October 8, 2021
Democrats likely to throw billions in tax hikes overboard as spending plans shrink – Brian Faler, Politico. “Democrats will likely drop hundreds of billions of dollars in proposed tax increases on the rich as they scramble to shrink the size of their 'reconciliation' package."
That’s good news for moderates who are less enthusiastic about raising rates. But it’s potentially terrible news for progressives hoping to stick it to the rich. Many see this as their best chance in years to push through major changes in how wealthy people are taxed — such as a proposal to begin taxing, for the first time, billionaires’ unrealized capital gains.
The pressure on lawmakers to take up such controversial proposals will dwindle if Democrats suddenly don’t need them to make their budget numbers work. Some progressives acknowledge that some of the most aggressive tax proposals could now fall by the wayside, as the demand for revenue eases…
Biden eyes a trim and slash approach for cutting down his reconciliation bill – Laura Barron-Lopez, Natasha Korecki and Sarah Ferris, Politico. “The White House is seriously entertaining the idea of across-the-board haircuts to most items in President Joe Biden’s $3.5 trillion social spending package. But even if the trim-everything strategy is predominantly employed, some programs would likely still have to be cut out completely, according to several sources who either took part in White House discussions or were briefed on its thinking."
Which ones remain a topic of intense internal party debate, as Democrats look to find the best path forward to quickly pass the massive social and climate spending bill. Congressional leaders have not publicly weighed in on this strategy, although Speaker Nancy Pelosi privately said this week her members prefer a less-is-more approach — funding fewer programs but for a longer amount of time.
Democrats Face $2 Trillion Math Problem With Rift Over Spending – Laura Davison, Bloomberg ($). “Congressional Democrats are beginning to discuss how to pare down a sweeping social-spending bill that President Joe Biden had designed to transform the federal government’s support for lower-income Americans, in a wrenching effort to get it enacted.”
Lawmakers have yet to coalesce around a list of priorities, or even begun negotiations with both moderates and progressives present -- a hallmark of when a deal is close to being reached. Biden and White House officials, however, have held a series of meetings in recent days with key Democrats, including groups of liberal House lawmakers and key centrist Senators Joe Manchin and Kyrsten Sinema.
A third or more of the spending may need to be slashed from the House version of the bill. That version is estimated to cost at least $3.5 trillion, but the official scorekeeper, the Congressional Budget Office, said Thursday it didn’t know when it would have its calculation -- further complicating Democrats’ discussions.
Explainer: The argument over tax increases is solely within the Democratic party in both chambers of Congress. Simply put, one group (deemed "progressives") want to tax wealthier taxpayers; the other group (deemed "moderates") aren't sold on these tax increases.
How are negotiations going? Not well, according to Punchbowl News ($):
Who will win between progressives & moderates? Think about this -- Bernie Sanders [a progressive] held a press conference on Wednesday simply to bash Joe Manchin and Kyrsten Sinema [both are moderates]. That should tell you how things are going between the two big factions inside the Democratic Party… Biden, according to multiple sources in the virtual meeting, told the progressive House Democrats that he's been in politics a long time -- and getting them together [progressives and moderates] in the same room would almost be like ‘homicide.’
Key Senator Eyes New Deadline for Passage of Energy Tax Provisions – Doug Sword, Tax Notes ($). “Congressional Democrats’ reconciliation bill has already stumbled over two deadlines and could have another to contend with: the upcoming U.N. Climate Change Conference, which some view as an opportunity for President Biden to promote the passage of clean energy tax cuts and other energy provisions.”
‘We must act in Congress before Joe Biden goes to meet with the rest of the world,’ Sen. Edward J. Markey, D-Mass., said October 7 at a ‘No Climate, No Deal’ event on Capitol Hill featuring various environmental groups. Markey was one of four senators at the event linking their support for the reconciliation bill to climate provisions in Biden’s Build Back Better agenda.
The climate change conference is scheduled to be held from October 31 to November 12 in Glasgow.
Climate hawks reject compromise in reconciliation – Joseph Morton, Roll Call. “The debate over climate-related provisions in the Democrats' budget reconciliation package sharpened Thursday as several left-leaning senators, joined by environmental activist groups, urged more moderate lawmakers to include aggressive steps to avert catastrophic climate change in the legislation. They noted that President Joe Biden will have a tough time making the case for international climate action at the upcoming summit in Glasgow if he can’t even unify his own party behind his agenda.”
‘We must act in Congress before Joe Biden goes to meet with the rest of the world,’ Sen. Edward J. Markey, D-Mass., said at a Thursday news conference across from the U.S. Capitol. ‘President Biden must be able to put a deal on the table that reflects what we then expect from the rest of the world so that we begin a downward trajectory in terms of the greenhouse gases that are going up into the atmosphere.’
Democrats downplay deadlines on Biden's broad spending plan – Jordain Carney, The Hill. “Democrats are already skeptical that they’ll be able to hit new deadlines for getting a sweeping two-part spending package to President Biden’s desk as they ramp up haggling over deep divisions. Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Charles Schumer (D-N.Y.) have pointed to the end of the month for getting both a stalled bipartisan infrastructure bill and still-being-negotiated social spending bill through Congress."
While Democrats feel like they’ve made some progress, they still need to land on an overall price tag and are facing increasingly public jockeying as members elbow to make sure their priorities remain in a slimmed down bill.
'I think it’s going to be very difficult to get it done by then,' said Sen. Ben Cardin (D-Md.). 'The drafting is going to take some time.'
Bipartisan debt limit patch would raise borrowing cap by $480B – Jennifer Shutt, Roll Call. “Senate leaders reached agreement Thursday on a bipartisan debt limit patch that would increase the Treasury Department’s statutory borrowing cap by $480 billion, or about enough to get to Dec. 3. The one-sentence text of the measure would line up the debt limit and Dec. 3 government funding deadlines when the continuing resolution lapses, setting up a potential two-tiered ‘fiscal cliff’ later this year.”
It was possible incoming tax revenue could give the Treasury more room to stay under the new borrowing cap, however, as December and January are historically strong months for tax receipts.
It wasn't immediately clear whether Treasury would be able to employ ‘extraordinary measures,’ such as suspending investments of certain government trust funds, to stay within the borrowing cap beyond December. Senate Majority Whip Richard J. Durbin, D-Ill., told reporters he believes the $480 billion figure includes room for Treasury to use extraordinary measures.
House to vote Tuesday on debt limit hike – Cristina Marcos, The Hill. “The House will interrupt a scheduled recess next week to vote Tuesday on Senate-passed legislation to extend the debt limit into December.”
The House, which had been long scheduled to be out of session this week and next coinciding with the Columbus Day holiday, is expected to quickly resume its recess as soon as lawmakers clear the debt limit extension Tuesday night.
The House was otherwise scheduled to be out of session until Oct. 19, which is the day after the Treasury Department has estimated the U.S. would default on its debts if Congress hasn’t acted by then.
Senate punts debt ceiling debate into December, pairing it with the fate for federal funding – Jay Heflin, Eide Bailly. “The Senate on October 7th approved legislation that lifts the debt ceiling, allowing the federal government to continue to issue debt until December 3rd – the same date that funding the federal government is set to expire.”
The progress on finalizing the [$3.5 trillion] tax and spending bill has recently slowed, in part because Democrats (who are the only lawmakers expected to ultimately support this bill) have had to split their focus over the past few weeks between this bill, negotiations on funding the federal government and lifting the debt ceiling.
The multi-pronged focus was partly responsible for lawmakers missing their original deadline to complete the tax and spending bill by September 27th. They are also expected to miss their October 31st deadline as well. It is now expected that the legislation could be finalized in December, according to Senate Majority Whip Dick Durbin (D-Ill.).
December Deadlines Mean Year-End Crunch for Washington – Laura Davison, Bloomberg ($). “Congress is heading for a classic December pile-up of must-pass bills and sticky negotiations that threaten to ruin the holidays for lawmakers -- a fate that has happened so many times before.”
Congress has to deal with dueling deadlines on the debt ceiling and government funding, not to mention President Joe Biden’s entire economic agenda. The members really have no one to blame but themselves for procrastinating.
How the Tax Bill Could Hit Two U.S. Companies, One Domestic, the Other Global – Theo Francis and Richard Rubin, Wall Street Journal ($). “Advance Auto Parts Inc. AAP 1.51%and Agilent Technologies Inc. A 1.09% will see their tax rates increase by a fifth under the sweeping tax bill proposed by congressional Democrats, but for different reasons. Advance Auto mostly sells car parts through its U.S.-based stores. Agilent makes and sells lab equipment and chemicals primarily outside the country. One makes its profits at home; the other books most of its profits abroad.”
The Democratic plan, passed by the House Ways and Means Committee last month, would raise nearly $1 trillion over a decade from corporate tax increases. It does so in part by increasing the corporate tax rate to 26.5% from 21% and expanding taxes on foreign income, without reinstating many of the tax breaks that Congress curbed in 2017.
Crypto Tax Provision May Prompt Investors to Push Industry for More Compliance Help – John Buhl, Tax Policy Center. “The congressional debate over new tax compliance measures for cryptocurrency investors has primarily focused on two issues—the potential to raise new revenue and what parts of the industry may be reclassified as “brokers” who must transmit data on customer gains and losses to the IRS. But the bipartisan infrastructure bill seeks to do more than just expand the definition of a broker in the crypto space.”
It would also require brokers to alert the IRS when customers move their crypto assets to an account that doesn’t have a broker keeping tabs on trades and purchases made by an investor. So, even if the definition of a broker is kept fairly narrow, crypto users may end up pushing the industry to increase its tax compliance support.
Concerted Effort Needed to Fix ‘Broken’ IRS, Group Says – Allyson Versprille, Bloomberg ($). “The IRS needs more than just extra funding to fix the problems it’s having processing tax returns on time, sending accurate notices, and answering its phone lines, according to the National Association of Enrolled Agents.”
The IRS ‘should be considered broken and does not seem to be on track to be fixed any time soon,’ NAEA said in a letter Thursday to Congress and Treasury Secretary Janet Yellen. In addition to a bigger budget, there needs to be a concerted effort by policymakers, IRS leadership, watchdog entities, and the agency’s Taxpayer Advocate Service to help turn the agency around, the group said. NAEA represents about 58,000 enrolled agents—professionals who are federally licensed to practice before the IRS.
A link to the letter is here.
IRS’s Tax-Exempt Unit Preps for Enforcement Hiring Boost in 2022 – Allyson Versprille, Bloomberg ($). “The IRS’s Tax Exempt and Government Entities Division is expecting fiscal year 2022 to be ‘a year of significant growth,’ as it prepares to hire more people to beef up enforcement, the division leader said.”
TE/GE expects to hire more revenue agents and tax compliance officers, as well as increase the number of people working in the rulings and agreements office, which processes applications for tax-exempt status and provides direction through private letter rulings and technical guidance, division Commissioner Sunita Lough said Thursday on a call with reporters.
IRS Not Keeping Many Cases From Appeals – Nathan Richman, Tax Notes ($). “Only about one case per year is denied access to the IRS Independent Office of Appeals because the agency designated the case for litigation rather than settlement, according to an IRS Chief Counsel executive.”
‘They are so incredibly rare — we looked at the numbers, and we haven’t designated a case in the last three years that I’m aware of,’ Drita Tonuzi, IRS deputy chief counsel (operations), said October 7.
IRS Aims For Balance With 'Telescoping' Limits, Official Says – Natalie Olivo, Law360 ($). “The IRS is trying to alleviate burdens caused by limits on ‘telescoping’ — where corporate income adjustments for past years can move into current years — while still adhering to the 2017 tax overhaul's year-by-year accounting requirements, an agency official said Thursday.”
The 2017 Tax Cuts and Jobs Act fundamentally changed how the resolution of cross-border tax disputes can be reflected in adjustments to companies' taxable income, according to John Hughes, director of the agency's Advance Pricing and Mutual Agreement Program. He cited APMA's October 2020 move to curtail the practice of telescoping to comply with the TCJA — a decision that generally prevents companies from taking income tax adjustments arising from past cross-border disputes and carrying those changes through subsequent years.
Ireland Joins Global Tax Deal After Taming Minimum Rate Aims – Kevin Pinner, Law360 ($). “Ireland endorsed a plan for landmark international tax reform on Thursday after successfully lobbying rich nations to alter terms backed by most of the world, constraining ambitions to potentially raise a 15% minimum corporate tax rate in the near future.”
Ireland's assent to the agreement as a member of the Organization for Economic Cooperation and Development means the country has pledged to raise its corporate income tax rate from 12.5% to 15% for companies with annual revenue over €750 million ($866 million).
'The government has now approved my recommendation that Ireland join the international consensus, which, in turn, will secure certain strategic priorities for Ireland,' Paschal Donohoe, the country's finance minister, said Thursday in a news conference.
Estonia Pledges to Join OECD Global Tax Agreement – Isabel Gottlieb, Bloomberg ($). “Estonia, one of six countries that refused to sign a preliminary global tax deal in July, will join the agreement tomorrow, the government said Thursday. Estonia can accept the deal because the minimum tax will have little impact on its local entrepreneurs, it said.”
Pandora Papers Show Secrecy Behind State Trusts Runs Deep – Donna Borak, Michael Rapoport and Michael Bologna, Bloomberg ($). “More than a dozen states across the country are sheltering billions of dollars in wealth, according to leaked documents in the Pandora papers, but that may represent only a sliver of known existing trusts across the United States due to sweeping state secrecy laws.”
The unprecedented leak of financial documents earlier this week cast a bright spotlight on the United States where more than 200 trusts are being held with at least $1 billion in assets. States like South Dakota, Nevada, Florida, Alaska, and Texas were among the most popular destinations to shelter the personal wealth of ultra-wealthy individuals.
California Restaurateur Using Tax Zappers Gets 2-Year Sentence – Laura Mahoney, Bloomberg ($). “The owner of restaurants in Los Angeles and San Francisco was sentenced Thursday to two years in prison for evading sales and payroll tax using sales suppression software, California Attorney General Rob Bonta said.”
Chaturonk Ngamary Jr., one of the owners of multiple Thai Original BBQ restaurants has also paid $1.5 million in restitution to the California Department of Tax and Fee Administration, Employment Development Department, and several insurance carriers. His 2020 guilty plea included a white collar crime enhancement for multiple felonies.
Mich. House Fast-Tracks Refiled SALT Cap Workaround Bill – Paul Williams, Law360 ($). “Michigan lawmakers moved quickly Thursday to allow a vote on a refiled entity-level tax bill to sidestep the $10,000 federal cap on state and local tax deductions, following the governor's pledge to support the program after its funding was secured.”
The state House of Representatives introduced the bill, H.B. 5376, and suspended the rules to have the measure bypass committee approval, which could allow the chamber to vote on it as early as next week. Democratic Gov. Gretchen Whitmer vetoed a similar workaround bill in July, citing concerns about the $4.6 million cost to implement the program, but then expressed support for it after signing the state budget that appropriated money to pay for the program.
Calif. Co. Owes Biz Tax On Sublet Airport Space, Court Rules – Jaqueline McCool, Law360 ($). “A California company that leased out space at the Oakland airport owes city business taxes, penalties and interest because it failed to prove the activities constituted less than 20% of its gross receipts, the state appeals court ruled.”
The court ruled in an opinion issued Monday that Host International Inc. failed to meet the burden of proof to show it was not liable for city business taxes assessed on its subleasing activities between 2006 and 2015. Host sublet space in the airport to tenants and received rent payments, but argued that because it did not enter into the subleases to reap a profit and the income constituted less than 20% of the business' gross receipts it did not owe taxes, penalty or interest.
It’s National Fluffernutter Day! This is a big deal in my family. Plus, it’s Friday! I’m outta here! Have a great weekend!
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.