26 January 2025 This Week in Tax Policy for January 27 Congress: The Senate is in session, but the House is out, and Republicans are holding a retreat in Doral, FL, that is to include an address by President Trump. The Senate may vote on the nomination of Scott Bessent to be Treasury Secretary. Questions for the record have been posted here: On Wednesday, January 29 (10:00 a.m.), the Senate Finance Committee is set to hold a hearing to consider the nomination of Robert F. Kennedy, Jr., to be Health and Human Services Secretary. New administration: This week was the dawn of a new administration and Republican trifecta of control in 2025 as President Trump returned to the White House January 20. The focus has been on executive orders, including addressing the OECD-led global tax agreement and America First Trade Policy, and expectations for domestic manufacturing tax policy and tariffs, as well as how Republicans may approach their legislative agenda headlined by the extension of Tax Cuts & Jobs Act (TCJA) provisions expiring at the end of 2025. Executive orders: The OECD executive order released January 20 clarifies "that the Global Tax Deal has no force or effect" in the US and directs Treasury and the US representative to the OECD to "notify the OECD that any commitments made by the prior administration on behalf of the United States with respect to the Global Tax Deal have no force or effect within the United States absent an act by the Congress adopting the relevant provisions of the Global Tax Deal." In conjunction with the United States Trade Representative, the officials are directed to investigate whether any foreign countries are not in compliance with any tax treaty with the US or "have any tax rules in place, or are likely to put tax rules in place, that are extraterritorial or disproportionately affect American companies, and develop and present … a list of options for protective measures or other actions that" the US should adopt or take in response, within 60 days. The trade EO said Treasury, Commerce, and the USTR "shall investigate whether any foreign country subjects United States citizens or corporations to discriminatory or extraterritorial taxes pursuant to section 891 of title 26, United States Code." Section 891 allows for the doubling of rates of tax on citizens and corporations of certain foreign countries if the President finds that US citizens or corporations are being subjected to discriminatory or extraterritorial taxes. In 2019, Senate Finance Committee members urged the prior Trump administration to consider using this tool in retaliation for unilateral digital tax measures. An editorial in the January 22 Wall Street Journal (WSJ) called 891 "the nuclear option of global tax policy," and opined about the executive orders generally, "It'll be hard for the global tax deal to survive this opposition from Washington." EO Alerts: An EY Alert, "US issues Executive Order on BEPS 2.0," is available here. An EY Alert, "United States President signs 'America First Trade Policy' Presidential Memo," is available here. A WCEY Alert, "President Trump's Week One Executive Actions Impacting Health Care," is available here. An EY Office of Public Policy (OPP) document, "Trump administration executive action alert: Key executive actions from 20 January 2025" is available here. An energy-focused OPP document is available here. Ways & Means retaliatory bill: Citing the President's executive orders, Ways & Means Chairman Jason Smith (R-MO) and all other Committee Republicans reintroduced the Defending American Jobs and Investment Act (H.R. 591) to:
In reporting on the bill introduction, Tax Notes cited bill cosponsor Rep. Kevin Hern (R-OK) as saying there's little incentive for the US to go back to the OECD negotiation table because of pillar 2's rules that allow foreign countries to have taxing authority over some US business profits and the fact that the US GILTI regime is not a qualified IIR under pillar 2 rules. "If the [OECD inclusive framework] want[s] to make GILTI pillar 2-compliant, then we could talk to them about it," Hern said, adding that even with a Democrat-controlled Congress, the Biden administration was unable to pass pillar 2 legislation. Domestic manufacturing: President Trump January 23 highlighted his plans to lower the corporate tax rate for corporations that make products in the US and penalize those that don't. "My message to every business in the world is very simple — come make your product in America and we will give you among the lowest taxes of any nation on Earth. We're bringing them down very substantially, even from the original Trump tax cuts," he said in a video address at the Davos World Economic Forum. "But if you don't make your product in America, which is your prerogative, then very simply you will have to pay a tariff, differing amounts but a tariff, which will direct hundreds of billions of dollars and even trillions of dollars into our Treasury to strengthen our economy and pay down debt." During Q&A, the President said of the corporate tax rate, "We're going to bring it down to 15%, if you make your product in the USA. So, that's going to create a tremendous buzz. We're also probably going back to the one-year deduction … We're going to go back to that when we do the renewal of the Trump Tax Plan." Tax bill table setting: President Trump convened Senate Majority Leader John Thune (R-SD) and Speaker Mike Johnson (R-LA) this week to discuss action-forcing deadlines unrelated to the tax bill, including a government funding bill due March 14 that will avert a government shutdown and addressing the federal debt limit, which is due by sometime midyear; and to address lingering questions about their legislative agenda, including whether to pursue two reconciliation bills, border first and tax second, or one big bill. The group didn't arrive at a definite conclusion, according to reports. "There's a lot to do, and part of it is just figuring out how to stage it," Thune said in the WSJ. Punchbowl News reported that there was a greater focus on the trio of issues that may require Democratic support — government funding, debt limit, and wildfire disaster relief — and "what Democrats will want in return for this support." A big part of the discussion, the report said, was what vehicle the debt limit should ride on: a government-funding package or minibuses, or a disaster funding bill, with earlier plans to address the issue through a GOP-only reconciliation bill seemingly falling away. Democrats have resisted Republican assertions that wildfire disaster aid be conditioned on their support for addressing the debt limit. While the focus for months has been on how Republicans can pass a GOP-only reconciliation bill to extend Tax Cuts & Jobs Act (TCJA) provisions expiring at the end of 2025, now President Trump said he may seek to work with Democrats on tax cut extensions or suggested he would at least dare them to oppose a bill preventing a huge tax increase. "To further unleash our economy, our majorities in the House and Senate, which we also took along with the presidency, are going to pass the largest tax cut in American history, including massive tax cuts for workers and family and big tax cuts for domestic producers and manufacturers," he said. "And we're working with the Democrats on getting an extension of the original Trump tax cuts, as you probably know by just reading any paper." He further said: "We have to get Democrats to approve it. But, you know, if the Democrats didn't approve it, I don't know how they can survive with about a 45% tax increase, because that what it would be. And so, I think they're going to be. We've been working along with them pretty well. I think it's very hard for a political group to say, 'Let's charge people 45% more.' So, I think we're in good shape. But we're actually doing a reduction for business and small businesses, where you're going to bring it down to 15%, which is really something." Republicans have long planned to use the reconciliation process for a tax bill to allow GOP-only simple majority passage in the 53-47 Senate. Democrats would be expected to push for ending TCJA provisions for high-income individuals, Child Tax Credit changes, a more stringent approach to some international provisions, and other changes that Republicans would likely oppose. However, there seems to be some developing GOP sentiment that Democrats should own part of the responsibility for extending tax cuts that substantially benefit those under $400,000 in annual income. In an interview with Washington Reporter posted January 24, Chairman Smith said: "If you just pay attention to what the Democrats campaigned on, they said that they would not increase taxes on people making less than $400,000 a year. That's what we're going to do. We're going to make sure that taxes don't increase for people making less than $400,000 a year. 70 percent of all the expiring provisions of Trump's tax cuts are on the individual side. And of that 70 percent, two-thirds are on people making less than $400,000 a year. That's the biggest chunk. Almost half of the total tax bill would be tax increases on people making less than $400,000 a year. The Child Tax Credit, which gets slashed in half from $2,000 to $1,000, the guaranteed deduction, which 91 percent of Americans used to file their taxes, gets slashed in half. These are policies that drastically affect people making less than $400,000 a year, so I would hope my Democrat colleagues would vote for it, because if they didn't, that would be a vote to raise taxes on people making less than $400,000 a year." Revenue considerations: Still, the GOP plan for reconciliation, including one bill or two and any revenue offsets, remains unsettled. Some Republicans say a current policy baseline means tax cut extensions don't need to be offset, others want new revenue, and Trump continues to mention tariffs. A story in the January 22 Wall Street Journal said, "Trump privately told Senate Republicans at a January 8 lunch on Capitol Hill that he is convinced tariffs can raise around $1 trillion in revenue … " However, a January 22 New York Times story, "How the Debt Could Hamstring Trump's Agenda," said "many Republicans are hesitant to rely on tariffs as a way to pay the government's bills, even if Mr. Trump intends to use them to do so." The report cited Ways & Means Chairman Smith as repeating prior comments that even though the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) "won't give us credit" for tariff revenues against the cost of a tax bill, "what we have to do as lawmakers is look at the complete fiscal health of the nation." The story also reported the deficit concerns of Ways & Means member Dave Schweikert (R-AZ), who said investors were starting to think twice about lending to the US and warned of the potential effects on the economy. "This ain't a game," Schweikert said. "This needs to temper both how we approach policy and how we communicate that policy."
Additionally, Ways & Means Tax Subcommittee Chairman Mike Kelly (R-PA) and Ranking Member Mike Thompson (D-CA) announced introduction of the Short Line Railroad Tax Credit Modernization Act, to "make it easier to keep local rail lines operating and in good repair and improve commerce in communities nationwide."
Document ID: 2025-0327 | |||