March 29, 2021
Biden Plans to Split Spending Plan in Two – Tarini Parti and Joshua Jamerson, Wall Street Journal ($). “President Biden plans to split up his next big government-spending push into two programs and will lay out his vision for an infrastructure-focused first proposal, including green-energy programs, at an event in Pittsburgh this week […] The second proposal, which the administration plans to release in April, would focus more on child care and healthcare programs, among other priorities for the administration.”
At some point the administration plans to propose tax increases on higher-income households and businesses to help pay for the programs, though it has yet to lay out its tax strategy or how it will fit together with the next two proposals. Ms. Psaki also left open the possibility that both elements of the president’s spending plans could be pursued in one legislative package.
Biden to Push Child-Care Spending in Next Economic Proposal - Catherine Lucey and Tarini Parti, Wall Street Journal ($). "As President Biden readies a multitrillion-dollar economic package, he is looking to include investments in child- and elder-care needs that his administration sees as barriers for women in the workforce, particularly during the coronavirus pandemic. Mr. Biden is expected to address what he calls the 'caregiving economy' as part of the economic recovery proposal he plans to start unveiling on Wednesday […] The campaign proposed paying for it by rolling back tax breaks for real-estate investors with incomes of more than $400,000 annually."
PPE is deductible, says IRS - Jeff Stimpson, Accounting Today. “Face masks and other personal protective equipment to prevent the spread of COVID-19 are now federally deductible. The new IRS Announcement 2021-7 (1) clarifies that the purchase of such personal protective equipment as masks, hand sanitizer and sanitizing wipes for the primary purpose of preventing the spread of COVID-19 are deductible medical expenses. Specifically, money spent by individual taxpayers on PPE are treated as amounts paid for medical care under Sec. 213(d), which means that, if a taxpayer’s total medical expenses exceed 7.5 percent of their adjusted gross income, they can deducted anything spent for PPE by themselves, their spouse or their dependents that isn’t covered by insurance.”
IRS teams with other countries to detect tax fraud among fintechs – Michael Cohn, Accounting Today:
The Internal Revenue Service’s Criminal Investigation division is partnering with tax authorities abroad to ferret out signs of tax fraud, targeting financial technology companies and cryptocurrency. IRS-CI has been coordinating with four other countries’ tax authorities in a group known as the J5. They include the Australian Taxation Office, the Canada Revenue Agency, the Dutch Fiscal Information and Investigation Service, and Her Majesty’s Revenue and Customs in the U.K. They have been holding challenges each year since 2018 centered around various forms of tax evasion. This year they’re focusing on fintech and crypto.
How to Pay for Infrastructure: Corporate Tax Changes – Mindy Herzfeld, Tax Notes ($). “With the success of its first big legislative initiative, the American Rescue Plan Act of 2021 (P.L. 117-2), the Biden administration has moved on to the next item on its agenda: infrastructure. Long discussed but highly elusive, the need for additional spending on the country’s infrastructure has broad bipartisan support. The problem is how to pay for a measure that’s expected to cost more than $2 trillion. The first of a series on various alternatives for funding infrastructure, this article considers how corporate tax increases might be used.”
Senate Dems Urge Biden to Permanently Expand EITC, Child Credit – Chad Chamseddine, Tax Notes ($). “A majority of Senate Democrats want President Biden to include a permanent expansion of the earned income tax credit and child tax credit in the next recovery plan. In a March 26 letter to Biden, a group of more than 40 Senate Democrats said temporary expansions to the child credit and EITC included in the American Rescue Plan Act of 2021 (P.L. 117-2) should not disappear after a year. ‘Doing so would result in a significant spike in child poverty, after we have made historic strides to end it,’ the letter said.”
The Big Stakes for Treasury’s American Rescue Plan State Tax Cut Guidance - Richard Auxier, Tax Vox. “The American Rescue Plan (ARP) sends $350 billion to state and local governments with very few strings attached. Unlike the CARES Act, which originally restricted spending to pandemic-related expenses, states can use ARP dollars to respond to the public health emergency, replace lost tax revenue, offset the pandemic’s negative economic effects, or invest in infrastructure. But states cannot use ARP money to fund tax cuts or contributions to their public employee pension plans. A state that does risks losing every federal dollar spent in violation of the rule […] Still, the legislative language is broad enough that all 50 states are eagerly awaiting official guidance from Treasury on what they can and cannot do. Because there are numerous ways and reasons to cut taxes."
If Not a Gasoline Tax, and Not a Mileage-Based Road Fee, Then What? - Prof. James Edward Maule, MauledAgain. “Earlier this week, the Philadelphia Inquirer published an editorial reacting to the state’s governor establishment of a Governor’s Transportation Revenue Options Commission […] The editorial listed the requirements for an alternative to current gasoline tax funding. Specifically, the ‘funding can’t be regressive, must raise more money than the gas tax, and not disincentivize a move to electric cars.’ The editorial then claimed that most of the options, such as a ‘miles-traveled tax’ poses the challenge that it ‘won’t bring in out of state dollars like the pumps in Pennsylvania’s gas stations do.’ The claim that the mileage-based road fee does not ‘bring in out of state dollars’ is bizarre. That would happen only if the state imposed the mileage-based road fee only on state residents, an approach not currently taken.”
Congressional Budget Office and Tax Foundation Modeling Show That Some Tax Hikes Are More Damaging Than Others – Garrett Watson, Tax Foundation. “A recent working paper by economists at the Congressional Budget Office (CBO) shows that not all taxes are created equal—progressive taxes on labor income and taxes on capital income would have a negative impact on the economy, capital investment, and jobs, especially when compared to flatter taxes on labor income. Policymakers should consider these results as they debate ways to fund additional spending. There are many ways to raise an additional dollar of revenue, but some methods do more damage to long-run growth by undermining incentives to work and invest.”
Sanders creates new headache for Biden on taxes – Niv Elis, The Hill. “[…] In one piece of legislation unveiled Thursday, Sanders proposed raising the corporate tax rate from 21 percent to 35 percent, well above the 28 percent level Biden has proposed, and adding stricter measures than Biden proposed for taxing offshore profits. A second bill would put in a more stringent estate tax, lowering the threshold for when an estate would be hit with the tax from $11 million to $3.5 million for single people and from $22 million to $7 million for couples. He’d also raise the tax rate to as much as 65 percent for estates over $1 billion. Biden’s proposal also would tax estates valued at $3.5 million or more, but his estate tax rate is a flat 45 percent.”
Conservative think tank comes out in support of taxing stock trade – Celine Castronuovo, The Hill. “The founder and executive director of conservative think tank American Compass on Thursday announced his support for taxing stock trade, a position traditionally associated with progressives seeking to break up the influence of Wall Street investment banks.”
Nonprofits unsure about small-business loan access as clock ticks – Paul Krawzak, Roll Call. “The door to forgivable small-business loans swung open to a broad range of nonprofits as part of the $1.9 trillion coronavirus relief package that became law earlier this month. But larger tax-exempt organizations still face substantial uncertainty about whether and when they’ll be able to tap into the funds.”
Under Biden, Democrats Are Poised to Raise Taxes on Business and the Rich – Jim Tankersley and Emily Cochrane, New York Times. “The president’s infrastructure proposals are likely to require trillions of dollars in new tax revenue. They also give liberals a chance to address what they call the failures of Republican tax cuts.”
U.S. Weighs 25% Tariffs for Digital Taxes in U.K., India, Others – Isabel Gottlieb, Bloomberg ($). “The U.S. is considering up to 25% tariffs on goods from Austria, India, Italy, Spain, Turkey, and the U.K. over digital taxes in each of those countries. The U.S. Trade Representative’s office on Friday said it is seeking feedback this spring on potential trade responses to the six countries’ measures ‘to preserve procedural options’ while negotiations continue for a global digital tax solution."
IRS Issues Guidance on Empowerment Zone Tax Breaks Extension – Sam McQuillan, Bloomberg ($). “The IRS issued guidance Friday extending the time for economically distressed areas to receive tax incentives and grants, codifying a congressional mandate. IRS guidance (Rev. Proc. 2021-18) under Section 1391 extends federal tax relief for empowerment zones designated by state and local governments until 2025."
States Rush Toward Extended Income Tax Deadlines – Jeff Harrington, Blomberg ($). “As of Friday, only a couple of holdouts remained among states resisting an extension of the individual income tax deadline in tandem with the IRS’ recent extension of the federal deadline to May 17. Idaho was among the latest to conform, while Hawaii has indicated no plans for an extension.”
Because of FDII, Every Global Supply Chain Should Consider a U.S. C Corporation - Steven Hadjilogiou, Michael Bruno, Manuel Rajunov, James Ross, Justin Crouse, and Samuel DiPietro, Tax Notes ($). “The foreign-derived intangible income deduction is perhaps the most unappreciated cross-border tax benefit of the 2017 U.S. tax reform. Despite its name suggesting application only to intangibles, the FDII deduction is available to provide a low 13.125 percent U.S. tax rate on nearly all types of cross-border property transactions.”
Relief Bill’s ‘Straightforward’ Exec Comp Tweak Has Issues – Jonathan Curry, Tax Notes ($). “[…] The American Rescue Plan Act of 2021 (ARPA; P.L. 117-2) broadened the limitation on the deduction for executive compensation in excess of $1 million on a company’s top five highest-paid officers by roping in the next five highest-paid employees on the list, but the way the provision was drafted suggests that companies with employees who aren’t executives could fall victim to the limit on executive pay.”
Shop Till You Drop! Today is National Mom and Pop Business Owners Day – the very entities that have been taking it on the chin since the pandemic started. Show your appreciation for them by shopping there or buying gift cards to give to others so they too shop there!
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.