December 13, 2021
Old St. Chuck? Schumer under pressure to deliver by Christmas – Burgess Everett, Politico. “Chuck Schumer leapt over the trap doors of a potential government shutdown and debt default. Now he has to stick the landing on one of the largest spending bills in American history.”
As the Senate majority leader checks off his chamber’s list of must-pass bills, he’s turning to the urgent task of passing President Joe Biden’s $1.7 trillion social safety net bill before the long holiday break. Just a few obstacles lie in his way: Joe Manchin’s concern over rising inflation, the need for total party unity and only a few days left to meet his goal of final passage by Christmas. Oh, yeah, and the final deal isn’t finished yet.
Democrats don't think Manchin wants Biden agenda vote by Christmas – Alexander Bolton, The Hill. “Democratic senators say that Sen. Joe Manchin (D-W.Va.) has made it clear to them through what they say are stalling tactics that he has no desire to vote on President Biden’s sweeping climate and social spending agenda before Christmas. They say that if Senate Majority Leader Charles Schumer (D-N.Y.) schedules a vote on a motion to proceed to the Build Back Better Act before Christmas that it will get the support of 49 members of the Democratic caucus and that Manchin’s vote is the only question mark.”
While Democratic negotiators acknowledge there are still intraparty disagreements to iron out, such as the details of a proposal to raise the cap on state and local tax (SALT) deductions, and that there’s a big backlog of work at the parliamentarian’s office, they insist everything could get done by Christmas if they had Manchin on board.
The problem, Democratic senators say, is that Manchin is showing no sign of getting behind the $2 trillion bill anytime this month.
Senator Krysten Sinema (D-Ariz) could be coming around to supporting the bill. If true, Senator Manchin might be the only Senate Democrat to oppose pre-Christmas passage. No Senate Republican is expected to support the bill, so passage requires support from all Senate Democrats. If Manchin is a "no" vote, the bill fails to pass.
Biden’s Economic Package Risks Languishing in Senate Into 2022 – Laura Litvan and Laura Davison, Bloomberg ($). “Senate Majority Leader Chuck Schumer insists the Senate will pass President Joe Biden’s nearly $2 trillion tax-and-spending package before Christmas, but there’s still much work to do and time is running short.”
A delay into the new year risks slowing momentum for Democrats who need this legislative victory behind them as they fight to maintain narrow majorities in the House and Senate in the 2022 midterm elections. The signature bill includes spending on Democratic priorities such as child care and climate change and drastically changes the tax cuts Republicans won under President Donald Trump.
‘There is no way they’re going to be ready to vote on their big bill,’ Senator John Thune of South Dakota, the No. 2 GOP leader, said on Thursday. Democrats ‘probably need to nip that fairly soon because it’s just not practically going to happen,’ he added.
Word of caution: Several news outlets are reporting that the reconciliation bill won't pass the Senate until next year (if then). And the Senate is full of procedural rules that can be time consuming. But Senators can agree to waive those procedural rules and legislation can move like you-know-what through a goose. Stay tuned.
SALT Talks Continue as Senate Democrats Release Tax Plan – Laura Davison, Bloomberg ($). “The Senate Finance Committee released an unfinished version of President Joe Biden’s tax plan as Democrats race to meet a year-end deadline to pass a roughly $2 trillion tax and spending bill.”
The panel’s portion of the legislation released Saturday contains key elements of the bill, including an extension of the child-tax credit, about $1.5 trillion of tax increases on wealthy Americans and corporations and a drug price-reduction plan. The measure didn’t include the Senate’s plan to expand the state and local tax, or SALT, deduction, despite weeks of negotiations.
Spoiler Alert! The Senate bill will eventually include a modification to the SALT cap.
Senate Tax Chief Unveils Possible Tax Provisions in Chamber’s Reconciliation Bill – Jay Heflin, Eide Bailly. “A provision modifying the current SALT cap is expected to be in the final draft of the Senate’s bill. It is not clear what that provision will be, but there is a placeholder in the bill for it.”
Page 750 of the bill states the following:
SEC. 127601. [PLACEHOLDER FOR COMPROMISE ON DEDUCTION FOR STATE AND LOCAL TAXES]
Fun Fact: Senators don't know what's going to be in the bill but are trying to pass it anyway.
Senators are currently talking with the chamber’s parliamentarian about which provisions meet the requirements to be included in the bill. These discussions are expected to end this week, at the earliest. Until they are completed, it will be difficult to know what provisions will be in the final draft of the legislation.
The text of what Wyden released on Saturday is here.
SALT Debate Forces Rich Americans to Confront Widening Tax Gap – Ben Steverman, Bloomberg ($). “For America’s wealthy, the tax gap between states is getting more difficult to ignore... The stakes have never been higher, especially after former President Donald Trump signed into law a cap on the federal state and local tax, or SALT, deduction at $10,000 per year. Congressional Democrats are currently debating changes to the limit."
Academic research hasfound taxes have historically had little impact on where people live — particularly on the wealthy who can afford to reside wherever they want. States like California, which levies the U.S.’s highest rate of 13.3% on income over $1 million, remain economic dynamos, places where huge fortunes continue to be minted.
But there’s no doubt at least some very wealthy people are re-locating to lower-tax locales, bringing billions of dollars of tax revenue with them.
Rift Between Senator and Son Shows the Challenge of Taxing the Ultrarich – Jonathan Weisman, New York Times ($). “A dispute between Ron Wyden, the Democratic Senate Finance Committee chairman, and his hedge fund-manager son illustrates how the merely rich help the fabulously rich resist tax increases.”
The public dispute between son and father over the elder Mr. Wyden’s dogged efforts to tax the wealth of the superrich and close loopholes that have particularly benefited the richest financiers has accentuated a particular phenomenon that has helped to shield America’s billionaires. Each time Congress weighs taxing them, the merely rich rush to run interference for the fabulously rich.
CBO’s Permanent Score – David Hood, Bloomberg ($). “The Congressional Budget Office projected the deficit would increase by $3 trillion if all provisions in the Democrats’ $1.75 trillion budget are made permanent. As written, the deficit would increase by $200 billion, the office said in a letter to the Republican leaders on the House and Senate budget committees.”
‘For months, Democrats have been saying they intend for the policies in their social spending bill to be made permanent, yet they’re trying to mask the true cost by frontloading it with inflationary stimulus spending and budget gimmicks,’ Senate Finance ranking member Mike Crapo (R-Idaho) said in a statement.
There was a bit of a dust-up last Friday over costs concerning the tax and spending reconciliation bill that passed the House and is being debated in the Senate.
The legislation includes provisions that are temporary. Congressional Republicans asked the Congressional Budget Office (CBO) to calculate the bill’s cost if those provisions were permanent. Under this assumption, the bill would add $3 trillion to the deficit over the next decade.
From the CBO:
This letter responds to your request for a projection of the budgetary effects, including the effects on interest costs, of a modified version of H.R. 5376, the Build Back Better Act. You specified modifications that would make various policies permanent rather than temporary... The Congressional Budget Office and the staff of the Joint Committee on Taxation project that a version of the bill modified as you have specified would increase the deficit by $3.0 trillion over the 2022–2031 period.
The above letter prompted another letter from the CBO to Senate Majority Leader Chuck Schumer (D-NY), who asked if Republicans inquired about any provisions that would offset the cost of a $3 trillion bill. The answer was no.
From the CBO:
You inquired whether CBO was asked to analyze any policies that would offset the costs of making various policies permanent. In CBO’s estimation, none of the modifications would make the deficit smaller over the 2022– 2031 period, with one small exception [a health care provision could reduce the deficit by roughly $1 billion].
Takeaway: This tit-for-tat will definitely continue until the legislation has passed Congress, and might continue afterward. Think Obamacare. The bill was enacted over a decade ago and lawmakers still snipe at each other over it.
What's more, if the GOP gain the majority in either chamber after next year's election expect legislation to be introduced that undoes whatever BBB will do.
Canada Threatens to Retaliate Against U.S. Over EV Tax Credit – Brian Platt and Keith Laing, Bloomberg ($). “Canada is threatening to retaliate with targeted tariffs on U.S. goods if tax incentives for electric vehicles produced by unionized American workers aren’t removed from the Biden administration’s Build Back Better Act.”
The threat -- a significant escalation in Canada’s message on the issue -- was made in a letter Friday to U.S. lawmakers by Canadian Deputy Prime Minister Chrystia Freeland and Trade Minister Mary Ng. They say Canada is prepared to publish a list of potentially targeted goods “in the coming days” if the matter isn’t resolved.
The EV proposal ‘is a significant threat to the Canadian automotive industry and is a de facto abrogation of the USMCA,’ Freeland and Ng said, referring to the trilateral trade pact between the U.S., Canada and Mexico.
Meanwhile, the White House pushes for Congress to pass the EV provisions as is:
President Biden has united automakers and autoworkers to drive American leadership forward on clean cars, and he set an ambitious target of 50% of electric vehicle (EV) sale shares in the U.S. by 2030. Now, the Bipartisan Infrastructure Law will supercharge America’s efforts to lead the electric future, Building a Better America where we can strengthen domestic supply chains, outcompete the world, and make electric cars cheaper for working families.
President Biden, American families, automakers, and autoworkers agree: the future of transportation is electric. The electric car future is cleaner, more equitable, more affordable, and an economic opportunity to support good-paying, union jobs across American supply chains as automakers continue investing in manufacturing clean vehicles and the batteries that power them.
New Senate Tax Plan Softens Proposed Interest-Deduction Limit – Michael Rapoport, Bloomberg ($). “Multinational companies would have some more flexibility in keeping their interest payments tax-deductible under a new Senate Democratic version of President Joe Biden’s tax plan.
The Finance Committee’s plan, released Saturday, would also toughen limits on corporate tax inversions in an effort to compensate for the revenue that would be lost because of the flexibility on interest deductions.
Making Year-End Donations? Get the Most Tax Bang for Your Charity Buck – Laura Saunders, Wall Street Journal ($). “New rules for 2021 provide extra tax deductions for charitable giving. But some older rules are worth reviewing too. Here are charitable-deduction strategies to consider before the year ends.”
Dec. 31 is the last day for individuals to make tax-deductible charitable donations for 2021.
Congress has made two key changes to enhance tax breaks for giving during the pandemic that expire after this year. One allows millions of taxpayers who wouldn’t normally get a tax break for donations to deduct up to $300 per single filer and $600 per married couple filing jointly. The other allows a full deduction this year for donors making gifts up to 100% of their income, instead of a partial one.
Biden’s 2,700-Item To-Do List Targets Climate, Mental Health – Courtney Rozen, Sara Hansard and Bobby Magill, Rebecca Rainey, Evan Weinberger and Isabel Gottlieb, Bloomberg ($). “President Joe Biden released his second regulatory to-do list Friday, detailing almost 2,700 agenda items that define his ambitions to change the environment, transportation, and mental healthcare through the federal government’s rulemaking power.”
Regulations cutting down on climate superpollutants in refrigeration, lowering greenhouse-gas emissions from light- and heavy-duty vehicles, and improving sidewalk designs for people with disabilities are on the agenda, Sharon Block, the top political official in the White House regulations office, said in a statement. Biden officials will also consider how to improve insurance coverage for mental health and substance abuse treatment, Block said.
The list, typically issued twice per year, offers a window into how the Biden administration plans to use federal agencies in the new year to advance his priorities. The U.S. Fish and Wildlife Service has the longest list of items on the agenda, according to a Bloomberg Government analysis. The Internal Revenue Service is second, with more than 150 rules on its list.
The list is here.
IRS Updates Guidance on Claiming Missed Covid Stimulus Payments – David Hood, Bloomberg ($). “The IRS on Friday updated its guidance outlining how people who didn’t receive stimulus payments last year can claim them.”
The economic impact payments authorized in pandemic relief legislation were structured as advanced payments of a tax credit. The IRS guidance, issued in the form of 'frequently asked questions,' covers the two payments authorized in 2020, which many people either didn’t receive or received the incorrect amount.
The guidance is here.
Dearth of Pot Tax Evasion Charges Surprises Tax Defense Lawyers – Nathan Richman, Tax Notes ($). “Cash businesses generate lots of criminal tax charges, so it’s surprising that more don’t arise from the state-legal cannabis businesses forced to operate on a cash basis by the federal prohibition against marijuana, an attorney said.”
As with any industry, if the owners of state-legal marijuana businesses live lifestyles that don’t match their reported income, IRS fraud investigators could become interested, Betty J. Williams of the Law Office of Williams & Associates PC said December 9.
Arkansas, California Among Cash-Rich States Eying Tax Cuts – Michael Bologna, Bloomberg ($). “States began 2021 stewing about revenue shortfalls triggered by the Covid-19 pandemic, but they’re ending the year flush with cash and promising tax cuts heading into 2022.
Arkansas provided a strong example this week. The state Legislature passed bills offering significant income tax rate cuts during a special legislative session Wednesday, and Gov. Asa Hutchinson (R) signed the legislation Thursday.
Meanwhile in sunny California, Senate Democrats announced plans to use part of an expected $31 billion surplus to expand the earned income tax credit and child tax credit, and give tax relief to small businesses in next year’s budget.
Zero Taxes, Golf and Mansions Create a Crypto Island Paradise - Francesca Maglione. Bloomberg ($). “The St. Regis Bahia Beach Resort in Puerto Rico boasts a golf course and oceanfront residences in a 483-acre nature reserve, set along azure waters and lush rainforest. But what’s perhaps most appealing to those who are now rushing to this property is the section on its website explaining tax benefits for island residents. That was the case for Anthony Emtman, who left Los Angeles behind and bought a condo at the resort in March. The chief executive officer of Ikigai Asset Management is now a part of a burgeoning crypto community along Puerto Rico’s north shore, where the tropical weather is just a bonus.”
Emtman and his crypto peers are taking a page out of hedge funds’ books and seeking residence on the island to reap huge tax savings. High-earning investors in the U.S. pay up to 20% in capital gains tax and as much as 37% on short-term gains. In Puerto Rico, they pay nothing. And companies based on the American mainland pay 21% in federal corporate tax plus an individual state tax, compared to just 4% on the island. That makes the move a no-brainer for some investors, especially as the crypto market’s meteoric growth continues and Democrats push for higher taxes on the rich.
How NC's new tax cuts will save taxpayers billions – Travis Fain, WRAL News. “Tax cuts embedded in the new state budget will save North Carolina taxpayers more than $13 billion over the next five years. That’s mostly due to planned decreases in the state’s personal income tax rate, but it comes at a cost: Less for public schools and other government services.”
The drop in the tax rate is in addition to an eventual phase-out of the state’s corporate income tax, and the North Carolina General Assembly also reworked the franchise tax businesses pay, simplifying it in a way expected to save companies hundreds of millions of dollars over the next few years.
'This budget continues the Republican-led legislature’s decade-long commitment to low taxes and responsible spending,' Senate President Pro Tem Phil Berger said in a statement when the budget passed, harking back to previous tax cuts passed by the GOP majority. 'The multibillion-dollar surpluses these policies helped create are evidence that they’re working, and it means we can cut taxes even more.'
Texas Justices To Hear Blue Cross $3M Tax Refund Fight – Michelle Casady, Law360 ($). “The Texas Supreme Court agreed Friday to decide whether Blue Cross Blue Shield of Texas is entitled to a $3 million tax refund, as the insurer argues, or if the state's comptroller is correct that the stop-loss insurance policies at issue are considered health insurance, negating any refund.”
The state's high court granted a petition for review from Texas Comptroller Glenn Hegar and scheduled oral arguments to take place Feb. 3. Two lower courts have agreed with Blue Cross Blue Shield of Texas' argument that the premiums paid on its stop-loss insurance policies should not be subject to a special premium tax.
As the End of the OECD Project Draws Near, Country Differences Sharpen – Mindy Herzfeld, Tax Notes ($). “As illustrated by the oft-delayed release date of the OECD model rules for pillar 2, it’s easier to subscribe to tax concepts when vague language lends itself to multiple interpretations that are to each participant’s advantage. Agreement becomes harder when the exercise involves specifying terms for what to tax and how.”
Lack of concurrence on tax technicalities brings into sharper relief the differing objectives of the countries involved in the project. As the scope of the new taxing rights becomes clearer, it shows just how little many countries have to gain from this grand compromise — and how much some of them have to lose.
Transition Tax Campaign Expected To Fuel Further Disputes – Dylan Moroses, Law360 ($). “Taxpayers under audit by the Internal Revenue Service in its repatriation tax compliance campaign face a host of valuation questions that attorneys told Law360 could lead to new legal disputes.”
As cases move from the audit stage to assessment and appeals, several questions related to accurately calculating the one-time transition tax created by the 2017 Tax Cuts and Jobs Act are becoming more clear with new data available to the IRS. Issues around accurately reporting foreign-sourced income subject to the transition tax and following its rules, some which have already been challenged in court, are causing consternation for tax lawyers and their clients.
RPA on the rise in accounting – Michael Cohn, Accounting Today. “Robotic process automation has become a necessary technology for many accounting firms that are trying to achieve more efficiency as the staff becomes harder to find during the ongoing pandemic.”
Firms like Deloitte are increasingly relying on RPA technology and showing clients how they can achieve more with an already overburdened staff who are desperately trying to keep up with the workload during the stressful pandemic. ‘RPA is the here and now kind of technology that organizations are utilizing,’ said Brian Cassidy, audit and assurance partner and trustworthy AI leader at Deloitte.
Happy 385th Birthday National Guard! On this day in 1636 “the Massachusetts General Court established an official militia for the first time in the American Colonies,” according to National Calendar Day.
More from the website: “A component of the United States Army, the National Guard is primarily composed of citizen-soldiers who hold down full-time, civilian jobs, attend school, or as is often the case, both… Today, approximately 350,000 men and women serve in the National Guard and the Air National Guard, 39% of the Army’s operational force.” Salute!
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.