May 17, 2023
What to expect in Washington (May 17)
House Speaker Kevin McCarthy (R-CA) said Monday that there had been "no movement" on a debt limit deal to avert a possible default "only a couple of weeks away," and "we are nowhere near" what is necessary to reach agreement by the weekend to allow sufficient time for congressional processing. After meeting with other congressional leaders and the President again May 16, Speaker McCarthy said the two sides were still "far apart" but was cited by the Washington Post as saying, "It is possible to get a deal by the end of the week. It's not that difficult to get to an agreement."
President Biden has charged a narrower group of negotiators with reaching a deal, which Treasury Secretary Janet Yellen has repeatedly said could be required by June 1. "Steve Ricchetti, a top Biden aide, and OMB Director Shalanda Young will work with Speaker Kevin McCarthy's staff and Rep. Garret Graves (R-La.) to strike a debt-limit deal. Louisa Terrell, the top White House legislative affairs hand, will continue to negotiate for Biden," Punchbowl reported. The talks have focused on potentially palatable proposals like permitting reform, spending caps, and rescinding unspent Covid funds, and Speaker McCarthy has also been pushing for work requirements for Federal programs likely to face pushback from Democrats. (President Biden didn't dismiss the idea out of hand on Sunday, saying, "I voted for tougher aid programs that's in the law now, but for Medicaid it's a different story. And, so, I'm waiting to hear what their exact proposal is.")
Axios reported of the negotiating team, "Young was previously staff director for the House Appropriations Committee, making her well-known to GOP leadership." The report also said, "There is still no semblance of a legislative package that could pass Congress in the next two weeks — and more problems keep cropping up. Progressives, in particular, are growing particularly anxious that Biden could make spending concessions that affect anti-poverty programs."
Tax increase proposals put forward by the White House — including what appear to be the Biden budget proposals to apply wash sale rules to cryptocurrency and repeal deferral of gain from IRC Section 1031 like-kind exchanges — have been rejected in the negotiations. The May 16 Washington Post reported, "On a phone call last week, senior White House officials floated about a dozen tax plans to reduce the deficit as part of a broader budget agreement with House Republicans, including a measure aimed at cryptocurrency transactions and another for large real estate investors … They were all swiftly rejected by the GOP aides on the call … " The report said, "The real estate plan and the cryptocurrency rule changes would probably raise about $40 billion in new tax revenue, compared with the $4.8 trillion in spending cuts Republicans are seeking to close the deficit."
Tax — A CBO report said if the expiring individual income tax provisions of the 2017 TCJA were extended, deficits would be larger than those in CBO's baseline, on net, by $2.5 trillion over the 2024—2033 period.
Taiwan — There was some sense of potential movement on a US-Taiwan tax agreement after a bipartisan group of Senate Foreign Relations Committee members on May 5 introduced the Taiwan Tax Agreement Act of 2023, authorizing the Biden Administration to begin negotiations with Taiwan to conclude a tax agreement; followed by the bipartisan "Four Corners" group of congressional tax-writing committee leadership May 10 saying the issue "requires the expertise of the tax-writing Committees in Congress." However, a Politico article said the Senate Foreign Relations and Finance committees are apparently in a jurisdictional tussle over the issue, with Foreign Relations Chair Robert Menendez (D-NJ) saying, "As far as I'm concerned, it's a treaty, and virtually all treaties end up in the Foreign Relations committee." The Senate Finance Committee is working on its own approach, and Ranking Member Mike Crapo (R-ID) said it's not a treaty issue but an attempt to use the tax code to accomplish the same objective. "The problem is coming to a head in the wake of a bipartisan push to develop U.S. semiconductor manufacturing capacity, which relies in part on investment by industry giant Taiwan Semiconductor Manufacturing Company and its suppliers. The firm is building a massive chip facility in Arizona," Politico said.
This issue has also attracted attention on the House side of the Capitol and in the Administration. During a House Ways & Means Committee hearing in March, Secretary Yellen said, "We recognize that there's a problem there and are looking at potential ways to address it."
Trade - During the May 16 Senate Finance Subcommittee on International Trade, Customs, and Global Competitiveness hearing, "Economic Cooperation for a Stronger and More Resilient Western Hemisphere," Ranking Member John Cornyn (R-TX) rekindled the recent congressional displeasure with White House inaction on trade, saying he doesn't think the Biden administration is interested in negotiating new trade agreements. Witness Margaret Myers of the Woodrow Wilson Center said "we are paralyzed in that respect" because there is a lack of interest in striking bilateral agreements and also a lack of interest in rejoining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). There are things that can be done to deepen and expand existing trade agreements, she said, as well as opportunities to engage in digital infrastructure that promotes cross-regional trade.
Echoing another sentiment expressed by members during recent hearings, supporting the United States-Mexico-Canada Agreement (USMCA), Subcommittee Chairman Tom Carper (D-DE) said, "With the successful renegotiation of the USMCA, we now have a model for how we can bolster trade across the Western Hemisphere — and across the globe … While it is not a perfect agreement, it gives us a roadmap for how we can use trade to boost economic growth and foster a nurturing environment for job creation in our country, and those of our trading partners. Toward that end, I hope we can consider opportunities to modernize and strengthen some of our other trade deals throughout the region, including the Central America Free Trade Agreement and some of our bilateral agreements and investment frameworks throughout Latin America."
Global tax — In the Bloomberg Daily Tax Report May 16, Finance Committee Ranking Member Crapo said of Pillar Two of the OECD-led global tax agreement, "the Biden administration agreed to the global tax code's enforcement mechanism that invites foreign governments to pursue new discriminatory taxes against our companies. This extraterritorial enforcement mechanism — the Undertaxed Profits Rule — blatantly undermines important, job-creating tax policies passed by Congress on a bipartisan basis." He continued, "The global tax code provides a sanctioned pathway for each foreign government to enact its own 15% domestic minimum top-up tax on income earned by large businesses in that country. What's the rub? The administration agreed to give foreign governments priority to soak up taxes collected by the US under the TCJA minimum tax."
Hearings — Today, May 17, at 10 a.m., is the Senate Budget Committee hearing, "The Rich Get Richer, Deficits Get Bigger: How Tax Cuts for the Wealthy and Corporations Drive the National Debt." At 2:30 p.m., the Senate Finance Subcommittee on Health Care holds a hearing, "Improving Health Care Access in Rural Communities: Obstacles and Opportunities."
The G7 Hiroshima Summit will be held from May 19 to 21. President Biden is planning to attend but will clip his travel plans — scrapping the leg of the trip that included visits to Australia and Papua New Guinea — to attend to debt limit negotiations.
Friday, May 19 at 12:00 p.m. is the EY Webcast, "Tax in a time of transition: Legislative, economic, regulatory and IRS developments." Register.