Tax Update Blog

Tax News & Views Shaking SALT Roundup

September 10, 2021 | Blog
By Jay Heflin

Moderate Democrats want the $3.5 trillion spending plan to remove the limit on state and local tax deductions – Thomas Franck, CNBC. “A fight over the cap on state and local tax deductions could prove Democrats’ next hurdle in passing their $3.5 trillion budget reconciliation package."

A host of moderate Democrats — many from New York and New Jersey — have protested former President Donald Trump’s 2017 tax cuts for capping how much taxpayers in their states can deduct from their federal tax obligation. Reps. Josh Gottheimer, Mikie Sherrill, Bill Pascrell of New Jersey and New York’s Thomas Suozzi say they won’t support any legislation that doesn’t restore the full deduction for state and local taxes, known as SALT.

‘We need to have this state and local tax deduction. We built a whole system around it,’ said Suozzi, who since 2017 has represented parts of Long Island and northeastern sections of Queens, New York. ‘People are leaving our states. And when they leave, it leaves behind a hole in our revenues.’

SALT Cap Confounds House Democrats Crafting Taxes for Biden Plan – Kaustuv Basu, Bloomberg ($). “House Democrats continue to search for a way to satisfy lawmakers who want to scrap the deduction limit on state and local taxes without losing progressives wary of a tax cut that would overwhelmingly benefit the wealthy. The budget blueprint Democrats passed this summer instructs lawmakers to include some form of SALT cap relief in a tax-and-spend plan of up to $3.5 trillion.”

A full repeal would be costly and politically difficult to pass with razor-thin margins in both chambers. But a coalition of lawmakers from New York, New Jersey, and other states with high tax rates continue to insist that is what it will take for them to back the legislation.

‘I will support my progressive friends and the Democratic caucus on big bold initiatives, on getting things done to improve people’s quality of life,’ Representative Tom Suozzi, a New York Democrat, said in an interview this week. ‘But no SALT, no deal.’

 

Stephanie Murphy to oppose her party’s ‘rushed’ budget package in committee – Lindsey McPherson, Roll Call. “Florida Democratic Rep. Stephanie Murphy plans to vote against the spending and tax measures the Ways and Means Committee is marking up this week and next, citing concerns that her party leadership isn’t giving lawmakers enough time or information to assess how the individual components fit into the broader $3.5 trillion reconciliation package.”

‘We were given an artificial deadline by which to craft and mark up a big bill. And I believe this deadline was too rushed, driven by politics than policy,’ Murphy said Thursday in her opening statement at the start of a multiday Ways and Means markup.

Regarding the reconciliation bill, portions of the tax provisions remain a work in progress. 

From Bloomberg ($):

Ways and Means member Bill Pascrell (D-N.J.) said Thursday that there still is no agreement on how high to raise the capital gains rate. Bloomberg reported earlier in September that while most Ways and Means Democrats support President Joe Biden’s proposal to raise the top capital gains rate to 39.6% from 20%, some are advocating for a lower rate.

'Final numbers today mean very little,' Pascrell said of the negotiations. 'Take my word for it.'

 

Democrats Pitch Drug Price Cuts and Obamacare Expansion – Alex Ruoff, Bloomberg ($). “An influential House committee will soon advance Democrats’ signature drug pricing legislation while extending health coverage to more people, according to an outline of the legislation released Thursday. The House Energy and Commerce Committee is proposing to include H.R. 3, which would force drugmakers to negotiate some of the highest priced medicines and insulin, in the massive domestic policy package Democrats are assembling. The legislation would also require drugmakers to repay the government their profits if they raise the price of a drug above inflation.”

The panel is proposing to extend the ACA’s tax credits for the first time to the millions of people who make too much money to qualify for Medicaid in states that haven’t expanded their public health insurance programs, until a federally run Medicaid program can be created in 2025.

 

Wyden Seeks to Overhaul Partnership Taxes as Revenue Raiser – Colin Wilhelm, Bloomberg ($). “Senate Finance Committee Chairman Ron Wyden—a key player in the tax and social spending agenda Democrats hope to advance this month—has introduced a bill to tighten tax reporting requirements around business partnerships.”

Partnership ‘rules are too complex for working people who don’t have armies of lawyers and accountants,’ said Wyden (D.-Ore.) in a release touting the new legislation. Wyden’s likely to include the tax bill in the tax section of a broader reconciliation bill that Democrats will use to expedite their multitrillion dollar plan this month. The complexity of the partnership rules allow, ‘the wealthiest individuals and most profitable corporations to decide when, and whether, to pay taxes at all,’ he said…

A preliminary Joint Committee on Taxation estimate shared by the Oregon Democrat’s staff estimates that the changes would raise an additional $172 billion for the federal government over the next 10 years, though a spokesperson for Wyden said his staff believes a finalized score of the policies will lead to a higher revenue estimate.

The text of the bill is here.

Democrats Float Partnership, Buyback Taxes to Fund $3.5 Trillion Spending Plan – Richard Rubin, Wall Street Journal ($). “Senate Democrats offered proposals Friday for tighter tax rules on partnerships and an excise tax on stock buybacks, as lawmakers look to plug gaps in their fast-moving, $3.5 trillion healthcare, education and climate legislation.”

Finance Committee Chairman Ron Wyden of Oregon detailed possible changes to partnership taxation that could raise more than $172 billion over a decade. Sen. Sherrod Brown (D., Ohio), along with Mr. Wyden, is releasing a bill that would impose a 2% excise tax on publicly traded companies’ stock buybacks.

The latest plans come as Democrats debate among themselves exactly how much in taxes they want to raise—and who should pay more. Proposals on international corporate taxes and capital gains have faced internal opposition from Democrats, leaving lawmakers looking through the tax code for revenue-raising alternatives that might face less resistance.

Brown, Wyden Unveil Major New Legislation to Tax Stock Buybacks – Press Release:

Today, U.S. Senators Sherrod Brown (D-OH) and Ron Wyden (D-OR) unveiled new legislation to prioritize real investment in the economy over Wall Street shareholder giveaways in the form of stock buybacks. The senators’ Stock Buyback Accountability Act would assess a two percent excise tax on the amount spent by a publicly-traded company on buying back its own stock, helping to reinvest in the economy, while also preventing abuse and reducing tax avoidance, both of which are significant risks from stock buybacks.

The bill's text is here.

 

House tax-writing committee starts public debate on $3.5 trillion tax and spending bill – Jay Heflin, Eide Bailly. The House Ways and Means Committee on Thursday began its multi-day public meetings on the $3.5 trillion tax and spending bill. During these meetings, lawmakers on the panel will debate and propose amendments to the bill. Beside today, meetings are expected for Friday, September 10, Tuesday, September 14, and Wednesday, September 15."

Today’s meeting did not focus on tax increases. Those meetings are expected to occur next week. Instead, committee members debated and proposed amendments on the following subjects: Workplace issues (like paid family and medical leave for workers), retirement, elder care, childcare, nursing homes, and trade. These subjects will also be debated during tomorrow’s meeting.

House Tax Panel OKs Retirement, Medical Leave In Budget Bill – Stephen Cooper, Law360 ($). “The House Ways and Means Committee approved legislation Thursday to expand employer-provided retirement plans and paid medical leave for workers as part of a $3.5 trillion budget package that congressional Democrats are still negotiating with the White House. The tax panel voted 24-19, largely along party lines, to approve the retirement security section of the Build Back Better Act and voted 22-20 to approve the bill's universal paid family and medical leave section.”

 

White House spoils for fight on taxes – Mike Allen, Axios. “The White House plans to lean into attacks on proposed taxes to pay for President Biden's ‘Build Back Better’ agenda as ‘an inflection point where leaders need to choose which side they’re on.’"

Why it matters: Both ends of Pennsylvania Avenue are heading into an epic fall debate over the size and funding of transformational social and climate programs. The 2022 midterms are the backdrop, with Democrats running partly on jobs created by infrastructure spending.

 

Op-ed: The tax gap is a real problem but so, too, is the ‘reverse tax gap’ - Michael J. Nathanson, CNBC. “As our elected officials debate how best to address a national debt approaching $30 trillion while simultaneously increasing spending levels and addressing wealth inequality, it should not be surprising that tax policy is at the forefront of the discussion. In that context, there has been an especially intense focus on the tax gap. That 'gap' is the amount of tax that taxpayers legally owe the U.S. government but is not actually collected.”

The tax gap, however, is a macro measurement based on estimates surrounding millions of taxpayers. It does not translate consistently at the individual level. In fact, many people — at all levels of taxable income — embody what some have referred to as a 'reverse tax gap.' These people overpay their taxes, often repeatedly. Given this phenomenon, while reducing the tax gap seems a laudable goal, reducing the reverse tax gap should also be prioritized.

 

IRS to Evaluate Audit Processes for Earned Income Tax Credit – Genevieve Douglas, Bloomberg ($). “The Internal Revenue Service agreed with watchdog findings that the process for examining compliance with the earned income tax credit could be improved.”

A Treasury Inspector General for Tax Administration report, released Thursday, called on the agency to improve its detection and prevention of earned income tax credit claims with the highest tax compliance risks. TIGTA said the credit for low- and medium-wage earners—meant to offset payroll taxes—accounts for an estimated $27 billion of the individual income underreporting 'tax gap' and has accounted for almost 31% of all IRS audits in the last 10 years.

IRS hit with programming bug on COVID-19 tax relief – Michael Cohn, Accounting Today. “The Internal Revenue Service warned Thursday of a programming issue that’s affecting business taxpayers who need transcripts for requesting COVID-19 employment tax relief. The problem affects transcripts requests for Form 941, the Employer’s Quarterly Federal Tax Return. Tax professionals have been filing amended versions of the Form 941 to help their clients claim the employee retention credit... But the programming bug won’t be fixed until Sept. 26, according to the IRS, which could further delay tax refunds for the businesses that need them."

 

N.Y. Faces Tax Hike Over $9 Billion Debt for Jobless Checks – Martin Braun, Bloomberg ($). “Federal unemployment taxes on New York businesses are poised to increase to repay $9 billion borrowed from the U.S. government to cover a historic surge in jobless claims during the Covid-19 pandemic, state Comptroller Thomas DiNapoli said."

New York’s unemployment insurance trust fund was quickly depleted last year by a record wave of claims from laid-off workers in restaurants, hotels, retail shops and small businesses. That triggered a surge in payments, with the volume of regular state unemployment benefits rising to $6.5 billion at the end of the second quarter in 2020 from $530 million at the end of 2019.

Ill. Offers Estimated Payment Penalty Relief For Entity-Level Tax – Paul Williams, Law360 ($). “Illinois will waive penalties for late estimated payments for the state's new entity-level tax that acts as a workaround to the federal cap on state and local tax deductions, the state Department of Revenue announced Thursday.”

The department said in a statement that it would offer the relief because the entity-level tax was signed into law Aug. 27 — after two estimated payment deadlines already passed for most taxpayers — and some third-quarter estimated payments are due Sept. 15. When partnerships or S corporations elect to pay the tax at the entity level, they would normally be required to make quarterly estimated payments if the tax due is expected to be at least $500, according to the statement.

Kentucky Lawmakers OK $350 Million in ‘Front-Loaded’ Incentives – Alex Ebert, Bloomberg ($). “Businesses investing more than $2 billion in Kentucky development would have the option to receive a “front-loaded” state incentive instead of tax credits under a bill lawmakers sent to Gov. Andy Beshear’s desk on Thursday."

The bill (H.B. 5, S.B. 5) allows the state to provide a forgivable loan in the amount of the estimated incentives that a company could receive under current economic development incentives, such as income tax breaks. The measure, which caps the maximum amount of the incentive at $350 million, passed 30-3 in the Senate and 91-2 in the House.

New Jersey Extends Tax Deadlines for Hurricane Ida – Jamie Rathjen, Bloomberg ($). “New Jersey tax deadlines were extended for victims of Hurricane Ida, as well as for relief workers and those with tax records in the affected areas, the state taxation division said Sept. 8. State tax returns and payments due from Aug. 26, 2021, to before Jan. 3, 2022, now may be made until Jan. 3, 2022, the division said in a notice."

Taxpayers filing electronically should wait for a notice from the division and then indicate they are in the disaster area in order to receive the tax relief, the division said. Taxpayers filing paper returns should indicate that they are taking advantage of the relief on the return, the division said.

Calif. Corp. Didn't Show Cause For Late Tax Payments – Jaqueline McCool, Law360 ($). “A California company can't claim a $6 million refund after making late tax payments because it failed to prove reasonable cause for the late filing and did not qualify for a penalty abatement, an administrative law judge ruled."

In a nonprecedential opinion released Tuesday by the state Office of Tax Appeals, the judge ruled Let's Ride Corp. was not eligible for a $6 million refund. The corporation argued that because it had made estimated tax payments equal to or greater than its prior year's total tax liability and claimed it lacked documents to make a timely calculation of tax liability, it had established a reasonable cause for its late payments and was eligible for an interest abatement.

 

Global Tax Plan Faces Hurdles In US, Ex-Treasury Official Says – Amy Lee Rosen, Law360 ($). “Redwood City, Calif. - An international proposal to reallocate taxing rights could face congressional challenges through tax treaty ratification because bipartisan support would be required, a former Treasury official who served as a delegate to the Organization for Economic Cooperation and Development said Thursday.”

Brian Jenn, a partner at McDermott Will & Emery LLP and former Treasury official, said adopting the proposal would not only require Congress to change domestic U.S. laws, but would also require altering tax treaties, which requires two-thirds support in the Senate. That kind of party majority hasn't happened since the late 1960s, when the Democrats had 68 Senate members, said Jenn, who spoke at the Pacific Rim Tax Conference in Redwood City, California.

'It's been a long time [and] it's not conceivably going to happen again in the future, so ratification of a treaty is necessarily a bipartisan affair,' he said. 'The possibility of making even remotely controversial tax changes by treaty may be a practical impossibility.'

Yellen Stresses 21% Global Min. Rate For US In G7 Meeting – Dylan Moroses, Law360 ($). “U.S. Treasury Secretary Janet Yellen told finance ministers from the Group of Seven nations Thursday that Congress had begun to consider legislation to meet American obligations to comply with global minimumtax rules being negotiated by the OECD.”

Yellen told the G7 finance ministers that the U.S. House Ways and Means Committee had begun considering legislation that would "strengthen" the U.S. international tax code in accord with global minimum tax standards under consideration by the Organization for Economic Cooperation and Development. Yellen stressed that lawmakers should include a per-country minimum tax rate on foreign earnings of at least 21%, according to a readout of the meeting provided by Treasury.

'Together with the global deal, this policy will generate funding for a sustained increase in critical investments in education, research, and clean energy — which will improve the lives of U.S. citizens and help the U.S. remain the best place in the world to do business,' the readout said.

 

Under the ‘who knew’ category: It’s National TV Dinner Day! Yes! Food served in compartments, making the meal a game called “clean the compartments!” That is how my mom got me to eat vegetables.


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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.