimum. That's it," he said. "The days of billion-dollar companies paying zero taxes are over though. And there's enough money there to pay for an awful lot of this."
Meanwhile, four lawmakers who championed the CAMT wrote to Treasury September 28 "to urge you to pursue strong implementation of the 15 percent corporate minimum tax on billion-dollar corporations in the Inflation Reduction Act of 2022." Finance Committee members Elizabeth Warren (D-MA) and Michael Bennet (D-CO), Senator Angus King (I-ME), who caucuses with Democrats, and Rep. Don Beyer (D-VA) said, "Strong implementation necessitates standing firm against requests to dilute the regulations in such a way as to undermine the clear intent of the law. While the Treasury Department has regulatory authority to implement the corporate minimum tax, that should be understood to relate to the proper functioning of the corporate minimum tax, including by 'prevent[ing] the omission or duplication of any items' in the calculation of the tax."
Global tax: On the CAMT, Tax Notes reported: "The 15 percent corporate alternative minimum tax pushed by Democrats in the U.S. Congress through the Inflation Reduction Act (IRA) is not an adequate stand-in for pillar 2 of the OECD's global tax deal, EU Tax Commissioner Paolo Gentiloni said. When answering a question from Dutch member of the European Parliament Paul Tang during a tax dialogue with the Economic and Monetary Affairs Committee of the EP September 26, Gentiloni said the U.S. decision to introduce the corporate AMT is a 'positive and interesting decision in the domain of corporate taxation that establishes a minimum of 15 percent corporate taxation in the U.S.,' but that it is 'not a substitute for the implementation of pillar 2.'
Energy: Regarding EV credits in the IRA, the Wall Street Journal reported September 27, "The government is pressing to complete new rules on tax breaks for electric-vehicle purchases by an end-of-year deadline as auto companies seek guidelines that help qualify as many vehicles as possible … The Treasury Department, in its regulatory guidance for the credits, could help make the new requirements easier for auto makers to meet, industry and advocacy groups said. Issues the groups would like to see addressed include how the government calculates whether the sourcing requirements have been met and how auto makers will certify they are in compliance." The story cited Tom West, deputy assistant secretary for tax policy at the Treasury Department, as saying said the agency is trying to determine what discretion it has in writing the rules and is working to define what constitutes a free-trade agreement for the purposes of tax issues, given the critical-minerals requirements.