April 23, 2021
Biden Will Seek Tax Increase on Rich to Fund Child Care and Education – Jim Tankersley, New York Times. “The next phase of President Biden’s $4 trillion push to overhaul the American economy will seek to raise taxes on millionaire investors to fund education and other spending plans, but it will not take steps to expand health coverage or reduce prescription drug prices, according to people familiar with the proposal […] The plan’s spending and tax credits will total around $1.5 trillion, according to administration estimates.”
To offset that cost, Mr. Biden will propose several tax increases he included in his campaign’s “Build Back Better” agenda. That starts with raising the top marginal income tax rate to 39.6 percent from 37 percent, the level it was cut to by President Donald J. Trump’s tax overhaul in 2017. Mr. Biden would also raise taxes on capital gains — the proceeds of selling an asset like a stock or a boat — for people earning more than $1 million, effectively increasing the rate they pay on that income to 39.6 percent from 20 percent.
The president will also propose eliminating a provision of the tax code that reduces taxes for wealthy heirs who sell assets they inherit, like art or property, that have gained value over time. And he would raise revenue by increasing enforcement at the Internal Revenue Service to bring in more money from wealthy Americans who evade taxes. Administration officials were debating other possible tax increases that could be included in the plan this week, like capping deductions for wealthy taxpayers or increasing the estate tax on wealthy heirs.
Biden to Propose Capital Gains Tax as High as 43.4% for Wealthy – Laura Davison and Allyson Versprille, Bloomberg ($). “President Joe Biden will propose almost doubling the capital gains tax rate for wealthy individuals to 39.6% to help pay for a raft of social spending that addresses long-standing inequality, according to people familiar with the proposal. For those earning $1 million or more, the new top rate, coupled with an existing surtax on investment income, means that federal tax rates for wealthy investors could be as high as 43.4%.”
Biden Sets Date to Unveil Tax Proposals Aimed at the Rich – Jonathan Curry, Tax Notes ($). “President Biden is scheduled to reveal details of the second package in his Build Back Better plan, including an array of tax hikes on wealthy households, in an April 28 speech before a joint session of Congress, according to the White House. The American Families Plan, coming on the heels of the American Jobs Plan, is expected to include over a trillion dollars in new spending on domestic priorities like child care and education, which would be paid for by tax increases on higher-income taxpayers.”
Rich Americans Face Biden Tax Hike With Anger, Denial and Grief – Devon Pendleton, Bloomberg ($). “Pressure has been building to raise levies on the wealthy after decades of tax cuts that disproportionately benefited the top 1% [...] The country’s richest 1% own more than 50% of the equity in corporations and in mutual fund shares, according to Federal Reserve data. The next 9% of the wealthiest own more than a third of equity positions. Added together, the top 10% of Americans hold more than 88% of shares."
"Meanwhile, the bottom 90%’s equity exposure has been dropping for almost two decades. That meant last year’s stock market surge widened the nation’s wealth gap further, leaving the 10 richest Americans with more than $1 trillion, according to the Bloomberg Billionaires Index."
Charles Myers was sitting in a first-class seat on a flight from New York to Dallas when his phone started blowing up Thursday. News had just broken that the wealthiest Americans could soon face a tax rate as high as 43.4% on gains from their investments. The chairman of Signum Global Advisors wasn’t thrilled. ‘Raising capital gains taxes hurts the capital markets,’ he said in a text message. ‘Better to raise the personal top marginal rate and estate tax. Leave capital gains and dividends alone.’
Businesses hate GILTI but may like Democrats’ overhaul plan even less – Brian Faler, Politico. “Democrats are aiming to expand GILTI so that it hits all of multinational corporations’ foreign profits — intangible and otherwise. […] [T]he proposal is putting the Biden administration on a collision course with OECD countries as it pushes them to adopt a global minimum tax. Many of those countries want to focus such a tax on intangible income. It’s also alarming businesses, already unhappy with Democrats’ plans to hike the corporate tax rate.”
‘The potential international tax increase is as large as any corporate rate increase and at least as damaging for the competitiveness of U.S. companies because it hurts their ability to compete in foreign markets head-to-head with foreign companies whose countries don’t impose such a tax,’ said Jessica Boulanger, a spokeswoman for the Business Roundtable.
Global Tax Push A Chance To Fix TCJA Quirks, Official Says – Alex Parker, Law360 Tax Authority ($). “The Biden administration's push to reach a multilateral agreement on a global minimum tax could be an opportunity to smooth out flaws in the 2017 tax overhaul's international provisions, a former U.S. Treasury Department official said Thursday. Chip Harter, who was the deputy assistant secretary Treasury secretary for international tax affairs from 2017 to 2020, said he hoped the administration would consider tweaks to the tax on global intangible low-taxed income to ensure it doesn't hit U.S. companies with unusually high rates. Due to limits on foreign tax credits, some companies have seen GILTI tax liabilities well above the 13.125% that was originally promised by Congress.”
Executive Concerns Over Rate Hike Take Back Seat to GILTI Worries – Andrew Velarde, Tax Notes ($). “Although proposals to raise the U.S. corporate tax rate to 28 percent have grabbed more general media headlines, some multinational tax executives appear more concerned with potential changes to the global intangible low-taxed income provision.”
Big Tech $100 Billion Foreign-Profit Hoard Targeted by Tax Plan – Jackie Davalos and Alistair Barr, Bloomberg ($). “Technology giants led by Apple Inc. and Microsoft Corp. disclosed more than $100 billion in profit outside the U.S. in their last fiscal years, making them prime targets of President Joe Biden’s proposals to boost taxes on earnings stashed overseas. The tax proposals, unveiled this month to help foot the bill for massive infrastructure plans, target common tactics used by U.S. multinationals such as stashing income-generating assets in low-tax offshore jurisdictions. The tech industry is particularly adept at shifting profits to tax-friendly locales because its main assets -- software code, patents and other intellectual property -- are relatively easy to move around compared to factories and other physical assets."
Ireland pleads case for small countries as OECD moves towards global tax deal – Padriac Halpin, Reuters. “A global deal overhauling how multinational companies are taxed is likely this year, an official overseeing the talks said on Wednesday, as low-tax Ireland called for any agreement to work for small countries and allow for tax competition. The Organisation for Economic Cooperation and Development (OECD) has been coordinating talks among 140 countries for years and aims to reach a consensus by mid-2021, bolstered by the new U.S. administration’s support for a global corporate minimum tax rate. ‘There is momentum, there is a new dynamic that is likely to bring us to a resolution,’ OECD head of tax Pascal Saint-Amans told an online conference organised by the Irish government.”
Cross-Border Tax Fights May Overwhelm Governments, Official Says – Isabel Gottlieb, Bloomberg ($). “The Organization for Economic Cooperation and Development is trying to broker a deal this summer that would address concerns that multinationals—especially tech giants—aren’t paying enough in taxes. Countries are negotiating a two-pillar plan that would upend decades of tax rules and agreements. The combination of the OECD plan—especially Pillar One’s proposal to reallocate profits—and current practices for valuing intercompany transactions could create a growing load of tax dispute cases authorities will struggle to handle.”
Push for infrastructure gas-tax hike loses steam – Zack Budryk, The Hill. “Longtime proponents of raising the gas tax and recent converts to a vehicle miles traveled tax are sensing it’s increasingly unlikely that either revenue-raiser will be a part of President Biden’s massive infrastructure proposal. Administration officials have indicated they would rather raise the corporate tax rate to pay for the $2.3 trillion package — allowing Biden to keep his pledge on not raising taxes for people making less than $400,000 — and key Senate Republicans say there’s no interest in their caucus to pursue the first gas tax increase since 1993.”
Senate Republicans outline their own infrastructure plan — here’s what’s in it – Jacob Pramuk, CNBC. “A group of Senate Republicans outlined their infrastructure plan Thursday, unveiling a much narrower vision for how to revamp U.S. transportation and broadband than the sweeping approach backed by President Joe Biden. The GOP package would cost $568 billion, only a fraction of the Democratic president’s more than $2 trillion package. It also would not address policies such as care for elderly and disabled people, which Biden included in his plan."
At Earth Day Climate Summit, Biden Pushes for Sharp Cut to Greenhouse-Gas Emissions – Timothy Puko and Andrew Restuccia, Wall Street Journal. “President Biden told world leaders that the U.S. is committed to sharply cutting its greenhouse-gas emissions in the next decade, as other countries also promised climate action and some urged rich nations to shoulder more responsibility […] Mr. Biden used the summit to unveil a new target that calls for U.S. emissions to be 50% to 52% lower in 2030 than levels in 2005, a common baseline for such climate targets.”
Treasury Department and IRS provide safe harbor for small businesses to claim deductions relating to first-round Paycheck Protection Program loans – IRS. “Under prior guidance, businesses that received PPP loans to cover payroll costs, interest on covered mortgage obligations, covered rent obligation payments, and covered utility payments could not deduct corresponding expenses. With the Dec. 27, 2020, enactment of the Consolidated Appropriations Act, 2021, businesses now may claim these deductions even though they received PPP loans to cover original eligible expenses. These businesses can use the safe harbor provided by this guidance to deduct those expenses on the return for the immediately subsequent year.”
The Carbon Market Gold Rush in American Agriculture – Mike Dorning, Marcy Nicholson and Isis Almeida, Bloomberg. “President Joe Biden’s green push is fueling a gold rush across America’s farm country as companies seek to profit from a nascent market for pollution offsets. Butter maker Land O’Lakes and agri-tech firms Indigo Ag and Nori LLC have all set out to sell carbon credits, produced when farmers adopt practices that reduce emissions. And more are moving in, with non-profit group Ecosystem Services Market Consortium — supported by Cargill Inc., General Mills Inc. and McDonald’s Corp. — planning to launch a national carbon market by 2022.”
Durbin, Colleagues, Introduce Bill To Reduce Tobacco Use In America – RiverBender.com. “U.S Senate Majority Whip Dick Durbin (D-IL) and Senate Finance Committee Chair Ron Wyden (D-OR), along with U.S. Representative Raja Krishnamoorthi (IL-D-08) and seven other Senate Democrats, today introduced the bicameral Tobacco Tax Equity Act of 2021. The bill would help reduce youth tobacco use by closing loopholes in the tax code that have long been exploited by the tobacco industry to avoid regulation and taxes for their products. The bill would also apply tax parity across all tobacco products, including establishing the first federal e-cigarette tax and increasing the tobacco tax rate for the first time in a decade. According to public health experts, increasing the price of tobacco products is the single most effective way to reduce tobacco use, especially among youth.”
IRS Lets Forgiven PPP Borrowers Deduct Expenses – David Hood, Bloomberg ($). “The IRS is providing a safe harbor for businesses that hesitated to deduct regular business expenses paid for by pandemic-relief loans, even after the agency changed its stance and the loans were forgiven. The agency released the guidance (Rev. Proc. 2021-20) Thursday.”
Biden Administration Debating How to Overhaul a Trump-Era Tax Break – Jim Tanersley, New York Times. “The Biden administration is weighing how to overhaul a Trump-era tax incentive that was pitched as a way to drive investment to economically depressed swaths of the country but which early evidence suggests has primarily fueled real estate development in areas like Brooklyn neighborhoods that were already becoming richer and whiter. Administration officials have not yet settled on how to make adjustments that critics and supporters alike say would improve the so-called opportunity zone program, a creation of President Donald J. Trump’s 2017 tax law that Mr. Biden vowed on the campaign trail to reform.”
Capital gains tax inches closer to passage in Washington, but still faces final hurdle – Nick Bowman, MyNorthwest. “After hours of debate across two days, the Washington state House voted Wednesday to approve a 7% capital gains tax, passing the measure by a narrow 52-46 margin.”
Democrats target wealthy in tax plan, including $1.4 billion 'consumption tax' – Ken Dixon, ctpost. “Connecticut’s wealthiest would pay higher taxes on income and investments under legislation narrowly approved on Thursday to fund the two-year, $46 billion budget supported by majority Democrats in the General Assembly. The tax hikes were at least a temporary victory for progressive Democrats who for years have wanted the rich to pay more. It would help fund a variety of new programs, including a $600-per-child tax credit and enhanced benefits for the state’s poorest families.”
SBA Partners With Fintech Companies to Push Restaurant Grants – David Hood, Bloomberg ($). “The Small Business Administration is teaming up with financial technology companies to help restaurants sign up for pandemic-relief grants once the program opens. The agency is partnering with Clover, NCR Corp., Square, and Toast to help restaurants access the point-of-sale data necessary to complete their applications for the yet-to-be opened Restaurant Revitalization Fund, according to an announcement Thursday. The $28.6 billion fund was established in the March relief law (Public Law 117-2).”
Wisconsin Governor Vetoes $1 Billion Property Tax Relief Bill – Michael Bologna, Bloomberg ($). “Wisconsin Gov. Tony Evers made good on his threat to veto a bill promising $1 billion in tax relief to Wisconsin property owners. He blasted Republicans lawmakers for crafting a plan that violates President Joe Biden’s $1.9 trillion Covid-19 relief law. Evers, a first-term Democrat, killed A.B. 232, saying it “almost certainly” violates the American Rescue Plan Act. The law specifies federal support to the states cannot be used to directly or indirectly offset a tax reduction program. And Evers used his veto message to warn lawmakers against an override, writing ‘if this bill is enacted and the funds spent as directed, the state may be required to repay over $1 billion to the federal government.’”
SALT cap critics ask Yellen to add repeal to Biden economy plan – Laura Davison, Accounting Today. “Democrats are making another push for the Biden administration to include a repeal of the cap on state and local tax deductions in its long-term economic program, a move that would give the write-off a White House seal of approval. Representative Josh Gottheimer, a New Jersey Democrat, sent a letter to Treasury Secretary Janet Yellen Wednesday making a plea to include repeal of the $10,000 cap on the SALT deduction in the administration’s proposals to pump trillions of dollars into the economy with spending initiatives in part funded by tax hikes.”
Senate Passes Entity-Level Tax To Skirt SALT Cap – Paul Williams, Law360 Tax Authority ($). “Illinois would become the latest state to create an optional entity-level tax to allow owners of pass-through businesses to sidestep the $10,000 federal state and local tax deduction cap under a bill the state Senate passed unanimously. The state's Democratic-controlled upper chamber passed S.B. 2531 by a 56-0 vote, with three senators not voting, on Wednesday. The bill would allow partnerships and S corporations to elect to pay an entity-level tax of 4.95% — the state's flat personal income tax rate — with partners or shareholders of the entity receiving a credit for their share of the tax paid. The legislation will next head to the state House of Representatives.”
Minnesota High Court Affirms Mining Partnerships’ Deduction – Michael Bologna, Bloomberg ($). “Two Minnesota mining partnerships are entitled to compute their state occupation tax duties without any reduction of their natural resources depletion deduction because they can’t be treated as corporations, the Minnesota Supreme Court ruled. The high court, in a unanimous opinion, affirmed a Minnesota Tax Court finding and rejected the state Department of Revenue’s view that all taxpayers subject to the occupation tax must be treated as corporations, regardless of their legal entity status. In this regard, the Supreme Court agreed the department had improperly denied the taxpayers’ claims for the full depletion deduction.”
Michigan Extends State, Local Tax Deadlines – Jaqueline McCool, Law360 Tax Authority ($). “Michigan extended state and local tax deadlines with two bills signed by Democratic Gov. Gretchen Whitmer on Thursday.
H.B. 4571 extends the state individual income tax filing deadline to the new federal deadline, May 17. The bill also said that if the federal deadline is extended further, the state will automatically conform to the new deadline.
H.B. 4569 extends the city income tax filing and payment deadline for April 15 or April 30 income taxes. The new deadline depends on the city and will either be May 15 or June 1.
H.B. 4571 was introduced March 23 by Reps. Tenisha Yancey, D-Harper Woods, and Matt Hall, R-Emmett Township. H.B. 4569 was introduced March 23 by Hall and Rep. Andrew Beeler, R-Fort Gratiot.
IRS Backlogs to Last at Least Until Summer, Taxpayer Advocate Says, William Hoffman, Tax Notes ($). “It’s probably too late for the IRS or Congress to do much about the backlog of some 29 million tax returns that need manual processing, according to the national taxpayer advocate. ‘What has made this year harder than others is the broad range of cases we can’t assist with at all,’ National Taxpayer Advocate Erin M. Collins told Tax Notes April 22. Because many of those 29 million returns haven’t been entered into IRS systems, ‘there isn’t much we can do,’ she said.”
Raising the Corporate Rate to 28 Percent Reduces GDP by $720 Billion Over Ten Years – Erica York, Tax Foundation. “Using the Tax Foundation General Equilibrium Model, we estimate the long-run impact of a 28 percent corporate income tax rate would be a 0.7 percent reduction in GDP, amounting to about $160 billion (in today’s dollars) of lost output each year. Similarly, the level of American incomes (measured by Gross National Product, GNP), the capital stock, wages, and full-time equivalent employment would also be lower.”
|Gross Domestic Product||-0.7%|
|Gross National Product||-0.7%|
|Full-Time Equivalent Jobs||-138,000|
Source: Tax Foundation General Equilibrium Model, March 2021
Happy Birthday Bill! Today is William Shakespeare's birthday. He was born in Stratford-upon-Avon on April 23, 1564. 457 candles is a lot!
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.