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June 26, 2024

What to expect in Washington (June 26)

The House is set to begin consideration of the Department of Homeland Security (H.R. 8752) and State and Foreign Operations (H.R. 8771) appropriations bills today. The State and Foreign Ops bill proposes terminating US participation in the Organization for Economic Cooperation and Development (OECD) though that would be expected to be struck in any eventual agreement with the Democratic-led Senate, which plans to begin consideration of appropriations bills after returning July 8 from the current two-week recess. A government funding deadline looms on September 30, but current funding could very likely been extended via a continuing resolution until after the elections.

On June 25, the House Appropriations Committee released the Fiscal Year 2025 appropriations bill for Commerce, Justice, Science, and Related Agencies, which, according to a press release, "ends the abuses of power at the Department of Justice (DOJ) and focuses the Executive Branch on its core responsibilities by holding the Federal Bureau of Investigation (FBI) accountable for targeting everyday Americans," preventing the FBI from developing a new headquarters building, and reducing funds for certain DOJ litigating components. It also intends to bolster national security, including by "investing in emerging technologies, including artificial intelligence, quantum, and advanced manufacturing."

"Conservative Republicans in the lower chamber have zeroed in on the commerce, justice and science appropriations bill as a way to go after the Justice Department … " the Hill newspaper reported. "The legislation strips nearly a billion dollars in funding from the Department of Justice, and likewise blocks the construction of a new FBI headquarters."

The House Ways & Means Committee is holding two hearings today: "Strengthening Child Welfare and Protecting America's Children" at 10 a.m.; and a Health Subcommittee hearing on "Improving Value-Based Care for Patients and Providers" at 3 p.m.

The CNN debate between former President Trump and President Biden is scheduled for Thursday, June 27, and both may be eager to draw contrasts with the other on tax policy ahead of the 2025 TCJA cliff. Trump has pushed for an even lower corporate rate of 20% and exempting tip income from tax, while President Biden has long made the case for high-income individuals and corporations to pay more in tax, their "fair share," to fund other priorities. "Both campaigns appear to be of the mind that it's a winning issue for them based on a wave of expectations setting from both sides this week. And both are signaling plans to go on offense when it comes up," said a Yahoo! Finance story this morning.

Global tax — At the annual OECD USCIB Tax Conference in Washington this week, focused on OECD tax policy developments and business interaction, US Treasury officials continued to call for Amount B of Pillar One, which was intended to simplify and streamline the application of the arm's-length principle to in-country baseline marketing and distribution activities, to be mandatory and linked to Amount A. Aviva Aron-Dine, Acting Assistant Treasury Secretary for Tax Policy, said the Department is focused on closing gaps that remain on Amount B and believes it should remain linked with Amount A. An optional version of Amount B is understandable as an initial phased approach but to achieve the promised tax certainty of Pillar One it will ultimately need to apply broadly and without option, she said. Scott Levine, Acting Deputy Assistant Treasury Secretary (International Tax Affairs), said the primary deliverables for Pillar One are the removal of digital services taxes (DSTs) in response to Amount A and the mandatory application of Amount B.

Officials have long cited a robust and mandatory Amount B among conditions for the United States to sign on to a Multilateral Convention (MLC), which is targeted for the end of the month. A June 25 FT story, "Global tax truce frays over fears of US Senate deadlock," said, "The OECD is preparing to circulate a treaty text ready for signature from Wednesday evening, according to documents seen by the Financial Times."

Additionally, Rep. Kevin Hern (R-OK), who chairs the Ways & Means global competitiveness tax team, said June 25 that his group would hold an August 8 meeting with stakeholders in Atlanta and "come out with a white paper with what we've learned," the Bloomberg Daily Tax Report (DTR) said. He also spoke at the USCIB conference.

Housing — During a June 24 appearance in Minneapolis with Senator Tina Smith (D-MN), Treasury Secretary Janet Yellen announced new Administration efforts to increase the supply of housing and lower costs. She touted successes in pushing inflation down while acknowledging that "prices for key household expenses like health care, energy, and housing are still too high, in large part due to challenges that have been mounting over decades."

On housing specifically, Sec. Yellen said, "We need Congress to act … the President has called on Congress to provide a tax credit for first-time homebuyers, which would help more than 3.5 million families purchase their first home in the next two years. President Biden has also focused on expanding housing supply, putting forward a plan to build over 2 million homes and supporting legislation like the bipartisan tax bill that would expand the Low-Income Housing Tax Credit. The Senate should pass this bill." A new tax credit for first-time homebuyers and people who sell their starter homes was proposed in the FY2025 Budget.

The Secretary's latter comment referred to the House-passed Tax Relief for American Families and Workers Act (H.R. 7024) that would expand the Child Tax Credit; address the TCJA pre-cliffs on IRC Section 174 five-year R&D amortization, 163(j) interest deductibility, and bonus depreciation; and restore the 12.5% Low-Income Housing Tax Credit (LIHTC) ceiling increase for calendar years 2023 through 2025 and provide a transition rule regarding the tax-exempt bond financing requirement. Republicans have blocked the bill in the Senate over a variety of stated issues. Prominent Democrats, including Majority Leader Chuck Schumer (D-NY) and Senator Maria Cantwell (D-WA), have cited the LIHTC provisions in pushing for its enactment.

"The bipartisan legislation expands the decades-old low-income housing tax credit with a 12.5% increase in the number of credits states can allocate. The measure aims to help states fund more affordable developments, and has been on top of the housing industry's wish list since an increase in the credit from 2018 expired in 2021 … " said a Bloomberg DTR check-in on the issue this morning. "Many Republicans also support the credit, including Senate Finance members Todd Young (R-Ind.) and Marsha Blackburn (R-Tenn.), and Ways and Means Rep. Darin LaHood (R-Ill.), the GOP leads on legislation to broadly expand the credit."

The focus follows reporting earlier in June about housing as a pocketbook issue for voters in this election year. A story in the June 2 Washington Post that said, "Housing is largely a local issue, yet it's presenting a challenging and complex problem in Nevada and other battleground states with implications for this year's race between President Biden and former president Donald Trump. "Biden has proposed specific policies and tens of billions of dollars to address the supply and costs, while Trump has mainly proposed reducing inflation. As the incumbent, however, Biden could bear the brunt of the blame, as home affordability has grown worse … "

On CNBC's Squawk Box June 25, Deputy Treasury Secretary Wally Adeyemo said, "While we need Congress to pass the bill that's in front of the Senate now that's bipartisan that will give us more money to help increase housing, we also need State & local governments to take steps to fix their zoning in order to make sure that we can build more housing for Americans."

Sec. Yellen is scheduled to appear before the House Financial Services Committee on July 9, after the Independence Day recess, according to press reports.

Today, June 26, 2024, from 12:00 PM-1:00 PM) is the EY Webcast, "Spotlight on BEPS 2.0: developments and practical implications for US MNEs - June 2024."

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