Nancy Pelosi Looks at Advancing Infrastructure and Budget Framework Simultaneously – Eliza Collins and Kristina Peterson, Wall Street Journal ($). “House Speaker Nancy Pelosi (D., Calif.) on Sunday asked a top committee to look at moving forward on a $1 trillion bipartisan infrastructure bill along with the $3.5 trillion budget framework in an effort to balance the demands of her party’s ideological factions. The request came after nine centrist House members said Thursday they 'will not consider voting for a budget resolution until' the House approves the infrastructure bill.”
Passage of such a rule is expected to move the infrastructure bill forward procedurally, but not pass it, according to an aide to Mrs. Pelosi.
The House will be back in session Aug. 23 to consider legislation.
It wasn’t immediately clear if the request would satisfy the moderate members.
There are two Pieces of legislation at play here.
Bumps in the Road:
Change in plan (which could change again):
Our goal is to pass the budget resolution the week of August 23rd so that we may pass Democrats’ Build Back Better agenda via reconciliation as soon as possible. To that end, I have requested that the Rules Committee explore the possibility of a rule that advances both the budget resolution and the bipartisan infrastructure package. This will put us on a path to advance the infrastructure bill and the reconciliation bill.
Yeah, it's a lot.
Also, moderate House Democrats aren’t onboard with Pelosi's plan, according to Punchbowl News:
The moderates, though, want nothing to do with this strategy. Instead, they’re standing up to Pelosi, which is not something we see too often. Here’s a statement from Democratic Reps. Josh Gottheimer (N.J.), Filemon Vela (Texas), Henry Cuellar (Texas), Ed Case (Hawaii), Kurt Schrader (Ore.), Carolyn Bordeaux (Ga.), Jared Golden (Maine), Vicente Gonzalez (Texas) and Jim Costa (Calif.):
'While we appreciate the forward procedural movement on the bipartisan infrastructure agreement, our view remains consistent: We should vote first on the Bipartisan Infrastructure Framework without delay and then move to immediate consideration of the budget resolution.'
The Speaker can only lose three Democratic votes before it fails to pass (no House Republican is expected to support this effort). This is a very tight margin, and failure would essentially stall President Biden's legislative agenda.
At least I'm not the only one confused by what the Democrats are doing:
Democrats’ Infrastructure Pitch Runs Into Confusion Back Home – Emily Wilkins, Bloomberg ($). “When Rep. Kurt Schrader speaks to his constituents about the infrastructure bill, he sometimes has to clarify what he’s talking about. The Oregon Democrat said the bipartisan $1.2 trillion infrastructure bill is ‘a very clear cut, huge win for America.’ But voters are confusing it with the $3.5 trillion budget reconciliation package, which Schrader called ‘divisive.’’ ‘Folks back home are starting to get very concerned about how much money we’re spending,’ Schrader said in an interview from his swing-district. ‘And I think that’s a legitimate concern.’”
Messaging around the infrastructure bill (H.R. 3684) is proving to be a tripwire for some Democrats as they attempt to sell the bill in their districts during the recess. Part of the challenge stems from the two-track process Democrats are using, tying the passage of the bipartisan infrastructure package that’s loaded with popular transportation projects to the larger, partisan reconciliation bill that would fund an array of social and domestic programs.
It looks like House Democrats will return to the drawing board on Tuesday:
Pelosi, Moderate Democrats Stuck Over Infrastructure Bill Timing – Emily Wilkins and Billy House, Bloomberg ($). “House Democrats scheduled a caucus call for Tuesday at noon as they seek to resolve differences over the path forward and the sequencing of Biden’s two-track approach."
Meanwhile, House Democrats intend to make things more confusing when it comes to moving their legislative agenda:
Crypto tax spurs House Democrats to rethink infrastructure bill – Victoria Gudia, Politico. “Crypto-friendly House Democrats are plotting a long-shot bid to scale back digital currency tax rules tucked into President Joe Biden’s infrastructure plan, threatening to prolong a lobbying battle that snarled the legislation in the Senate.”
The lingering cryptocurrency battle is creating a new complication for House Democratic leaders and the Biden administration. Amending the bill in the House would threaten one of Biden’s highest policy priorities because it would then be sent back to the Senate, which struggled through months of meticulous negotiations and a series of procedural roadblocks to pass it Tuesday.
Treasury Seeks to Quell Fears Crypto Tax Rules Are Overly Broad – Christopher Condon and Laura Davison, Bloomberg ($). “The U.S. Treasury Department is set to clarify that only cryptocurrency companies it considers brokers will need to comply with proposed IRS reporting requirements, aiming to quell concerns over a provision in the bipartisan infrastructure bill passed by the Senate.”
Other firms key to the nearly $2 trillion crypto market -- from developers and miners to hardware and software providers -- won’t have any new requirements, so long as they don’t also act as brokers, according to a Treasury official. The Treasury’s guidance won’t grant blanket exemptions based on how firms identify themselves and instead will focus on whether a firm’s activities qualify it as a broker under the tax code, the official said on condition of anonymity to discuss internal deliberations.
Heads up: The pass-thru deduction is expected to receive a lot of attention once lawmakers start debating the tax and spending bill:
Secret IRS Files Reveal How Much the Ultrawealthy Gained by Shaping Trump’s “Big, Beautiful Tax Cut” – Justin Elliot and Robert Faturechi, ProPublica. “In November 2017, with the administration of President Donald Trump rushing to get a massive tax overhaul through Congress, Sen. Ron Johnson stunned his colleagues by announcing he would vote ‘no.’ … Johnson’s demand was simple: In exchange for his vote, the bill must sweeten the tax break for a class of companies that are known as pass-throughs, since profits pass through to their owners... The Trump administration championed the pass-through provision as tax relief for 'small businesses.'"
Confidential tax records, however, reveal that Johnson’s last-minute maneuver benefited two families more than almost any others in the country — both worth billions and both among the senator’s biggest donors.
… In the first year after Trump signed the legislation, just 82 ultrawealthy households collectively walked away with more than $1 billion in total savings, an analysis of confidential tax records shows. Republican and Democratic tycoons alike saw their tax bills chopped by tens of millions.
Expect a fight over SALT as well:
SALT Fight Looms Within Bigger Budget Resolution Battle – Doug Sword, Tax Notes ($). “Senate Democrats will consider in their $3.5 trillion reconciliation bill at least a partial rollback of the $10,000 state and local tax deduction cap that was imposed by the Tax Cuts and Jobs Act.”
Democrats see rolling back the cap as a chance to right the political wrong done to them in 2017, since California, New York, Illinois, New Jersey, and other higher-tax blue states were hit the hardest by limiting the deduction for state and local taxes. Republicans will take the opportunity to again point out that wealthy taxpayers will be the beneficiaries of a cap repeal, which has been their chief talking point since 2019 when Democrats took control of the House and first began moving repeal legislation.
This battle will be Bizarro World when it comes to political platforms: Democrats will be fighting for relief to higher income earners while Republicans will likely oppose it. That's not what normally happens on Capitol Hill:
Every time Democrats have tried to roll back the cap, Republicans have pointed to a Joint Committee on Taxation estimate that most of the benefits from repealing the cap would flow to households with more than $1 million a year in adjusted gross income.
Expect tax fights everywhere:
Dems Face Tall Order In Reconciling Members' Tax Demands – Alan Ota, Law360 ($). “With the U.S. Senate having passed a $3.5 trillion framework for a budget reconciliation bill, Democratic Party leaders are facing the difficult task of satisfying the tax-related demands of individual lawmakers and rallying support for the measure's emerging tax package.”
Several senior Democrats predicted party leaders would face big challenges in trying to satisfy the concerns of individual lawmakers about the tax package in the filibuster-proof reconciliation bill, which is being readied for possible Senate action starting Sept. 15. They pointed to efforts by lawmakers to push priorities important to certain states, regions and industries. Issues under discussion include proposals to ease the $10,000 cap on state and local tax deductions, preserve tax breaks for the oil and gas industry and provide incentives for semiconductor makers, the hospitality and tourism industries and disaster mitigation projects.
Lawmakers Denounce Proposed Limits on Like-Kind Exchanges – Joseph Disciullo, Tax Notes ($). “Eighty-eight lawmakers advised President Biden that repealing or modifying the treatment of like-kind exchanges would impose burdens on farmers and small businesses and deter investment in rural and low-income communities while the country is still recovering from the COVID-19 pandemic.”
The legislators warn that the administration’s plan to limit like-kind exchanges would harm the economy as a whole but have a disproportionate effect on America’s farmers and small businesses, which “have been the backbone of the economy and the picture of the American dream.” The lawmakers believe it is their job as members of Congress to do everything in their power to support those groups.
The letter can be found here.
Like-Kind Exchange Advocates Encouraged by Vote – Kristen Parillo, Tax Notes ($). “Real estate lobbying groups are cautiously optimistic after lawmakers approved a nonbinding amendment to the Senate budget resolution that would preserve like-kind exchange treatment in its current form."
The amendment, offered by Sen. John Kennedy, R-La., was unanimously approved by voice vote during a 'vote-a-rama' held before the Senate on August 11 passed the $3.5 trillion budget resolution on a party-line vote of 50 to 49. The budget resolution sets the stage for the budget reconciliation process.
The Research Credit Soars to New Heights – Martin Sullivan, Tax Notes ($). “Research credits claimed by U.S. corporations have nearly tripled in a decade. Manufacturers still have the lion’s share of the credit, but research credits in other sectors like software and finance are growing at fantastic rates. Multiple factors are behind these trends. Favorable court rulings, less stringent IRS enforcement, favorable regulations, extensive marketing of research credit studies, and — oh, yes — actual increases in research.”
Surge of SALT Workarounds Could Pose Complications for Passthroughs – Paul Jones, Tax Notes ($). “One of the more notable state tax policy trends during the 2021 legislative session has been the adoption of passthrough workarounds to the federal cap on the state and local tax deduction.”
More than 11 states have enacted those workarounds this year, joining the seven that adopted them in the last three years. Other states are considering them as well. The basic design involves creating an elective entity-level tax on passthroughs and providing an offsetting individual income tax credit for passthrough owners. In effect, the passthrough entity (PTE) pays the state income tax for the owners and claims a full federal deduction for the state tax. Because the SALT cap only applies to individual taxpayers and not to the entity, the workaround allows owners to receive the benefit of an uncapped federal deduction for the state tax paid on their passthrough income.
Mississippi Income Tax Repeal Proposals to Get Another Hearing – Jennifer Kay, Bloomberg ($). “Mississippi lawmakers will revive discussions on eliminating the state’s personal income tax in two days of hearings later this month. No legislation will be drafted during the hearings on Aug. 25 and Aug. 26, Senate Finance Committee Chairman Josh Harkins said Friday. But presentations from the Mississippi Department of Revenue, tax experts, and business leaders should answer some of the questions that derailed a House proposal to phase out the income tax and cut the state’s grocery tax during the spring legislative session, he said.”
North Carolina House approves budget proposal with $2B in tax cuts – Nyamekye Daniel, Yahoo! News. “The North Carolina House passed its proposed budget for the biennium Thursday, spending $25.7 billion in the already underway fiscal year and $26.6 billion in fiscal year 2023. The proposal includes $2 billion in tax cuts for North Carolinians, a historic amount in capital project and disaster relief spending, raises and bonuses for state employees and billions of dollars in federal aid.”
Colo. Panel Finds Assessor's Value Hike Notice Sent Too Late – Paul Williams, Law360 ($). “A Colorado county tax assessor lacked the authority to nearly triple a self-service car wash's assessed value because the assessor mailed a revised notice of valuation after a statutory deadline, the state Court of Appeals ruled in a published opinion.
On Thursday, a three-judge panel on Thursday affirmed a state Board of Assessment Appeals decision voiding the county's notice increasing the property's valuation to $299,000 from about $99,700 for the tax year at issue, which wasn't specified in the court's opinion. The assessor mailed the notice with the $99,000 valuation before the May 1 notice deadline provided for in state law and wasn't permitted to then issue a revised notice setting the higher valuation after May 1, the panel said.
Hawaii Reminds Taxpayers on Car Sharing, Canned Software Sales – Tripp Baltz and Michael Bologna, Bloomberg ($). “Hawaii cautioned vehicle owners about participation in peer-to-peer car sharing apps such as Turo. The Department of Taxation reminded taxpayers to obtain general excise tax registrations and licenses before engaging in any rentals. Revenues derived from such rentals are subject to the GET and the state income tax, and must be reported to the department.”
Don't Let Budget Bill Get Ahead of GILTI Talks, 11 Dems Warn – Doug Sword, Tax Notes ($). “A group of moderate House Democrats warned against getting ahead of international negotiations on a global minimum tax with proposals to ‘dramatically increase’ the rate in the upcoming reconciliation bill. Eleven Democrats, including six who sit on the House Ways and Means Committee, urged instead a legislative approach that considers the ‘substance and timeline of negotiations’ within the OECD process.”
Pushing a big increase in the global intangible low-taxed income rate in legislation ‘would risk needlessly hampering U.S. economic competitiveness abroad,’ the lawmakers wrote in an August 4 letter to Ways and Means Committee Chair Richard E. Neal, D-Mass.
The letter can be found here.
Repurposing Foreign Cross-Crediting for SALT – Patrick Driessen, Tax Notes ($). “Foreign tax issues are driven by boundaries in the definition of source, residence, and income. State and local tax issues share these characteristics. This cousin-like relationship is reinforced because both foreign tax and SALT interests must be reconciled with a third often overbearing relative, the U.S. federal tax system.”
CPA Exam Makeover Risks Raising Hurdles for Black Accountants – Amanda Iacone, Bloomberg ($). “As a Black accountant with a CPA license, Nikki Winston is part of a profession that she—and the Big Four accounting firms—have been striving for years to make less exclusive, and more diverse. Winston tells her clients—primarily Black, first-generation accounting graduates and seasoned professionals she counsels to follow her path—that the pricey slog of 150 college credit hours required to earn a CPA license is worth the sacrifice, opening up a potentially lucrative corporate or public accounting career.”
That CPA license playbook, however, is about to get rewritten and potentially tougher. Even as some leaders, including the Big Four, lament the education requirement as an obstacle to minority recruitment, the profession is raising the bar further to enter public accounting. The CPA exam is undergoing a major overhaul, triggering changes in what colleges teach, all to prepare students for an increasingly automated and complex field. The looming changes are stirring a debate over how to maintain high standards for the accounting profession while increasing opportunities for Black candidates, combating a woeful statistic that just 1% of all CPAs are Black.
‘These candidates are struggling. Why is this not a grander conversation?’ Winston said.
It’s National Tell a Joke Day, and I don’t mind if I do:
A Grasshoppers walks into a bar and the bartender says “Hey, we have a drink named after you.” To wit the Grasshopper responds, “You have a drink named Steve?”
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.