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February 13, 2023

What to expect in Washington (February 13)

An editorial in the weekend (February 11) Wall Street Journal (WSJ) criticized President Biden's State of the Union call for a billionaire's tax as "reprising Elizabeth Warren's wealth tax on unrealized asset gains;" and for a "new plan to quadruple the 1% tax on corporate stock buybacks" as a move to curb a means for businesses to return profits to shareholders. "A 1% tax is unlikely to stymie buybacks, but at 4% the disincentive bites harder. Companies might increase dividends as an alternative — at least until Congress raises the 23.8% dividend tax rate," the editorial said. "Some companies will resort to making investments with marginal returns, or let the cash pile up rather than invest it. That will hurt economic growth."

Those proposals are unlikely to be enacted in the divided Congress but likely seek to draw contrasts with Republicans' resistance to tax increases and, instead, their championing of spending cuts to reduce the deficit/debt as a condition of supporting a debt limit bill. The WSJ said the proposals set up contrasts prior to the next election. "[T]his is what he plans to campaign on in 2024 and what he would try to pass in 2025 if he wins. His tax campaign will also help to deter a primary challenge from the political left, as the State of the Union cheers from Ms. Warren and Sen. Bernie Sanders attest. Mr. Biden this week revealed his 2024 campaign strategy in plain sight, and when it comes to taxes, voters can rest assured he means to raise them."

Debt limit — On ABC's This Week, Senate Majority Leader Chuck Schumer (D-NY) said Democrats have never engaged in debt limit brinksmanship in the manner that Republicans are now; i.e., they have never said they wouldn't "raise the debt ceiling and pay the debts that, of course, we've incurred, unless I get certain things that I want … Four times Democrats, even when Trump was in power — even two times when Trump and the Republicans had the House and Senate — we could have blocked it." Asked about Senator Joe Manchin's (D-WV) call for bipartisan negotiations, Schumer said, "We have a clear position. Do it clean. Do it without brinksmanship. Do it without this risk of hostage-taking where things could blow up because as you know, if we don't renew the debt ceiling, average American families will be clobbered. Their interest rates would go up. Their pension savings would go down. The cost of a house would go up to $100,000. So, it's risky."

He said if House Speaker Kevin McCarthy (R-CA) "wants to attach certain spending cuts to do this, A) Where is your plan, Mr. McCarthy? He says he wants cuts. We ask him, 'Which ones?' He won't say any. Is it Social Security and Medicare? That would hurt the American people … He will not even say what he wants to cut, and I'll tell you why. He can't pass a plan with cuts. His hard right will demand the kind of deepest cuts that his more mainstream Republicans won't vote for … And my experience in this, the party that holds out with brinksmanship and says, 'I won't renew it unless you do what I want,' loses. We're going to win this fight, and it's going to be a clean debt ceiling."

As Senator Schumer alluded to, President Biden has been challenging Republicans on whether their spending cut plans include cuts to Social Security and Medicare, citing statements and proposals from various members, especially Senator Rick Scott's (R-FL) plan to sunset the programs every five years. Speaker McCarthy has called for such cuts to be off the table, a position Senate Republican Leader Mitch McConnell (R-KY) said he agrees with and that should outweigh the individual plans of some GOP members.

Still, some senators are calling for at least a new look at entitlements. Senator Mike Rounds (R-SD) said on CNN's State of the Union February 12, "I think it'd be very responsible for us to do everything we can to make those funding programs now and the plans right now, so that we don't run out of money in Social Security and that it continues to provide all the benefits that it does today." Rather than privatization of Social Security — a proposal deeply debated in the early years of the 2000s — Republicans are looking "more along the lines of allowing us to continue to guarantee the benefits that are there but allow us to use other resources to make sure that they are there, so that the individual doesn't take the risk, but, rather, that the federal government does … " he said. "I really think there's a golden opportunity, and in a bipartisan way, to put Social Security on a long-term plan that would make it better in the future than what it is today and to assure its longevity."

Asked about Senator Rick Scott's plan, Senator Rounds said, "We do want to continue the conversation in terms of how we make Medicare, Medicaid better and long-term successful. I think Senator Scott had an idea that he proposed. I think the vast majority of us would say that we prefer to look at it in a different direction, one of managing it, as opposed to a discussion about having everything start over again."

Tax — On Friday, House Ways and Means Committee Vice Chairman Vern Buchanan (R-FL) and others introduced H.R. 976, to make permanent certain provisions of the Tax Cuts and Jobs Act affecting individuals, families, and small businesses.

Bloomberg Tax reported on Friday that the US-Chile tax treaty "is now entangled in a debate between Republicans on the Senate Finance Committee and the Treasury Department" with the issue being foreign tax credits. "Republicans want a clarification in the treaty's tax language they say will help ensure companies don't face double tax in certain circumstances," the report said. The Senate Foreign Relations Committee cleared the US-Chile tax treaty in the last Congress, though it wasn't brought before the full Senate, and must go through committee again. "Some multinationals want to make this an ideological fight, but relitigating language in this case will likely stall out a tax treaty that has already sat in the Senate for years," said Ryan Carey, a spokesperson for Senate Finance Committee chairman Ron Wyden (D-OR).

Health — Rep. Michael Burgess (R-TX) introduced H.R. 977, to repeal changes made by health care reform laws to the Medicare exception to the prohibition on certain physician referrals for hospitals.

Schedule — The Senate is back today with two judicial nomination votes at 5:30 p.m.

The Senate Finance Committee will hold a "Hearing to Consider the Nomination of The Honorable Daniel I. Werfel, of the District of Columbia, to be Commissioner of Internal Revenue for the term expiring November 12, 2027" on Wednesday, February 15 (10:30 a.m.). The Committee also scheduled a February 16 trade hearing, "Ending Trade that Cheats American Workers by Modernizing Trade Laws and Enforcement, Fighting Forced Labor, Eliminating Counterfeits, and Leveling the Playing Field."

The third edition of the OECD Tax and Development Days is February 15-16. "The event will convene tax experts from international organisations, governments, business and civil society, to provide an update on some of the OECD's initiatives to strengthen tax capacity and improve tax policy and compliance in developing countries, and explore future challenges," OECD said.

Friday, February 17 (12 p.m.) is the EY Webcast, "Tax in a time of transition: legislative, economic, regulatory and IRS developments."


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Washington Council Ernst & Young
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