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January 29, 2023

Americas Tax Policy: This Week in Tax Policy for January 27

This Week (January 30-February 3)

Congress: The House and Senate are in session.

Last Week (January 23-27)

The big picture: Uncertainty over how lawmakers will address the federal debt limit that was hit on January 19 continues to be a primary focus in Washington, and the contours of the debate are becoming more defined. President Biden intends to meet with House Speaker Kevin McCarthy (R-CA) to discuss the issue, though specific plans have not been announced. Senator Joe Manchin (D-WV), who has challenged the position that Democrats should not negotiate on the issue, said Speaker McCarthy agreed with him that cutting Social Security and Medicare shouldn't be part of any negotiations. The Speaker has stated he wants a spending cap deal like those in 2018 and 2019 that accompanied debt limit suspensions, which lifted discretionary spending limits imposed by the Budget Control Act. Senate Republicans aren't exactly of one mind on the debt limit issue either. Some, including GOP Leader Mitch McConnell (R-KY), say the solution lies between Speaker McCarthy and President Biden. Others, including Senator Ted Cruz (R-TX), whose objection resulted in the 2013 government shutdown, are vocally backing their more conservative House counterparts. "We will use the debt ceiling as leverage to force real and meaningful structural reforms to fix the underlying problem. It doesn't have to be a total solution for everything. But it has to be real and meaningful progress," Cruz said. A Democratic congressional staffer said during a conference this week that tax is not likely to be a major part of a bill to raise the debt ceiling.

Congress: Otherwise, lawmakers are still settling in and making personnel decisions for the new Congress. The Senate hadn't truly conducted business in 2023 until this week. Democratic committee assignments were announced. The Finance Committee roster didn't change on the Democratic side, at 14 members, which could create the expectation that Republicans may have 13 members on the Committee now that the Senate is no longer a 50-50 split. However, Republicans haven't finalized their committee rosters, as there have been negotiations over whether more than one senator per state can sit on powerful committees (with the focus on Judiciary). That has kept the Senate from passing an organizing resolution. On the House side, Rep. Vern Buchanan (R-FL) was named Vice Chairman of the Ways and Means Committee by Chairman Jason Smith (R-MO). Ways and Means subcommittee chairs and ranking members have also been set, including Rep. Mike Kelly (R-PA) as chair of the Select Revenue Measures Subcommittee that considers tax policy issues. Rep. Mike Thompson (D-CA) is set to be Ranking Member on the tax subcommittee.

Fair Tax: President Biden continues to cite the Fair Tax Act (H.R. 25) sponsored by Rep. Earl "Buddy" Carter (R-GA), which Speaker McCarthy committed to bringing to a House vote in this Congress, in drawing political contrasts between Democrats and Republicans. The bill would abolish the IRS, eliminate the national income tax, and replace it with a national consumption tax, while also eliminating estate, gift, and payroll taxes. President Biden said in speech in Springfield, VA, January 26 that House Republicans want to "impose a 30% national sales tax on everything from food, clothing, school supplies, housing, cars — whole deal, 30%."

Democratic leaders in Congress are also taking aim. During a joint news conference on the Fair Tax Act with Senate Majority Leader Chuck Schumer (D-NY) January 25, House Democratic Leader Hakeem Jeffries (D-NY) said: "It will impose an age tax on older Americans in this nation who throughout their lives paid into the system through income tax, and now will be double- and triple-taxed by the imposition of a 30% sales tax. That would create an enormous burden on older Americans in this country. Third, this unfair tax act would detonate Social Security by eliminating its source of funding. This legislation is extreme, and it is functionally the GOP tax scam part two. We will expose it, and under the tremendous leadership of Senate Democrats, Leader Schumer in partnership with House Democrats, do everything we can to stop it."

Some Republicans have already expressed concern about a potential House vote on the Fair Tax proposal. "This is a political gift to Biden and the Democrats," Grover Norquist, president of Americans for Tax Reform, said in a January 18 Semafor report. An editorial in the January 21 Wall Street Journal said the bill "won't become law but will give Democrats a potent campaign issue." The editorial said, "The tax issue is a rare GOP advantage these days, and Republicans would be crazy to squander it with a Fair Tax vote. If Mr. Carter and other supporters insist on a masochistic vote, the GOP could invoke the Freedom Caucus's demand for 'regular order' and kill the Fair Tax in the Ways and Means Committee."

A January 25 Wall Street Journal story said:

  • "Rep. Lauren Boebert (R-CO) listed a FairTax vote among the commitments she said Mr. McCarthy made to secure the job."
  • Speaker McCarthy said he doesn't personally support the proposal.
  • Chairman Smith "co-sponsored the FairTax during his first two terms. Now, as the new chairman of the tax-writing Ways and Means Committee … he is staking out a more neutral position. 'The FairTax is an interesting idea,' Mr. Smith said."

Legislative and regulatory tax conference: At the D.C. Bar 2023 Tax Legislative and Regulatory Update Conference "Ways and Means Roundtable: What Does the Future Hold for U.S. Tax Policy," Rep. Kevin Hern (R-OK) discussed the May 2022 foreign tax credit regulations letter he penned with Rep. Brad Schneider (D-IL), who he said was unable to join him at the event. Hern said some policy directions were to be set at a Thursday meeting of Ways and Means Republicans, bemoaned the lack of hearings on the OECD-led global tax agreement, and said it isn't necessarily inevitable that there will be legislation to make the US Pillar Two-compliant.

Also at the conference, multiple members of the Joint Committee on Taxation staff, including Tom Barthold, said a "Blue Book" on legislation enacted in the 117th Congress is in the works but not imminent. They said the SECURE 2.0 retirement package in the year-end 2022 omnibus appropriations bill will be reflected and that work is slowing the process. Other congressional staff said there is a low likelihood of Congress addressing expired tax provisions that were not addressed in last-year's year-end spending package, including Section 174 R&D amortization and the expansion of 163(j), especially early in the year. A House Democratic staffer said it is going to be a "rocky path" to get these done in 2023.

During one of multiple sessions on the corporate alternative minimum tax (CAMT) enacted under the Inflation Reduction Act, a Treasury official said Notice 2023-7 represented a basic scaffolding for guidance, and the Department is still identifying what issues should be addressed in further guidance and would welcome input. The official said more detailed regulations will be issued later this year, prompting a comment from a private sector participant that one of the questions will be the effective date of this guidance.

Another official said mark-to-market adjustments and unrealized gains and losses, as well as several issues relating to life insurance companies are being studied. The official also mentioned other comprehensive income (OCI), saying that is an issue Treasury is looking at but that he couldn't comment further. He did note the IRA colloquy (Cardin-Wyden) that asserted that OCI is not included in financial statement income.

During a January 26 international session focused on the OECD-led global tax agreement and Pillar Two, officials said the Secretariat and US Treasury insist the Undertaxed Payments Rule (UTPR) is legal and does not violate tax treaty obligations. Separately, an OECD official said the transitional safe harbor that relies in part on CbCR data, is essentially set in stone — though some additional administrative guidance may be forthcoming — and most likely will not become permanent, as it was designed to be temporary. A Treasury official said, regarding additional administrative guidance relating to Pillar Two, that a first tranche is forthcoming and will cover transitional issues, the QDMTT, CFC push down rules for blended CFC regimes like GILTI and Subpart F, and some guidance on US investment tax credits.

Bills of interest:

  • Senator Jeanne Shaheen (D-NH), S. 8., to amend the Internal Revenue Code of 1986 to expand eligibility for the refundable credit for coverage under a qualified health plan, to improve cost-sharing subsidies under the Patient Protection and Affordable Care Act.
  • Senator Jon Tester (D-MT), S. 17, to amend the Internal Revenue Code of 1986 to require that return information from tax-exempt organizations be made available in a searchable format and to provide the disclosure of the identity of contributors to certain tax-exempt organizations.
  • Senator Bill Hagerty (R-TN), S. 26, to amend the Internal Revenue Code of 1986 to repeal the amendments made to reporting of third-party network transactions by the American Rescue Plan Act of 2021.
  • Senator Manchin, S. 63, to adjust the effective date for application of certain amendments made with respect to the credit for new clean vehicles. 
  • Rep. David Kustoff (R-TN), H.R. 515, to amend the Internal Revenue Code of 1986 to repeal the excise tax on repurchase of corporate stock.
  • Senator Bill Cassidy (R-LA), S. 120/Rep. Adrian Smith (R-NE), H.R. 531 to amend the Internal Revenue Code of 1986 to allow a credit against tax for charitable donations to nonprofit organizations providing education scholarships to qualified elementary and secondary students.
  • Rep. Greg Steube (R-FL), H.R. 579, to amend the Internal Revenue Code of 1986 to eliminate the marriage penalty in the income tax rate brackets.

A Manchin press release said S. 63, the American Vehicle Security Act (AVSA), would direct the U.S. Department of the Treasury to implement the 30D new consumer vehicle tax credits for vehicles according to the law by requiring compliance with battery and battery material sourcing requirements as of January 1, 2023. "The IRA and the EV tax credits must be implemented according to the Congressional intent to ensure the United States, as the superpower of the world, is not beholden to countries that don't share our values," said Manchin.

Congressional outlook: The WCEY 2023 Congressional Outlook is available here.


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