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January 15, 2023

Americas Tax Policy: This Week in Tax Policy for January 13

This week (January 16-20)

Congress: The House and Senate are out of session.

OECD Webinar on the economic impact of the Two-Pillar Solution: On January 18, the OECD will provide an update on its ongoing work to assess the economic impact of the Two-Pillar Solution, including new estimates of the revenue impacts of implementing Pillar One and Pillar Two.

Debt limit: Treasury Secretary Janet Yellen wrote to congressional leaders January 13 to say "that beginning on Thursday, January 19, 2023, the outstanding debt of the United States is projected to reach the statutory limit. Once the limit is reached, Treasury will need to start taking certain extraordinary measures to prevent the United States from defaulting on its obligations."

SOTU: Looking further forward, President Biden is set to deliver the State of the Union address on February 7.

This Week in Tax Policy won't be published this week while Congress is out of session.

Last week (January 9-13)

Congress: Following Rep. Kevin McCarthy's (R-CA) election as House Speaker a week ago, a focus is on how the legislative agenda will be impacted by the power wielded by conservative members and the additional power gained by them through concessions that were necessary to close out the speakership process. Showdowns over spending and policy in relation to the fiscal deadlines of the federal debt limit and funding the government now seem imminent. Rep. McCarthy delivered concessions on those issues, agreeing to not take up a debt limit increase without spending cuts and to bring up the 12 annual appropriations bills individually, not as an "omnibus" package, and to allow floor amendments, along with other rules like allowing one member to call a vote to "vacate" the chair. Speaker McCarthy said January 12 a spending caps deal that accompanied a suspension of the Federal debt limit during the last administration could be a model for addressing the issue. "When Nancy Pelosi was speaker, that's what transpired. To get a debt ceiling, they also got a cap on spending for the next two years. Spending is out of control here," Speaker McCarthy said during a news conference, adding that he told the President he would like to "sit down with him early and work through these challenges." Two-year spending cap deals were reached in 2018 (for FY2018 and FY2019) and 2019 (for FY2020 and FY2021) and included debt limit suspensions, though those were during the time when Budget Control Act limits constrained spending.

Ways and Means: In another closely watched internal election, Rep. Jason Smith (R-MO) won the Ways and Means Committee Chairmanship January 9. He is viewed as bringing a populist viewpoint to the job, is a McCarthy ally, and may be a nexus to conservative members. The Bloomberg Daily Tax Report said January 10, "Smith, who advocates positioning the GOP as the party of the working class, represents a shift in Republican economic strategy away from the pro-free-trade, pro-business alignment it's espoused for decades. The new committee chair from Missouri also will be a key bridge between Speaker Kevin McCarthy and the rebellious right flank of House Republicans." Politico reported that Smith "touted his strong relationships within the Republican conference, from leadership to the Freedom Caucus. Observers of the race for Ways and Means chair also note that Jason Smith has something of a populist conservative edge and pugilist style that he refined as ranking member of the House Budget Committee." The report also said he is unwilling to pair a Section 174 R&D amortization fix with even a partial revival of the expansion of the Child Tax Credit that expired in 2021, saying it "makes work less valuable than a government check" and would hamper recovery of the labor force.

Rep. Smith suggested oversight would be a main activity of Ways and Means under his leadership, saying, "If confirmed, the new IRS Commissioner should plan to spend a lot of time before our committee answering questions about the leaking of sensitive taxpayer information and an agency with a history of targeting conservative Americans." In a statement, he also listed as priorities:

  • American workers
  • building on the success of the TCJA, examining how to "reward working families with a tax code that delivers better jobs, higher wages, and more investment"
  • questioning whether to "continue showering tax benefits on corporations that have shed their American identity in favor of a relationship with" other nations
  • using trade and tax policy to "re-shore and strengthen our supply chains, where products and services vital to our national security are made here at home"
  • encouraging domestic energy production/independence through the tax code

The Wall Street Journal observed that, in questioning whether the U.S. should continue providing tax benefits to companies that have shed their American identity in favor of a relationship with other nations, "Mr. Smith may provide some departures from a more typical pro-corporate Republican approach to policy."

New members: The Republican membership of the House Ways and Means Committee has been set. New Republican members recommended for the Committee January 11 are:

  • Rep. Mike Carey (OH), a member of Congress since 2021 and former energy company executive who has "worked to save miners' pension benefits and reverse overreaching government regulations while valuing the environment"
  • Rep. Randy Feenstra (IA), a former business and economics professor, in Congress since 2021
  • Rep. Michelle Fischbach (MN), former Lt. Gov. of Minnesota in Congress since 2021 after defeating long-time member Collin Peterson (D-MN)
  • Rep. Brian Fitzpatrick (PA), an attorney, CPA and EMT, in Congress since 2017
  • Rep. Nicole Malliotakis (NY), a former member of the New York State Assembly and in Congress since 2021
  • Rep. Blake Moore (UT) a member of Congress since 2021 who "has expertise in education, financial services, public policy, healthcare, transportation, supply chain, and waste industries"
  • Rep. Michelle Steel (CA), a former county supervisor who has been in Congress since 2021
  • Rep. Greg Steube (FL), a former service member and state lawmaker in Congress since 2019
  • Rep. Claudia Tenney (NY), an attorney and small business owner who became a member of Congress in 2017, lost the following election, then returned in 2021
  • Rep. Beth Van Duyne (TX), a former HUD official in the Trump administration in Congress since 2021 after winning the congressional seat of former Ways and Means member Kenny Marchant

IRA IRS funding: The House January 9 approved 221-210 the Family and Small Business Taxpayer Protection Act (H.R. 23) to roll back the Inflation Reduction Act (IRA) IRS funding increase. The bill isn't likely to be taken up in the Democratic-controlled Senate. The Congressional Budget Office (CBO) estimated that the bill would decrease revenues by $186 billion over 10 years. Speaker McCarthy said after passage of the Republican-led House's first bill, "Government should work for you, not against you. As part of the House Republican Commitment to America, I promised we would vote to repeal the Democrats' army of 87,000 IRS agents on our very first day in the majority. Promises made. Promises kept."

Fair Tax: Fox News reported that, as part of a deal with Speaker McCarthy, the Fair Tax Act (H.R. 25) sponsored by Rep. Earl "Buddy" Carter (R-GA) will be brought to a House vote in this Congress. The bill would abolish the IRS, eliminate the national income tax, and replace it with a national consumption tax, and also eliminate estate, gift, and payroll taxes. The proposal was previously advocated by former Ways and Means Committee member Rep. John Linder (R-GA) going back to 1999.

Biden reaction: The President said January 12, "I was disappointed that the very first bill the Republicans in the House of Representatives passed would help wealthy people and big corporations cheat on their taxes at the expense of ordinary, middle-class taxpayers. And it would add $114 billion to the deficit. Their very first bill … House Republicans are preparing to vote on a national sales tax bill. National sales tax, that's a great idea. It would raise taxes on the middle class by taxing thousands of everyday items from groceries to gas, while cutting taxes for the wealthiest Americans."

CAMT: An EY Alert, "IRS releases interim guidance on 15% corporate alternative minimum tax," is available here.

Global tax: Politico Morning Tax cited former Treasury official Itai Grinberg as sounding "particularly confident about the prospects of a global minimum tax" at a January 12 conference hosted by Georgetown University, where he returned as a law professor. "I think it's becoming clear to everyone that the world appears to be going ahead on Pillar Two," Grinberg said. "I think it's now a matter of when it'll make it so that both US and foreign-headquartered multinationals face a substantially similar level of minimum taxation." Tax Notes coverage of the event said: "Those who wanted to take a wait-and-see approach must now support a country-by-country GILTI regime, according to Grinberg. 'Meanwhile, we now face two years where we are unlikely to see major tax legislation move forward in our country,' he said. The United States will see individual tax expirations, as well as scheduled rate increases for the GILTI and foreign-derived intangible income regimes, which are likely to move a reform bill in 2025, Grinberg said. 'Not to mention pressure coming from foreign UTPRs that I suspect may hit a little in 2025 but perhaps not land in real force until 2026 because of safe harbors and other developments we haven't seen yet,' he added."

Manal Corwin has been appointed to serve as the next Director of the OECD Centre for Tax Policy and Administration beginning April 3, OECD announced January 13.


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