17 March 2024 This Week in Tax Policy for March 15 The Senate Finance Committee has scheduled its customary post-Budget release hearing with Treasury Secretary Janet Yellen on the President's Budget for Thursday, March 21 at 10 a.m. Secretary Yellen isn't expected to appear before Ways & Means until early April, after the Spring recess March 25-April 5. On Wednesday, March 20 at 2:30 p.m., the Finance Committee will hold a hearing on The President's Fiscal Year 2025 Social Security Administration Budget with Commissioner Martin O'Malley. The Ways & Means Committee has scheduled:
Working groups: Following some recent speculation that House Ways & Means Committee members would establish working groups to study issues ahead of the 2025 TCJA tax cliff, the Bloomberg Daily Tax Report (DTR) said Committee Republicans discussed formation of such tax policy working groups on Wednesday, specifically seeking member input on what issues committee members would like to focus on. "It's going to require a lot more time because we're going to be working in a much more reduced window," Tax Subcommittee Chairman Mike Kelly (R-PA) said. "This is like cramming for your finals." Both Ways & Means and the Senate Finance Committee conducted bipartisan working groups in the years preceding the 2017 TCJA (2013 for the House, 2015 for the Senate). Tax bill: The March 12 Senate Finance Committee hearing on "Growing U.S. Manufacturing Through the Tax Code" featured a public airing of member views on prospects for the Tax Relief for American Families and Workers Act (H.R. 7024), which combines a Child Tax Credit (CTC) expansion with a return to R&D expensing and the prior calculation for interest deductions, and prevents a bonus depreciation phasedown:
Subsequent to the hearing, Chairman Wyden and Sen. Crapo traded proposals in an attempt to reach agreement, but they still appear no closer to a resolution to address Republican criticisms of the bill, including of the lookback provision allowing the use of prior-year earnings to calculate the CTC. Punchbowl News reported that Chairman Wyden made an offer that drops the provision and substitutes another CTC proposal to benefit low-income families, which Ranking Member Crapo rejected. Second-ranking Senate Republican John Thune (R-SD), the vote-counting Whip, was quoted as being bearish about prospects for the bill. "I don't think our members are in a place where there would be a significant enough vote," Thune said. "So there would have to be some real significant changes, which I'm guessing Democrats would be unwilling to make." DTR reported on GOP requests to drop the lookback provision, "In exchange, Democrats requested replacing it with a refundability policy that would achieve the same reduction in child poverty and two other unspecified items that Republicans had requested." A main question has been whether, if the bill were put on the Senate floor without changes, the requisite number of Republican Senators (probably 9 or 10) aside from the Finance Committee members with concerns would vote for it. Senator Tillis said, "We have people that are sympathetic to the bill that can be convinced to not let it go to the floor unless our voice has been heard." Democrats are trying to figure out a plan to bring the bill to the floor, either attached to broader legislation or as a standalone measure, though it is widely observed that allowing amendments would mean a lengthy and politically complicated process and, potentially, changes that could send the bill back to the House with no guarantee it could pass on a re-vote after the chamber cleared the measure 357-70 January 31. Roll Call March 15 reported Senator Ben Cardin (D-MD) as saying, "I'm part of an effort to try to see whether we can get 60 votes to move the House bill as-is because — I have so many tax issues I want to see passed, and I would love to have an opportunity to do that — but if this bill gets opened up, we're not going to get a tax bill." Tax Notes March 15 reported that some Senate Finance Republicans have concerns about provisions in the bill that extend the business tax provisions retroactively, adding to what is a seemingly growing list of problems with the bill. Manufacturing: The Finance manufacturing hearing also included praise from Democrats and witnesses over energy tax credits in the Inflation Reduction Act (IRA), as well as Republicans warning of the consequences if parts of the TCJA are allowed to expire after 2025. In one IRA-focused exchange, Peter Huntsman of the Huntsman Corporation said Treasury could make his company competitive with those in other nations if they included chemicals that they manufacture for EVs in the definition of Buy America and as a domestic component (i.e., if the requirement for the bonus credit went all the way down the supply chain). The company wrote to Treasury on Foreign Entity of Concern criteria, saying shifting the battery supply chain out of a foreign nation requires defining battery components for the FEOC criteria to include all portions of the supply chain. Budget: President Biden's FY2025 Budget proposal released March 11 included previously proposed tax items like quadrupling the stock buyback tax to 4% (from 1%), raising the corporate income tax rate to 28% (from 21%), and a 25% billionaire's tax, as well as new proposals for increasing the corporate alternative minimum tax (CAMT) to 21% (from 15%), ending corporate deductions for all compensation costs of $1 million per employee, longer depreciation of and higher fuel taxes on private jets, and a new tax credit for first-time homebuyers and sellers of starter homes. Much of the Treasury Green Book description was repeated from last year. The President's budget is a traditionally aspirational document and, in this case, lays out expected campaign messages and a roadmap of what a second Biden term could look like on tax if Democrats have control in Congress to make the proposals a reality, with a theme of making corporations and the wealthy pay their "fair share" that they have espoused going back at least 15 years. The FY2025 Budget again includes proposals intended to strengthen Medicare, as "gaps in the law that allow some pass-through business owners to avoid Medicare taxes would be eliminated and Medicare tax rates would be increased." The proposals would expand the Net Investment Income Tax (NIIT) base to ensure that all pass-through business income of high-income taxpayers is subject to either the NIIT or SECA tax; and increase the additional Medicare tax rate by 1.2 percentage points for taxpayers with more than $400,000 of earnings. When combined with current law, it would bring the marginal Medicare tax rate up to 5% for earnings above the threshold. Combined with increasing the top individual rate to 39.6% and taxing at ordinary rates long-term capital gains and qualified dividends of those with income over $1 million, the proposals increase the top long-term capital gains and qualified dividends rate to 44.6%, Treasury said. A story in the March 12 Wall Street Journal focused on these proposals and positions by President Biden and former President Trump on entitlements, and said, "Tax increases are often seen as nonstarters by Republicans, however, which means the changes are more likely to get discussed on the campaign trail this year than in the halls of Congress. Still, with large parts of the Trump tax cuts expiring after 2025, a broad reworking of the tax code could be on the table next year, giving the next president a lot of input into the shape of any negotiations." Of course, the next presidential term, regardless of who is in office, includes the 2025 TCJA tax cliff. Similar to language in the FY2024 Budget, President Biden said he opposes increasing taxes on people earning less than $400,000 and "supports cutting taxes for working people and families with children;" opposes tax cuts for the wealthy, either by extending tax cuts or bringing back deductions and other tax benefits; and supports paying for extending tax cuts "with additional reforms to ensure that wealthy people and big corporations pay their fair share so that the problematic sunsets created by President Trump and congressional Republicans are addressed in a fiscally responsible manner." Global tax: In the wake of a March 7 House Ways & Means Tax Subcommittee hearing on Pillar One of the OECD BEPS 2.0 project that focused on a Joint Committee on Taxation (JCT) report showing the proposal would have resulted in a loss in US Federal receipts of $1.4 billion in 2021 had it been in effect, House Committee on Ways and Means Chairman Jason Smith (R-MO) and Senator Crapo issued a joint statement March 13 saying in part: "By month's end, the Biden Administration may commit to signing a global deal that surrenders U.S. taxing rights, in exchange for other countries' promise to not impose certain discriminatory taxes on American businesses. However, JCT's analysis provides ample reasons why the Administration should not sign on to the current version of the deal. JCT estimates the U.S. will lose billions of dollars under this deal which overwhelmingly affects American companies. Moreover, according to JCT, this deal would 'increase complexity,' undermine 'tax sovereignty,' introduce 'distortive behaviors,' and create 'inefficient incentives.' Those terms do not inspire confidence … " IRA guidance tracker: This table describes select IRS guidance related to the Inflation Reduction Act.
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