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This Week (March 11 - 15)

Congress: The House and Senate are in session.

On Monday, March 11, is the release of the President's FY2025 Budget proposal . On Tuesday, March 12 (at 10:15 a.m.), Office of Management and Budget (OMB) Director Shalanda Young will testify before the Senate Budget Committee.

The Senate Finance Committee has scheduled a hearing for Tuesday, March 12 at 10 a.m., titled, "American Made: Growing U.S. Manufacturing Through the Tax Code." JCT released a related report on "Tax Incentives for Domestic Manufacturing." Witnesses:

• Mark Widmar, First Solar, Inc.
• Anna Fendley, United Steelworkers
• Shannon Janis, onsemi
• Courtney Silver, Ketchie, Inc.
• Peter Huntsman, Huntsman Corporation

Last Week (March 4 - 8)

Tax bill: It's been a busy two weeks for tax policy ideas, with the President's State of the Union Address and FY2025 Budget release and Republicans promoting their alternatives, but there has been no measurable movement toward Senate consideration of the Tax Relief for American Families and Workers Act (H.R. 7024) business tax and Child Tax Credit (CTC) bill passed by the House in January. Senate Majority Leader Chuck Schumer (D-NY) said leaders are still looking for the best way to move forward on the bill, which has seemingly been further bogged down by recriminations over what Senate Finance Committee Republicans want in exchange for their support of the bill that was backed unanimously by Ways & Means members on the GOP side when it was marked up January 19, prior to House passage January 31. There have been multiple reports that the bill was a main topic during the Wednesday regular Senate Republican party lunch and that Senator Thom Tillis (R-NC), a sometime bipartisan dealmaker, continues to be a main detractor, arguing that the Employee Retention Credit (ERC) crackdown is a "fake" pay-for. The Bloomberg Daily Tax Report (DTR) March 7: "Some Senate Republicans … see a better chance to get their priorities over the finish line in 2025, when they may gain control of the Senate and the White House. That's also the year major tax talks will ramp up, with much of the Republicans' 2017 [TCJA] up for renewal. 'That was my question for Senator Crapo: Are we in a better position negotiating with you as chairman next year?' said Sen. John Cornyn (R-Texas), a member of the Finance Committee who's running for Republican leadership. 'I believe we're in a stronger position next year.'" That view isn't shared among all Republicans. Semafor reported Finance Committee member Todd Young (R-IN) as saying he intends to meet with Leader Schumer on the bill. "I'll do whatever I can to be supportive of the process," he said. Punchbowl reported Senator Young — a sponsor of a bill to restore R&D expensing, as opposed to amortization, that is a main plank of the broader House tax bill — as wanting to forge ahead even if Finance Ranking Member Mike Crapo's (R-ID) concerns can't be assuaged. He said that if Crapo "falls short in that effort to seek changes, we should still move forward. And I want to offer encouragement to colleagues that might join me in that." In addition to Republicans maybe having more political power in the Senate next year, there is also the argument that proposals like CTC expansion should be held to help politically propel the extension of TCJA provisions.

The funding bill covering half of US appropriations that expire after March 22 has been eyed as a vehicle for the tax bill, though press reports have suggested the odds of adding the controversial bill to an already controversial government funding package are remote. There are other options like either reaching agreement with Republicans to bring the bill up as a standalone, or Democrats bringing it to the floor to see if the requisite 9 or 10 Republicans vote in favor. Law360 reported a House Democratic aide as saying at that if Senate lawmakers haven't voted on the bill by the end of the 2024 tax filing season, that doesn't necessarily mean it won't get to President Biden's desk this year. "The reality is, I don't think the clock is running out," the aide said. "Maybe politically so, but not technically."

SOTU: In his March 7 State of the Union Address, President Biden sought to project that the middle class is his priority for tax policy and to provide a contrast to Republicans, who the White House says want to cut taxes further for wealthy individuals and corporations by extending TCJA expiring provisions and thereby add trillions to the deficit. He repeatedly challenged GOP lawmakers and invoked the argument for wealthy individuals and corporations to pay their "fair share" that has been the underpinning of Democratic tax policy goals going back at least a dozen years, to the Obama administration. President Biden proposed increasing the corporate alternative minimum tax (CAMT) to 21% (from 15%), tightening executive compensation deductions, and a new tax credit for first-time homebuyers and people who sell their starter homes, and repeated his previous proposal for a 25% billionaire's tax. "Do you really think the wealthy and big corporations need another $2 trillion in tax breaks? I sure don't. I'm going to keep fighting like hell to make it fair! Under my plan nobody earning less than $400,000 will pay an additional penny in federal taxes … The way to make the tax code fair is to make big corporations and the very wealthy begin to pay their fair share … " the President said. "It's time to raise the corporate minimum tax to at least 21% so every big corporation finally begins to pay their fair share. I also want to end the tax breaks for Big Pharma, Big Oil, private jets, and massive executive pay! … I've proposed a minimum tax of 25% for billionaires. Just 25%. Do you know what that would raise? That would raise $500 billion."

In briefing documents, the White House said the President supports raising the corporate income tax rate to 28% (from 21%), which has been included in his prior Budget proposals, and ending corporate deductions for the compensation costs for any employee (not just top executives) of more than $1 million per year, which the President alluded to in his remarks. Republicans pushed back on the ideas. House Ways & Means Committee Chairman Jason Smith (R-MO) released a statement saying, "President Biden tonight plans to make clear he's on the side of higher taxes and more corporate giveaways. These proposals will kill jobs, hurt families and small businesses … "

Looking ahead: Of course, tax is a pivotal issue in the 2024 elections given that who is in power will have more control over the fate of the TCJA individual and pass-through deduction provisions that expire after 2025. President Biden has expressed his support for continuing the provisions as they apply to those earning less than $400,000, as he alluded to in the FY 2024 Budget. There has been significant speculation over what Republicans may propose to offset the cost of TCJA extensions, with a target on Inflation Reduction Act (IRA) energy tax credits, the cost of which has escalated in estimates by the government and the private sector. House Budget Committee Chairman Jodey Arrington (R-TX), whose panel marked up a FY2025 Budget resolution March 7, said a permanent $10,000 limit on state and local tax deductions would be a high priority for Republicans in a bipartisan commission on the debt and cutting clean-energy tax incentives would also be a palatable revenue-raiser from conservatives' perspective, Bloomberg reported. Chairman Arrington said those two options would be among his favorites. On the flip side of targeting IRA incentives, a Houston Chronicle story picked up on Senate Budget Committee Chairman Sheldon Whitehouse's (D-RI) comments from last week that the 2025 TCJA tax cliff and resulting negotiations could create room for consideration of a carbon pricing proposal. The article said, "Yet there is no end of skepticism among climate and energy insiders in Washington around the ability of Whitehouse and his allies, which at times have included Republican Senators Bill Cassidy of Louisiana and Kevin Cramer of North Dakota to get a majority of Congress on board with a domestic carbon fee or tariff on imports based on their emissions, either of which stand to dramatically redraw American industry."

Global tax: On March 5, the staff of the Joint Committee on Taxation (JCT) released a report showing that had Pillar One of the OECD BEPS 2.0 project been in effect in 2021, it would have resulted in a loss in US Federal receipts of $1.4 billion. JCT staff also present a range of single-year effects, from a loss of $100 million to a loss of $4.4 billion, reflecting different methods of determining the amount of final sales in the United States for in-scope MNEs, with the range reflecting the uncertainty about many aspects of the implementation of Pillar One, including the use of allocation keys to assign final sales to jurisdictions, available data on exports and imports for the US, application of the marketing and distribution profits safe harbor (MDSH), and tax administration.

The report was the focus of a March 7 House Ways & Means Tax Subcommittee hearing that weighed the costs of Pillar One with alternatives like the expected proliferation of digital services taxes (DSTs) if the OECD project falls apart and touched on several process issues. Chairman Mike Kelly (R-PA) aired familiar Republican concerns about the Administration excluding lawmakers from the process and said the two-thirds majority required in the Senate for US implementation of Pillar One, through a multilateral tax treaty, is "not feasible without taking into consideration frequent and significant input from Congress." He said while the original intent of Pillar One was to avoid DSTs, the project "will not equalize the playing field, this tax burden will fall disproportionately on American companies, which are nearly half of the largest and most profitable in the world." Ranking Member Mike Thompson (D-CA) said the revenue loss projected in the JCT report might be the end of the discussion for some, under the premise of not giving up revenue to other countries, but we need to understand the benefits of the agreement, including on stability, and not just the cost. Those who look at the JCT report and say the US should "pack our bags and go home" should be asked, "What is the alternative?" Also, he said there is the question of whether the patchwork of DSTs that will doubtlessly spring into place would be preferable to Pillar One. Rep. Thompson pushed for Treasury representation during future hearings on the OECD project, and Chairman Kelly suggested Secretary Yellen would be before the Committee at the beginning of April, presumably to testify on the President's budget, which is scheduled to be released March 11, and thus she may be available to answer more questions. While there was a sentiment that the JCT report could make an argument for the US walking away from Pillar One, both Thompson and Rep. Kevin Hern (R-OK) deployed the oft-cited tax axiom that if not at the negotiating table, the US could find itself on the menu.

Direct pay: On Tuesday, March 5, the IRS finalized regulations (TD 9988) on the Inflation Reduction Act (IRA) "direct pay" election for entities like tax-exempt organizations and State and local governments to treat the amount of certain tax credits as a payment of Federal income tax rather than as a nonrefundable credit. The regulations describe rules for the elective payment of credit amounts, including definitions and special rules applicable to partnerships and S corporations, and rules regarding repayment of excessive payments. They also describe and respond to several public comments regarding the definition of applicable entities and other issues from regulations proposed in June 2023, which are adopted with some changes. In related guidance: proposed regulations were issued regarding direct pay elections by unincorporated organizations that are owned by one or more applicable entities to be excluded from the application of the partnership tax rules, which provide exceptions to the regulations and allow entities to make an elective payment election. IRS also issued Notice 2024-27, requesting comments on situations in which an elective payment election could be made for a clean energy credit that was purchased in a transfer ("chaining"). IRS also issued regulations on the direct pay election for the advanced manufacturing investment credit under the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act of 2022. The final regulations include special rules for partnerships and S corporations making the election and rules related to the mandatory pre-filing registration requirement.

IRA guidance tracker: This table describes select IRS guidance related to the Inflation Reduction Act.