September 14, 2021
House Democrats issue tax plan with top corporate rate of 26.5% - Kaustuv Basu, Billy House and Erik Wasson, Accounting Today:
House Democrats on Monday released a package of tax increases that falls short of President Joe Biden’s ambition, an acknowledgment of how politically precarious the White House’s $3.5 trillion economic agenda is for party moderates.
The Democratic proposal from the Ways and Means Committee would raise the top corporate tax rate from 21% to 26.5%, less than the 28% Biden had sought. The top rate on capital gains would rise from 20% to 25%, instead of the 39.6% Biden proposed. Including a 3.8% Medicare surtax on high earners, the top capital gains rate would be 28.8%.
Democrats Release Details of Proposed Tax Increase - Richard Rubin, Wall Steet Journal ($):
The top tax rate on dividends and long-term capital-gains would rise to 25% from 20% and would apply when income reaches $400,000 for individuals and $450,000 for married couples.
Pass-through businesses, which don’t pay the corporate tax but instead pay taxes on their owners’ individual returns, would be affected in several ways. They would face caps on a special deduction created in 2017, with individuals limited to a $400,000 deduction and married couples limited to $500,000.
Those businesses would also no longer be able to avoid paying a 3.8% tax on their active business income.
House Democrats take step back from Biden on tax hikes - Naomi Jagoda, The Hill. "There are also places where the committee’s bill matches Biden’s plan or goes beyond its scope. For example, Biden proposed raising the top individual tax rate from 37 percent to 39.6 percent. The Ways and Means Committee does this and also would impose a 3 percent surtax on individuals’ income above $5 million. Both Biden and the Ways and Means Committee also proposed providing the IRS with an additional $80 billion to strengthen tax enforcement and update"
Child Credit is Biggest Cost, Corp Tax Top Pay-For in Tax Bill - Doug Sword and Nathan Richman, Tax Notes ($):
The Joint Committee on Taxation released its analysis September 13 of the Democrats’ proposed pay-fors, with the next biggest items being $252 billion from applying the net investment income tax to some income earned by those making more than $400,000 a year, $170 billion from raising the top marginal income tax rate to 39.6 percent, $167 billion from permanently imposing a cap on passthrough business losses, $127 billion from a 3 percent surcharge on those making more than $5 million a year, $123 billion from boosting the top capital gains rate to 25 percent, $106 billion for modifications to global intangible low-taxed income, and $97 billion from higher tobacco and nicotine taxes.
The package would roll back portions of the Tax Cuts and Jobs Act, which cut corporate rates from 35 percent to 21 percent and cut the top marginal rate to 37 percent through the 2025 tax year.
Budget Bill Markup Continues - Renu Zaretsky, Daily Deduction. "While the Ways and Means draft is extraordinarily ambitious, it left out some controversial ideas. No proposals on reworking the state and local tax (SALT) deduction. Nothing on Biden’s proposal to tax unrealized capital gains at death."
What’s in the Democratic Tax Proposal? - Kate Davidson and Richard Rubin, Wall Street Journal ($). "Under the proposal, which would replace the flat corporate rate with a graduated rate structure, firms would face an 18% rate on income up to $400,000, 21% on income up to $5 million and a 26.5% rate on any income above that. The benefits of the graduated rate would phase out for firms earning more than $10 million a year."
Dems To Prod Centrists On Budget's Middle-Class Tax Cuts - Alan Ota, Law360 Tax Authority ($):
The plan includes a four-year extension through 2025 of the temporarily expanded, fully refundable child tax credit, including advance monthly payments and an increase in the credit amount from $2,000 to $3,600 for a child under age 6 and $3,000 for a child age 6 to 17. The Joint Committee on Taxation projected the patch would cost $556 billion over 10 years.
The House plan also includes a $95 billion permanent extension of the rescue law's one-year implementation of a 50% refundable child and dependent care credit for those earning $125,000 or less. The credit rate would be reduced for those with higher incomes, with a zero rate for those earning more than $438,000.
Dems' Corp., Int'l Tax Hikes Would Raise $964B, JCT Says - Dylan Moroses, Law360 Tax Authority ($):
Under the House Democrats' proposal, the tax on global intangible low-taxed income, or GILTI, would be increased to 16.6% by reducing the deduction available for the levy under Internal Revenue Code Section 250, according to the summary. A tax on foreign-derived intangible income, or FDII, would increase to 20.7% as a result of a reduction of the Section 250 deduction, the summary said.
The tax rate on GILTI would be revised to apply country by country, according to the section-by-section summary of the plan. Other calculations including those for CFC tested income, net deemed tangible income returns, qualified business asset investments known as QBAI and interest expenses would also be determined country by country, according to the summary. The amount of QBAI not subject to tax would decrease overall from 10% to 5% in the plan, but QBAI held in U.S. territories would not be subject to the limitation, the summary said.
Incentives for Clean Energy, Social Aid Exceed $1.5T in House Bill - Doug Sword, Tax Notes ($):
It would extend by nine years the biodiesel and renewable fuels tax credit, which is scheduled to expire at the end of 2022. The bill also includes a new tax credit for plug-in electric vehicles of up to half the purchase price of the vehicle with purchase prices being limited to $55,000 for cars and $74,000 for pickup trucks. And there would be a credit for up to 30 percent of the sale price for used plug-in electric vehicles.
The clean energy subtitle would also extend an array of tax credits related to renewable energy and energy efficiency. It would extend the section 45 tax credit for producing renewable energy from sources such as wind, solar, and biomass for construction beginning before January 1, 2034. And it would extend eligibility for section 48 energy credits by 10 years through January 1, 2034.
Democrats unveil plans for array of new tax incentives - Brian Faler, Politico. "Under a 645-page bill released late Friday night, Democrats would also create new breaks for buying electric cars and trucks, make Pell education grants completely tax free, offer new incentives to rehab homes in poor neighborhoods, and provide a new tax subsidy for hydrogen energy production."
House Democrats' Tax Bill Lavishes Subsidies on Local News - Christian Britschgi, Reason. "Under the tax bill released by the House Ways and Means Committee this morning, local publishers would get annual tax credits of up to $25,000 for each journalist they employ, which could then be put toward their employers' share of Medicare payroll taxes. The value of the credit would fall to $15,000 after the law has been in effect for a year...Imagine IRS agents poring over a newspaper (or Substack) to see if it qualifies for special tax treatment. Not exactly an image consistent with the First Amendment."
'Meaningful' SALT Cap Relief Not Off Table, House Dems Say - James Nani, Law360 Tax Authority ($). "The statement Monday comes after House Democrats proposed a package of tax increases that would offset the cost of new spending proposed in their party's fiscal 2022 budget bill the House Ways and Means Committee expects to approve by Wednesday. The proposal didn't include language to address the $10,000 federal tax deduction cap for state and local taxes that was enacted in the 2017 federal tax overhaul, the Tax Cuts and Jobs Act ."
With big tax push, Democrats aim to tackle enormous gains of top 1 percent - Jeff Stein, Washington Post ($). "Nonpartisan estimates are expected to show the burden of these tax changes overwhelmingly falling on the richest Americans. But Democrats also face criticism from policy experts who say their plan is poorly designed. Their legislation is likely to create steep “benefit cliffs,” some experts say, in that Americans may be discouraged from earning more money because it would place them in the crosshairs of significantly higher taxes and lower government benefits."
Observers Quibble Over W&M's Proposed Tax Hikes on Wealthy - Jonathan Curry, Tax Notes ($):
Some progressives are incensed that President Biden’s proposal to end the tax-free step-up in basis was absent from the list of House Democrats’ tax proposals, arguing that it formed the cornerstone of efforts to tax the wealthy.
From the other side of the spectrum, Palmer Schoening of the Family Business Coalition expressed relief that the tax-free step-up wasn’t targeted, but said the package as a whole, which includes other proposals to cut short the temporarily doubled estate and gift tax exemption and to disallow discounts for lack of marketability and lack of control for passive assets, is still unfavorable to farms and small businesses.
Democrats put tax hikes on fast track — after knocking GOP’s haste on tax cuts - Brian Faler, Politico:
Moving quickly has tactical advantages for Democrats, making it harder for lobbyists —and Republicans — to pick apart their plans.
But Democrats can only afford to lose three votes in the House, and one moderate there is complaining her colleagues are moving too quickly.
And some wonder if the Democrats’ plans will end up pocked by glitches and other miscues, like those that plagued the 2017 law.
A Scorecard for Reconciliation, Round 2 - Marie Sapirie, Tax Notes:
The top-line $3.5 trillion number in the reconciliation instructions is best viewed as an unattainably high opening bid, and one that has already been deflected. Sen. Joe Manchin III, D-W.Va., explained in a September 2 op-ed in The Wall Street Journal that he wanted a “strategic pause on the budget-reconciliation legislation” and informed his colleagues that he won’t support $3.5 trillion, “or anywhere near that level of additional spending,” until the effects of the legislation on inflation and deficits are fully considered. Manchin said any potential reconciliation bill should be reduced to “only what America can afford and needs to spend.” His defection would effectively render the bill impossible to pass.
This is a good (and free to non-subscribers) summary of the state of the process.
Tax relief now available to Ida victims in Pennsylvania; Oct. 15 deadline, other dates extended to Jan. 3 - IRS. "The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual or public assistance. Currently, this includes Bucks, Chester, Delaware, Montgomery, Philadelphia and York counties, but taxpayers in Ida-impacted localities in other parts of Pennsylvania, subsequently designated by FEMA, will automatically receive the same filing and payment relief. The current list of eligible localities is available on the disaster relief page on IRS.gov."
This also covers extended S corporation and partnership returns due tomorrow.
MS, PA, NJ & NY get Ida tax relief, later filing deadlines - Kay Bell, Don't Mess With Taxes. "The Hurricane Ida related relief essentially is the same for all four states, but with a slight difference in the new tax dates. Here's a look first at those tax calendar notations, starting with the state that has the nearest reset deadline."
Section 179D Tax Deduction for Energy Efficiency Made Permanent - Jae Sawatske, Eide Bailly.
The Section 179D deduction (179D) has been in effect since 2006 and it was recently made permanent by legislation passed at the end of 2020.
Internal Revenue Code Section 179D allows a deduction of up to $1.80 per square foot for energy-efficient commercial building property (EECBP), including interior lighting, the building envelope, and mechanical systems.
The maximum 179D tax deduction is $1.80 per square foot of qualifying property. As an example, a qualifying 100,000 square foot commercial building could be eligible for a $180,000 deduction.
Most commercial construction has elements qualifying for this deduction. It can make the difference between a deduction this year and one spread over 39 years.
Interview: Recapping States’ SALT Cap Workarounds - David Stewart, Paul Jones, and Nikki Dobray, Tax Notes Opinions. "I think one of the challenges and probably the biggest minefields as partnerships try to figure out whether or not they will elect into these SALT cap workaround regimes is thinking about where the partners in that partnership are residents. Will the resident state that the partners reside in recognize the credit or the exclusion from income in that situation?"
Related: Working Around the SALT Deduction Cap.
Man Lived In NY, Not Fla., Tax Tribunal Agrees - James Nani, Law360 Tax Authority ($). "A man who owned an apartment in New York but bought properties in Florida was still domiciled in New York for the 2012 tax year and isn't eligible for an income tax refund, the state's Tax Appeals Tribunal said."
Gifting Assets Pre-Death (Entity Interests) – Part Two - Roger McEowen, Agricultural Law and Taxation Blog. "When valuation discounts upon death are also desired, the structuring and drafting becomes complex."
But will the tax examiner understand? Today is National Live Creative Day! "To Live Creative allows for the exploration of imagination. Celebrate the day by taking the time to invent, discover, and dream. Try infusing creativity in our lives through a variety of media." But please, not in your tax accounting. Or your tax legislating, for that matter.
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.