October 18, 2021
Democrats Bet on Raising Taxes on High-Income People, Big Businesses – Richard Rubin and Ken Thomas, Wall Street Journal. “Many Democrats are willing—even eager—to enact tax increases on high-income households and big businesses and campaign on them in next year’s midterm elections, embracing a stance that the party has struggled with in the past. Although Democrats’ slim majorities have forced them to abandon some of their most sweeping tax proposals, President Biden and congressional Democrats are still seeking to raise about $2 trillion over a decade from businesses and high-income households.”
Democrats say their focus on the top tier of households would help combat growing wealth inequality. The money would help pay for the healthcare, education and climate-change programs that Democrats hope to pass in the coming months.
The House’s proposed tax increases would be the largest since 1968 on their own and the largest since 1990 after subtracting tax cuts also included in the plan. This push for higher corporate taxes and higher rates for top earners—with a Biden pledge that no household making less than $400,000 will see a tax increase—is viewed broadly within the party as a political asset, not a liability…
Still, raising taxes during a bumpy economic recovery is no sure bet, especially after federal revenues jumped 18% in fiscal 2021. Republicans, opposed to higher taxes for decades, frequently argue that Democrats’ plans would hamper economic growth and allow reckless spending. They see the planned tax increases as an opportunity to recapture higher-income suburban voterswho voted for Democrats in opposition to former President Donald Trump.
Biden Backs Broad-Range Economic Plan With No 10-Year Guarantees – Nancy Cook and Josh Wingrove, Bloomberg ($). “President Joe Biden said he’d like to see his economic plan address a ‘whole range of issues,’ even if funding for individual provisions must be pared back or timed to expire to keep the legislation’s cost down.”
‘The question is how much of what is important can we get in the legislation,’ Biden told reporters in Connecticut, after earlier conceding the bill would cost less than the $3.5 trillion over a decade that House progressives want.
‘I’m of the view that it’s important to establish the principles on a whole range of issues without guaranteeing we get the whole 10 years,’ he said.
Schumer, Democrats Have Dwindling Time to Make Good on Promises - Laura Litvan, Bloomberg ($). “Senate Majority Leader Chuck Schumer faces staggering policy challenges -- President Joe Biden’s economic agenda, voting rights legislation and another risky debt limit fight -- constrained by GOP leader Mitch McConnell’s hardball tactics and Democratic disunity in the 50-50 Senate. Schumer has set an end of the month deadline to break a deadlock among Democrats over Biden’s multi-trillion-dollar economic plan. That would pave the way for the House to clear a separate bipartisan infrastructure bill."
If Schumer can get the economic package through, and if both that and the infrastructure package reach Biden’s desk, he will have carried off “a stroke of genius,” said Republican strategist Michael Steel. But if he doesn’t, it will be regarded as a turning point that pulled down Biden’s presidency, said Steel, once a top aide to former Republican House Speaker John Boehner.
Crunch time: Biden faces critical next 2 weeks for agenda – Jonathan Lemire and Zeke Miller, Associated Press. “President Joe Biden is entering a crucial two weeks for his ambitious agenda, racing to conclude contentious congressional negotiations ahead of both domestic deadlines and a chance to showcase his administration’s accomplishments on a global stage.”
Biden and his fellow Democrats are struggling to bridge intraparty divides by month’s end to pass a bipartisan infrastructure bill and a larger social services package. The president hopes to nail down both before Air Force One lifts off for Europe on Oct. 28 for a pair of world leader summits, including the most ambitious climate change meeting in years.
But that goal has been jeopardized by fractures among Democrats, imperiling the fate of promised sweeping new efforts to grapple with climate change. There’s also rising anxiety within the party about a bellwether gubernatorial contest in Virginia and looming Senate fights over the federal debt limit and government funding that could distract from getting the president’s agenda across the finish line.
Scoop: Manchin's red lines – Hans Nichols, Axios. "Sen. Joe Manchin (D-W.Va.) has told the White House the child tax credit must include a firm work requirement and family income cap in the $60,000 range, people familiar with the matter tell Axios.”
Why it matters: While Manchin’s demands would dramatically weaken one of President Biden’s signature programs to help working families, they also would reduce the package’s overall costs.
- That would make it easier for the pivotal senator to support a final package, potentially higher than Manchin's previous $1.5 trillion top line.
- At the same time, progressives would have a hard time accepting the changes Manchin is demanding.
White House looks to scale back its climate initiative after stiff pushback from Manchin – Tony Romm, Jeff Stein and Tyler Pager, Washington Post. “The White House is scrambling to salvage a critical proposal to reduce carbon emissions and deliver on President Biden’s ambitious climate agenda, as pushback from Sen. Joe Manchin III (D-W.Va.) creates new headaches for the administration entering key international negotiations next month. The fight revolves around the Clean Energy Performance Program, which Democrats have proposed as a way to reward utilities that increase their clean energy supply by 4 percent each year, while penalizing those that don’t. Lawmakers have included the initiative as part of a multitrillion-dollar tax-and-spending package that aims to advance Biden’s broader economic vision.”
The uncertainty around climate change reflects only part of the challenge facing the president’s economic agenda, which remains mired in political disputes among Democrats on Capitol Hill. From its current $3.5 trillion price tag to the proposed tax increases that would help finance it, the party’s liberal and centrist factions remain at odds over its size and scope, preventing lawmakers from forging ahead since their legislative ambitions require unanimity to prevail… To reach their goals, Democrats have tucked into their unfinished economic package a flurry of initiatives, including the elimination of dozens of tax programs that subsidize fossil fuels.
Democrats Weigh Carbon Tax After Manchin Rejects Key Climate Provision – Coral Davenport and Luke Broadwater, New York Times. “Some House and Senate Democrats, smarting from a move by Senator Joe Manchin III, Democrat of West Virginia, to kill a major element of President Biden’s climate plan, are switching to Plan B: a tax on carbon dioxide pollution. A carbon tax, in which polluting industries would pay a fee for every ton of carbon dioxide they emit, is seen by economists as the most effective way to cut the fossil fuel emissions that are heating the planet.”
The almost certain demise of the clean electricity program at the heart of Mr. Biden’s agenda — which comes as scientists say forceful policies are needed to avert climate change’s most devastating impacts — has prompted outrage among many Democrats and has led several to say now is the moment for a carbon tax.
Reviewing How TCJA Impacted Mortgage Interest and State and Local Tax Deductions – Jason Harrison, Tax Foundation. “Two major provisions in the federal tax code have been limited since the Tax Cuts and Jobs Act (TCJA) of 2017: the state and local tax (SALT) deduction and the home mortgage interest deduction (MID). Limiting the two provisions helped broaden the tax base, offsetting tax revenue loss from reduced tax rates. The limitations are slated to expire at the end of 2025, but policymakers should consider extending them along with the lower tax rates.”
Increased demand spurred by the MID can also lead to increased housing costs, mainly among taxpayers who itemize, making the housing market less accessible more broadly. Critics of the change suggested it could result in less mortgage participation, hurt the middle class, and reduce the homeownership rate. However, we find little evidence supporting these claims. After 2025, MID claims may increase as TCJA’s limitation expires.
The SALT deduction is similar to the MID in that it is another itemized deduction limited by the TCJA. Prior to the TCJA, individuals could deduct an unlimited amount of state and local income or sales taxes, real estate taxes, and personal property taxes against their federal taxable income. Post-TCJA, the SALT deduction is capped at $10,000 for income, sales, and property taxes (unless they were related to business activity). The cap made the tax code more progressive by broadening the tax base, and it helped partially fund reductions in statutory tax rates. Repeal of the SALT deduction cap would be more regressive than the entirety of the TCJA and provide a $31,000 tax cut for the top 1 percent of earners.
Is Your Flooded Basement Tax Deductible? Congress Will Decide – Laura Saunders, Wall Street Journal ($). “If you’ve had property damage from a disaster like a fire or flood this year, will the losses be tax deductible? For millions of Americans, the answer depends on what Congress does in the next few months.”
The 2017 tax overhaul suspended the overall deduction for casualty (i.e. disaster) and theft losses until 2026, unless those losses are from federally declared disasters like a hurricane or wildfire. So someone with property damage from a one-off lightning strike or house fire isn’t currently eligible for casualty-loss deductions.
Most taxpayers who do have losses from a federally declared disaster in 2021 must claim them as itemized deductions on Schedule A, according to Amy Miller, who tracks disaster-loss issues for the American Institute of CPAs. They must also fill out Internal Revenue Service Form 4684, including the FEMA disaster number.
Tax Pros Pan Financial Reporting Plan, Worry About Aftermath – William Hoffman, Tax Notes ($). “Tax professionals may be among the last asked for opinions about the Biden administration’s information reporting expansion plans, but many say they expect to be the first called upon to clean up any mess.”
A provision that would require banks, brokers, and other financial institutions to report to the IRS all annual gross inflows and outflows for accounts exceeding a threshold of $600 — or whatever formula Congress and the administration eventually agree on — probably wouldn’t require much extra effort from tax practitioners or their clients, said Stephen F. Mankowski of the National Conference of CPA Practitioners.
‘The massive amount of work for the CPA would arise if [and] when the IRS has the ability to actually go to taxpayers and businesses and ask them to provide details of specific bank activity,’ Mankowski said. Given the legal uncertainties of the Democrats’ proposal, and the IRS’s levels of operational dysfunction, he asked, ‘when would the IRS actually be in a position to start reviewing the data, let alone be able to make determinations of the accuracy?’
Ways & Means Republicans Introduce Bill Prohibiting Biden’s Invasive IRS Bank Surveillance Plan – House Ways and Means Republicans:
‘We should not allow the IRS to invade the privacy of Americans by snooping into their bank accounts,’ Rep. Ferguson said. ‘The Biden Administration and Congressional Democrats have clearly demonstrated their intent to instate a broad financial surveillance regime using Americans’ private financial information. In an attempt to chase down an ill-defined ‘tax gap’ that may not even exist, Democrats are willing to throw caution to the wind, put secure information at risk, and further inflate the unchecked power of the IRS. This IRS surveillance is an invasion of individual’s privacy and with Democrats’ history of weaponizing the IRS for their own political gain, it’s in every American’s best interest that we prevent the use of private financial information for this type of egregious power play.’
Treasury Open to Congressional Changes to IRS Data Collection – Colin Wilhelm, Bloomberg ($). “The Biden administration plans to accept congressional changes aimed at saving its controversial financial data collection policy, a measure Democrats see as a key part of efforts to ramp up tax collection and help pay for their social spending package.”
Treasury Secretary Janet Yellen has publicly maintained that a $600 threshold is a necessary threshold for a new financial account information-sharing mandate with the IRS, but the administration now appears ready to agree to a compromise put forward by senior lawmakers after the proposal became a political lightning rod.
Leaders of the congressional tax policy committees want to raise the annual dollar threshold under which banks and other financial companies would have to transmit account information to the tax collection agency. Congressional Democrats have also discussed exempting common transactions, like payroll direct deposits, from the inflow and outflows to decrease the number of accounts from which data would be collected and transmitted to the IRS. Lawmakers want to refine and narrow the data collection policy beyond what the Biden administration proposed in order to calm growing privacy concerns.
IRS Plan To Force Small Account Reporting Illegal, 20 AGs Say – Kevin Pinner, Law360 ($). “The Internal Revenue Service's proposal to require banks and other financial institutions to report information on every account with at least $600 is illegal under constitutional protections against unreasonable search and seizure, 20 state attorneys general told the agency Friday."
Although details haven't been finalized, the AGs said they stand opposed to what has been suggested in news reports — that banks would be compelled to give the government private information despite their customers not being suspected of any crimes. The Republican officials opposed the key component of the President Joe Biden administration's plan for addressing an estimated $7 trillion tax gap over the next decade in a letter to the U.S. Department of the Treasury.
‘We find this proposal wholly unacceptable and oppose any requirement of its kind,’ the attorneys general wrote. ‘It is at best overly burdensome and at worst it is illegal.’
Oct. 15 is NOT filing extension Tax Day for some – Kay Bell, Don’t Mess with Taxes. “Millions of taxpayers are frantically filling out Internal Revenue Service forms right now. They are the folks who got an extension until today, Oct. 15, to submit their annual federal tax returns. Some, however, aren't in a hurry. The IRS has given them more time to complete their returns.”
Among the tax relief is time beyond the Oct. 15 deadline. The list below shows the new extended filing due dates, in new deadline order, for those in areas struck by disasters.
- Nov. 1, 2021, for Michigan residents who endured severe storms, flooding, and tornadoes, and Mississippi filers who were hit by and Hurricane Ida;
- Nov. 15, 2021, for victims of California wildfires;
- Dec. 15, 2021, for North Carolina taxpayers who dealt with remnant of Tropical Strom Fred; and
- Jan. 3, 2022, for those affected by Tennessee severe storms and flooding, as well as Hurricane Ida victims in Louisiana, New Jersey, New York, and Pennsylvania.
The IRS' online disaster relief page has details on these and other disaster situations where relief has been granted.
Details on the IRS website can be found here.
IRS Updates FAQ Process to Address Transparency Concerns – Allyson Versprille, Bloomberg ($). “The IRS is changing its process for issuing guidance in the form of frequently asked questions, after tax professionals raised concerns about transparency and reliability. The agency on Friday announced several changes to make it easier for taxpayers to know when FAQs on newly enacted legislation have been posted or changed. It also provided clarity on the penalty protections taxpayers are eligible for when they rely on FAQs.”
Concerns about the IRS’s use of FAQs have grown as the agency relied on them more for substantive guidance, including on Covid-19 relief programs and emerging areas like cryptocurrency. Tax professionals have expressed frustration that FAQ guidance can change at any time without notice and that the IRS isn’t bound to maintain the position it took in the FAQs, as it is with more formal guidance, such as regulations.
Amazon Sales Tax Challenge Fails in California Federal Court – Donna Borak, Bloomberg ($). “A California state judge has denied a bid by online merchants to stop the state from collecting back sales taxes from sellers that keep their inventory in Amazon fulfillment centers.”
U.S. District Judge Morrison C. England Jr. in an Oct. 13 order granted the California Department of Tax and Fee Administration’s motion to dismiss a lawsuit by the Online Merchants Guild, determining that, according to the Tax Injunction Act, such claims should be filed in state courts. The court also dismissed the guild’s request for a preliminary injunction.
‘The TIA’s primary purpose is to prevent federal courts from interfering with state tax assessment and collection, which is a power reserved for the states,’ England wrote in the opinion, noting that plaintiffs could file an amended complaint within 20 days.
Streaming, Cloud Computing Are State, City Revenue Targets – Michael Bologna, Bloomberg ($). “What lessons have cities and counties learned by suing the manufacturers of OxyContin and other painkillers responsible for the opioid epidemic?”
As revealed in a spate of lawsuits from California to New Jersey, municipalities have learned they too can go after powerful business interests, in this case for taxes or fees the cities believe are owed. The powerful businesses are the streaming entertainment companies Netflix Inc. and Hulu LLC, which have surged in popularity as consumers 'cut the cord' on their cable TV subscriptions.
Tax Group Urges 6th Circ. To Affirm Injunction On Tax-Cut Limit – James Nani, Law360 ($). “A conservative-leaning taxpayer group urged the Sixth Circuit on Friday to uphold a federal court's injunction against a federal provision banning states from using pandemic aid to offset tax cuts, arguing the clawback portion is unconstitutionally ambiguous.”
The permanent injunction that U.S. District Judge Douglas R. Cole issued blocking the U.S. Department of the Treasury and Treasury Secretary Janet Yellen from enforcing the American Rescue Plan Act's clawback provision against Ohio should be affirmed, the National Taxpayers Union Foundation said in an amicus brief. The restriction is an unconstitutional condition on state government powers, and enforcing it would be arbitrary because the provision is so ambiguous, the NTUF argued.
Moderate Democrats, citing global pact, want 'pause' in international tax changes – Brian Faler, Politico. “A trio of House Democrats is asking party leaders to 'pause' their plans to raise taxes on big companies’ overseas profits, adding a new complication to Democrats’ negotiations over their next big legislative package. In a letter to House Speaker Nancy Pelosi obtained by POLITICO, the lawmakers say they first want to see how other countries implement a new agreement to create a global minimum tax on multinationals — something that could be years away.”
Otherwise, they write, Democrats’ plans to hike an existing U.S. tax on companies’ foreign earnings, known as GILTI, would put American firms at a competitive disadvantage.
‘I would encourage Leadership to pause on moving forward with GILTI and international tax changes at this time,’ wrote Reps. Tom O’Halleran (Ariz.), Henry Cuellar (Texas) and Lou Correa (Calif.), all members of the business-friendly New Democrat Coalition.
Here is a link to the October 8th letter.
Ways and Means Design Provides a Good Start for GILTI 2.0 – Martin Sullivan, Tax Notes ($). “We aren’t in the room where it happens. But you can be sure that in some of the less ornate offices on Capitol Hill and at Treasury, staff are still mixing and matching puzzle pieces to assemble what could be the second major overhaul to U.S. international taxation in four years passed into law by razor-thin margins. Staff must stay in bounds set by their political bosses. They must be ever mindful of the price tag that revenue-estimating economists will put on their work. And — oh, yeah — if politics and revenue allow, staff will try to draft rules that are reasonably fair and not unbearably complex.”
When moderate Richard E. Neal, D-Mass., chair of the House Ways and Means Committee, gave staff his marching orders to draft what is now the committee-approved bill, he probably said to flick all the switches in the Biden plan and make them less “tuf” (that is, “taxpayer unfriendly”) because that’s what staff did. On the corporate rate: Biden — 28 percent; Neal — 26.5 percent. On the section 250 deduction: Biden — 25 percent of GILTI; Neal — 37.5 percent. On the haircut to creditable foreign taxes: Biden — current law’s 20 percent; Neal — 5 percent. On GILTI loss carryforwards: Biden — none as under current law; Neal — allow carryovers. On allocation of expense for the GILTI basket limitation: Biden — current law; Neal — allocate interest, research, and stewardship to the United States (to increase FTC limitations). On FTC carryforward for GILTI: Biden — none as under current law; Neal — five years. On denying deductions related to low-taxed foreign income: Biden — yes; Neal — no. Not just overall but on all counts, the Neal revision to GILTI is more lenient than the Biden plan, which the table shows.
Global Corporate Tax Deal May Create US Treaty Puzzle – Natalie Olivo, Law360 ($). “The recently agreed-upon global corporate tax overhaul requires a multilateral treaty that could face roadblocks in the U.S. if ratification depends on traditional Senate tax treaty procedures, but alternative options for implementing it bring their own uncertainties, including constitutional questions.”
A comprehensive rewrite of international corporate tax rules, which the U.S. and nearly 140 other jurisdictions agreed to earlier this month, requires a first-of-its-kind multicountry treaty as part of the process for enacting new taxing rights. Under the U.S. Constitution, tax treaties need approval from two-thirds of the Senate — a requirement that may cause President Joe Biden's administration to seek other options, including a type of congressional deal that is untested in the tax space.
It’s National Clean Your Virtual Desktop Day! Yes! There is a day for workers to straighten-out their work space.
“A clean and organized space offers fewer frustrations. Everything is in its file and you know where to find it. Archive old files. Create short cuts. This will help your computer run faster and help you find them more quickly,” according to National Day Calendar.
For those not bedazzled by cleaning your desk, it is also National Chocolate Cupcake Day! Eat up!
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.