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February 19, 2023

Americas Tax Policy: This Week in Tax Policy for February 17

This week (February 20-24)

Congress: The House and Senate are out of session this week for the President's Day recess. This Week in Tax Policy won't be published while Congress is away.

Last week (February 13-17)

The big picture: The debt limit must-act date could come in June or July, or as late as September. The Congressional Budget Office (CBO) said its 10-year deficit numbers have grown by more than $3 trillion in less than a year, due to legislation enacted since May 2022 and changes in CBO's economic forecast, including higher projected inflation and interest rates. That could put more pressure on deficit reduction and more scrutiny on spending, including on the extension of current tax provisions. Debt limit talks between House Speaker Kevin McCarthy (R-CA) and President Biden that began February 1 have not resumed. House Republicans are seeking unspecified spending cuts as a condition of a debt limit bill. The President has called on Republicans to put forward their spending plan and is offering tax increases, including dialing up the stock buyback excise tax and imposing a billionaire's tax, as a deficit reduction alternative. The February 7 State of the Union, during which the President offered those proposals, and March 9 FY2024 Budget proposal will draw contrasts with Republicans over the debt limit debate and ahead of the 2024 elections. Democrats don't appear poised to accede to Republican demands on the debt limit. Senate Majority Leader Chuck Schumer (D-NY) said February 12 Republicans likely can't agree on an approach to spending cuts among themselves and brinksmanship is not a winning strategy, and he predicted Democrats would be victorious with a clean debt limit bill.

Debt limit: CBO said February 15 that extraordinary measures Treasury is using to keep the nation's bills paid since the debt limit was reached on January 19 could last until September or be exhausted as soon as July, depending on the timing and amount of revenue collections and outlays, especially the amount of income tax receipts in April. A Huffington Post article citing multiple economists said the must-act date could be in June, again with April income tax receipts playing a big role.

Increase in deficit projections: A February 15 CBO report on the Budget and Economic Outlook said: "The deficits in CBO's current projections are significantly larger than those in the agency's previous baseline projections for 2022 to 2032, which were published in May 2022. The budget shortfall for 2023 is now projected to be $426 billion more — and the cumulative deficit for the 2023–2032 period, $3.1 trillion more — than CBO projected last May. The increases stem from new legislation, changes to the agency's economic forecast, and other changes." The report said of legislative changes that increased projected deficits by $1.5 trillion, "nearly all the legislative changes were to outlays. Those changes included significant increases in outlays for mandatory veterans' benefits and increases in outlays for discretionary defense programs." The Inflation Reduction Act "increased outlays in 2023 by $25 billion and reduced outlays for the 2023–2032 period by $8 billion," CBO said. The decrease in projected outlays from Medicare prescription drug negotiation was offset by other spending in the bill. (Potential new revenue from increased IRS enforcement couldn't be counted by CBO.)

Biden tax proposals: An editorial in the 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 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."

Senate Finance Committee member Sherrod Brown (D-OH) and Chairman Ron Wyden (D-OR) introduced the Stock Buyback Accountability Act (S. 413), which would increase the recently enacted tax on what a publicly traded company spends to buy back its own stock from 1% to 4%.

TCJA: A February 16 Washington Post opinion column said, "Here's a dirty little secret about those expensive, unpopular Trump tax cuts: We're probably stuck with them for good, because neither party seems to have the political courage to let them lapse. Not the Republicans who supposedly care about fiscal responsibility, and not the Democrats who are on record as hating them." The column noted introduction of a bill to extend the expiring TCJA provisions by House Ways and Means Committee Vice Chairman Vern Buchanan (R-FL) and others (H.R. 976); estimates that extending the "individual tax cuts in full would add around $3 trillion to federal deficits over a decade;" and President "Biden might have already boxed himself into keeping most of them in place" through his pledge to not increase taxes on those earning less than $400,000 annually.

Stadium financing: On February 13, Senators James Lankford (R-OK) and Cory Booker (D-NJ) introduced the No Tax Subsidies for Stadiums Act (S. 392) to prevent professional sports teams from financing new stadiums with municipal bonds that are exempt from Federal taxes. The House bill (H.R. 993) is sponsored by Rep. Earl Blumenauer (D-OR).

Windfall profits: Senator Sheldon Whitehouse (D-RI) and Rep. Ro Khanna (D-CA) February 14 reintroduced the Big Oil Windfall Profits Tax Act (S. 408/H.R. 1014), to impose a windfall profits excise tax on crude oil and to rebate the tax collected back to individual taxpayers. A news release said, "large oil companies will owe a per-barrel quarterly tax equal to 50 percent of the difference between the current price of a barrel of oil and the pre-pandemic average price per barrel between 2015 and 2019."

IRS Commissioner: A February 15 Finance Committee hearing on the nomination of Daniel Werfel to be IRS commissioner focused on Republican demands that the Administration consult with Congress over how to spend the IRA's $80 billion IRS funding boost, amid long-running insinuations that it will lead to increased audits of average Americans. Democrats countered that depriving the IRS of the new funding — which House Republicans voted to repeal in the first bill they passed this Congress — would allow the wealthy to cheat on their taxes. Werfel previously served as Acting Commissioner in 2013. Some Republicans have voiced support for the nomination — Sens. Tillis (R-NC) and Young (R-IN) — and he is expected to be confirmed.

In testimony, Werfel said, if confirmed:

  • audit and compliance priorities will be focused on enhancing IRS capabilities to ensure America's highest earners comply with applicable tax laws;
  • efforts to modernize and improve taxpayer service and ensure that individuals and businesses eligible for tax benefits receive them will be front and center; and
  • technology upgrades and additional human resource capacity are necessary, as is data security and impartiality and fairness in all matters.

During questioning, Senator Sheldon Whitehouse (D-RI) said he is drafting a reciprocal statute for the Foreign Account Tax Compliance Act (FATCA), which requires that financial Institutions and certain other non-financial foreign entities report on foreign financial accounts of US account holders, and potentially subjects those accounts to withholding. According to the CRS, FATCA does not have full reciprocity in information sharing: The IRS receives more information on US owners of foreign accounts than other countries receive on foreign owners of US accounts, and legislation would be required to authorize the collection of the data needed for full reciprocity, including account balances and beneficial owners.

Farm bill: The debt limit and expiration of government funding are the deadlines facing Congress that get the most attention. However, a February 16 Bloomberg Daily Tax Report story on the farm bill deadline that also falls on September 30 said members are making a case for including tax items that could be viewed as thematically consistent (in the same way that members tried, unsuccessfully, to have the Section 174 R&D amortization fix attached to the CHIPS bill last year). "Lawmakers have floated measures like reviving full bonus depreciation, which allowed farmers — and companies — to immediately expense capital expenditures, or a research and development tax deduction that expired last year, as possible inclusions in the package the agriculture committees will write this year … " the report said. "Though a tax component in the farm bill is unlikely, conversations around the legislation could generate momentum for tax policies that provide certain incentives or breaks for farmers, ranchers, and businesses." Rep. Ron Estes (R-KS), a Ways and Means member, said talks around farm bill policy could help move related legislation forward.

Treasury/IRS CAMT guidance for insurance providers: Treasury and IRS February 17 released Notice 2023-20, which provides interim guidance for insurance companies and certain other taxpayers for the new corporate alternative minimum tax (CAMT) until the issuance of proposed regulations.

IRA energy guidance: The IRS has announced (IR-2023-27) new guidance (Notice 2023-18) that establishes a program under IRC Section 48C(e) to allocate $10 billion in tax credits for qualified investments in eligible qualifying advanced energy projects; $4 billion must be allocated to projects located in certain energy communities census tracts. The new program was authorized under the Inflation Reduction Act. The IRS will issue more detailed guidance by May 31, 2023. IRS said the goal of the 48C(e) program is to expand US manufacturing capacity and quality jobs for clean energy technologies, to reduce greenhouse gas emissions in the US industrial sector, and to secure domestic supply chains for critical materials that serve as inputs for clean energy technology production. At least some of the $4 billion allocation is for communities formerly involved in the coal industry.

IRS also announced (IR-2023-26) guidance (Notice 2023-17) establishing the Low-Income Communities Bonus Credit Program to provide solar and wind power to certain low-income areas. This guidance applies to owners of certain solar and wind facilities placed in service in connection with low-income communities that are eligible for the IRC Section 48 energy investment credit.

Superfund: A proposed rule on the Superfund Chemical Tax and Superfund Imported Substance Tax is under review at the Office of Information and Regulatory Affairs (OIRA), indicating it is in the pipeline for near-term release.


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