September 24, 2021
Democrats agree on ‘framework’ for reconciliation offsets – Lindsey McPherson and David Lerman, Roll Call. “The Biden administration 'reached agreement on a framework' with House and Senate Democrats on how to pay for their budget reconciliation package, Senate Majority Leader Charles E. Schumer announced Thursday.:
Any breakthrough on financing could resolve long-standing disputes among Democrats that have stymied progress on a sweeping tax and spending package designed to fulfill most of President Joe Biden’s domestic agenda.
'It's a menu of options and it will pay for whatever' the agreed-to price tag ends up being, Schumer said.
The announcement of a preliminary agreement, described only in vague terms, came one day after Biden held talks at the White House with warring factions of the Democratic caucus in an effort to broker a deal. Moderates have balked at a $3.5 trillion price tag, while progressives have been unwilling to vote for a bipartisan infrastructure bill unless the reconciliation package is passed in tandem.
Speaker Nancy Pelosi suggested at a news conference that a final price tag was not yet settled. But she said Democrats had reached agreement in broad terms on the elements of the package and ways to pay for it.
House Democrats Plan Saturday Votes to Advance Tax, Spend Plan – Erik Wasson, Bloomberg ($). “House Democrats are attempting to move forward with the next procedural step needed to pass President Joe Biden’s economic agenda, penciling in a rare Saturday committee meeting to advance a proposed $3.5 trillion package.”
The committee’s vote on the individual components of the tax and spending bill is a necessary step but does not mean Democrats have resolved all their differences on the package. The Budget panel cannot amend what the other committees voted to approve earlier this month -- rather, any changes would come at the Rules Committee or on the floor of the House later.
The bill that the House Budget Committee will debate on Saturday is over 2,400 pages long. It is here. The tax/revenue portion starts on page 1,243.
House Democrats ready reconciliation package for floor vote next week – Lindsey McPherson, Roll Call. “House Democratic leaders are scrambling to ready a sweeping budget reconciliation package of safety net program expansions, tax breaks for families and renewable energy incentives and tax increases on wealthy individuals and corporations for a floor vote next week. That ambitious timeframe, if it holds, would line up the multitrillion-dollar reconciliation bill with a vote on a smaller bipartisan infrastructure measure that may otherwise be defeated.”
There is some skepticism on Capitol Hill that all Democrats are onboard with this framework that could ultimately become a bill. Intra-party feuding has been going on for months over provisions in the proposal and President Joe Biden’s effort this week to quell things didn’t work. Also, the bill hasn’t changed, but somehow everyone is now onboard? Odd. Skeptics of this kumbaya moment think it is Speaker Pelosi (D-Calif.) trying to calm the nerves of progressive Democrats who have vowed to oppose the bipartisan infrastructure bill if movement stalls on the budget reconciliation bill. Committee action on the bill could pacify progressives.
Many lingering questions despite ‘framework’ for reconciliation offsets – Lindsey McPherson and Laura Weiss, Roll Call:
It quickly became clear that what Schumer, D-N.Y., described as a 'menu of options,' and which Pelosi, D-Calif., deemed ‘a giant step forward,’ was not yet the major breakthrough needed to resolve longstanding disputes among moderate and progressive Democrats on the size and scope of the sweeping tax and spending package.
Rank-and-file members mostly learned about the existence of a framework agreement from reporters and thus had no details on its contents. ‘I'm almost as anxious to get that information as you are,’ Sen. Mark Warner, D-Va., a Finance panel member, told reporters.
Democrats surprised, caught off guard by 'framework' deal – Jordain Carney, The Hill. “Several Senate Democrats on Thursday said that they hadn't seen a ‘framework’ for how to pay for their sweeping social spending bill and appeared to be caught off guard by Senate Majority Leader Charles Schumer's (D-N.Y.) announcement of a deal between the Senate, House and White House. Schumer, speaking at a press conference and separately with reporters, described it as a deal on the ‘menu of options’ that Democrats will use to pay for the eventual bill, which will cover climate change policies, health care and a host of other party priorities."
Schumer said negotiators will still need to decide how high to go, a nod to disagreements over the price of the package, which liberals say should have a floor of $3.5 trillion.
Democrats say they have ‘framework’ on tax increases, but squabbles over specifics continue – Tony Romm, Washington Post. “Top House and Senate Democrats are claiming an early agreement on a package of tax increases that could finance broad swaths of their still-emerging, up-to $3.5 trillion spending package, though unresolved squabbles over some of the specifics still threaten to scuttle the nascent deal."
The reality was a bit more complicated, however, reflecting instead that discussions continue on some of the thornier issues that come with updating the tax code. In some areas, Democrats have solidified common ground, such as raising the top rate on the country’s top earners to 39.6 percent from the current rate of 37 percent. On others, like corporate tax increases, lawmakers want to raise rates but do not yet see eye-to-eye on the amount… Internal talks continue on a wide array of additional increases, House and Senate aides said, including those targeting stock buybacks, capital gains and other measures that target wealthy executives.
House Ways and Means Committee Chairman Richard E. Neal (D-Mass.) told reporters that Democrats continue to haggle over issues including new carbon taxes, which have not yet been resolved. They so far have a “tentative” agreement on new bank-reporting requirements, he added, which could intensify federal investigations in pursuit of unpaid taxes. But Neal said tax increases targeting inheritances passed between generations, known as stepped-up basis, is “not at the moment” part of the still-forming menu of options for raising revenue. Even by midday Thursday, many Democrats in the House and Senate had not even seen details of the tax framework, sparking a mix of confusion and frustration.
Democratic Leaders Scramble to Find Areas of Agreement on $3.5 Trillion Spending Bill – Kristina Peterson, Andrew Duehren and Richard Rubin, Wall Street Journal ($). “Democratic leaders raced Thursday to find enough agreement around a roughly $3.5 trillion spending package to assuage concerns between the party’s dueling centrist and liberal factions that threatened to derail a separate vote on an infrastructure package next week."
Liberal Democrats have said the two bills are linked and have balked at voting for the roughly $1 trillion infrastructure package on Monday in the House unless the broader healthcare, education and climate package has passed. The infrastructure bill has already cleared the Senate with bipartisan support, and moderates have urged leadership to bring it to the floor in the House.
Working to reach at least some rudimentary agreement on the contours of the bigger package, Democratic leaders said Thursday that they have settled on a variety of options with the White House for how to cover its cost, but they gave no details on how sharp differences between the party’s wings would be resolved.
Pelosi signals she won't move $3.5T bill without Senate-House deal – Alexander Bolton, Mike Lillis, and Scott Wong, The Hill. “Speaker Nancy Pelosi (D-Calif.) has signaled to colleagues in both chambers that she will not put the $3.5 trillion budget reconciliation package on the House floor for a vote until it’s clear that it can also pass the 50-50 Senate. Some Democrats are calling for the House to move as soon as possible on the package, even if two key centrist votes in the Senate, Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.), haven’t yet signed off on it. Both Manchin and Sinema say they won’t support a $3.5 trillion package but haven’t publicly said how much they’re willing to spend."
Pelosi has no intention of replaying what happened in 2009, when Democrats last controlled Congress and the White House and moderate House Democrats took an extremely tough vote on sweeping climate change legislation only for the bill to never come to the Senate floor.
Centrists Democrats paid the price the following year when Republicans picked up 63 seats in the 2010 midterm elections — and control of the House.
In Push to Tax the Rich, White House Spotlights Billionaires’ Tax Rates – Jim Tankersley, New York Times. “President Biden is leaning into his push to increase taxes on the rich as he seeks to unify Democrats in the House and Senate behind a $3.5 trillion bill that would expand federal efforts to fight climate change, reduce the cost of child care, expand educational access, reduce poverty and more. ‘I’m sick and tired of the super-wealthy and giant corporations not paying their fair share in taxes,’ Mr. Biden wrote on Twitter on Wednesday, amplifying an argument that Democratic strategists believe will help sell his economic agenda to the public and potentially lift the party’s candidates in midterm elections. ‘It’s time for it to change."
To buttress that argument, White House economists published on Thursday a new analysis that seeks to show a gap between the tax rate that everyday Americans face and what the richest owe on their vast holdings.
The analysis suggests that the wealthiest 400 households in America — those with net worth ranging between $2.1 billion and $160 billion — pay an effective federal income tax rate of just over 8 percent per year on average. The White House is basing that tax rate on calculations using data on high earners’ income, wealth and taxes paid from the Internal Revenue Service and the Federal Reserve’s Survey of Consumer Finances.
NYU Professor at White House Finds Democrats Wary of Taxing Rich - Nancy Cook, Bloomberg ($). "The unassuming New York University law professor who’s coordinated President Joe Biden’s sweeping tax proposals is finding that in Washington, many Democrats don’t share his zeal to soak the rich. David Kamin, a deputy director at the White House National Economic Council, literally wrote the memo on “How to Tax the Rich,” published in 2015. He’s spent the past several weeks participating in negotiations on a plan to pay for a social spending package of up to $3.5 trillion.”
The menu of tax hikes that congressional Democratic leaders on Thursday agreed to draw from to pay for a sweeping expansion in social spending showcased the unease in some corners of the party. One of Kamin’s most daring pitches -- to end the practice of letting heirs discount the tax value of inherited assets, called step-up in basis -- isn’t part of the framework of measures Democratic congressional leaders endorsed Thursday, according to House Ways and Means Chairman Richard Neal.
File these articles under “uh-oh”:
Some Profitable Companies Would Still Pay No Taxes Under Democrats’ Plan – Richard Rubin, Wall Street Journal ($). “President Biden’s talking points on corporate taxes often revolve around a list of 55 profitable U.S. companies that didn’t pay income taxes in 2020. ‘Not a penny,’ he said Sept. 16. ‘That’s not right. And my economic plan will change that.’ That appears unlikely."
The bill…doesn’t touch the main reasons why profitable companies sometimes don’t pay taxes, including accelerated depreciation of investments and tax credits for activities such as research and development. The bill does strengthen a minimum tax on U.S. companies’ foreign profits, but it doesn’t include the separate minimum tax that Mr. Biden proposed to limit the number of zero-tax companies.
The legislation also expands tax credits for clean energy and low-income housing in ways that could push some companies from paying little to paying nothing.
‘Corporations that don’t pay any taxes are still going to be able to go on paying no taxes, and in some ways they may even get a bigger refund,’ said Frank Clemente, executive director of Americans for Tax Fairness, a progressive group that advocates higher taxes. ‘It is remarkable that there is no talk about this in Congress.’
Economy Loses More than Revenue Gains in Ways and Means “Build Back Better” Act – Garrett Watson, Tax Foundation. “As Congress debates next steps on the tax provisions in the Build Back Better Act proposed in the House Ways and Means Committee, it is important to consider the economic impacts, which include reduced economic output, wages, and jobs. Due to the plan’s economically costly and inefficient tax increases, we find that long-run GDP would drop by more than $2 for every $1 in new tax revenue.”
Bank Reporting In, Stepped-Up Out of Tax Bill Options, Neal Says – Doug Sword, Tax Notes ($). “A menu of options — dubbed a framework by Democrats — to pay for the $3.5 trillion reconciliation bill doesn’t include a proposed repeal of stepped-up basis but will include new bank reporting requirements to the IRS, according to House Ways and Means Committee Chair Richard E. Neal, D-Mass.”
The menu of options from which Democrats can choose to pay for their reconciliation bill was the crux of an agreement announced September 23 by Senate Majority Leader Charles E. Schumer, D-N.Y., House Speaker Nancy Pelosi, D-Calif., and Treasury Secretary Janet Yellen.
Both Neal and Senate Finance Committee Chair Ron Wyden, D-Ore., said they were in on the talks and agreed to the framework, which doesn’t address Democrats’ internal dispute over how big the package should be.
Democrats Agree to Narrow Biden Plan Giving IRS Bank Data – Laura Davison, Bloomberg ($). “Democrats have reached a deal to narrow President Joe Biden’s plan to require financial institutions to report account flows to the Internal Revenue Service in a bid to improve tax compliance, according to a key House Democrat.”
House Ways and Means Chairman Richard Neal said he and other Democratic leaders are planning to set a threshold higher than the $600 proposed by the Biden administration that would trigger a bank to report total account inflows and outflows to the tax collection agency.
‘We’ve reached an agreement to not have the $600,’ Neal said Thursday, adding that other details are still being worked out.
A Democratic aide said the discussions currently are focused on raising the threshold to $10,000, but cautioned that is still tentative and could change.
IRS Funding Could Double Under Dems' Budget Plan – Alan Ota, Law360 ($). “A Democratic push to expand IRS enforcement and the agency's oversight of monthly child credit checks and green energy tax measures could lead to a doubling of the agency's funding in a forthcoming reconciliation bill and annual appropriations.”
A $3.5 trillion reconciliation bill has been delayed in the House as party leaders try to rally support from liberal and centrist Democrats for a framework of tax hikes aimed at corporations and wealthy individuals. But several senior Democrats said there was growing bicameral support for a House plan to nearly double the current Internal Revenue Service budget of $11.9 billion with mandatory funding in the reconciliation bill plus a $1.7 billion upgrade in a House-passed fiscal 2022 spending bill, H.R. 4502.
IRS Previews Next-Generation Digital Identity Program – William Hoffman, Tax Notes ($). “The IRS hopes to add more trusted third-party identity authentication service providers to its next-generation online platform for taxpayers and their representatives.”
The secure access digital identity (SADI) program, successor to the IRS’s legacy Secure Access (SA) system, currently uses ID.me, a private firm based in McLean, Virginia, to process and verify individuals’ identities before registering them to log in to taxpayer and other accounts at IRS.gov, said Nanette Downing, director of the IRS Identity Assurance Office.
New IRS site gives insight into Joint Committee cases – Jeff Stimpson, Accounting Today. “A new Internal Revenue Service webpage can help clients whose large refunds are subject to review by the Joint Committee on Taxation. When taxpayers claim a federal tax refund or credit of more than $2 million (or $5 million for a C corporation), the IRS must review the refund or credit and provide a report to the JCT, a non-partisan congressional committee. These refunds are known as ‘Joint Committee Refund Cases.’”
The IRS notifies taxpayers who have Joint Committee Refund Cases that are subject to review. These cases may arise from:
- Refund claims for previously assessed and paid taxes. A claim may be made on an amended return or be made by a claim submitted during an examination. A refund claim would be reviewed by the IRS and reported to the JCT before being paid;
- Tentative refunds from tentative carrybacks of net operating losses, capital losses or credits. A tentative refund would be paid prior to IRS and JCT review;
- Refunds or credits of income taxes due to certain losses from federally declared disasters.
The webpage can be found here.
IRS Says It’s Finished With Employee Retention Credit Guidance – Allyson Versprille, Bloomberg ($). “The IRS doesn’t have any plans to release additional guidance on a Covid-19 relief credit intended to encourage businesses to keep employees on their payroll during the pandemic, an agency official said Thursday.”
The employee retention credit is worth up to $28,000 per employee in 2021 and is currently slated to expire at year’s end. The IRS has recently issued several guidance items on the credit, including Rev. Proc. 2021-33 and Notice 2021-49.
Entity-Level Taxes Grow, But Future Uncertain, Tax Atty Says – Maria Koklanaris, Law360 ($). “Although 20 states have adopted pass-through taxes at the entity level as a workaround to the $10,000 cap on the federal deduction for state and local taxes paid, these regimes face a highly uncertain future, a tax professional said Thursday.”
Kelvin Lawrence, tax partner with Dinsmore & Shohl LLP, noted during the American Bar Association tax section's virtual fall meeting that these entity-level taxes were created to ease the effect of the SALT cap for partners, but it is unclear what will happen to the cap. In turn, the fate of the entity-level taxes if there is a repeal or significant change to the SALT cap is unknown, he said. Meanwhile, Lawrence said, the 2017 federal tax law that created the SALT cap built in an expiration date for it: Without a change, the cap goes away in 2026.
A repeal of the SALT cap could happen before then, possibly even in the next few months, Lawrence said. On the other hand, if there is no repeal and the cap continues through 2025 and expires, it could be brought back, he said.
Tobacco Company Says California Tax Panel Broke Its Own Rules – Laura Mahoney, Bloomberg ($). “California’s administrative tax appeals office fabricated an ‘off-the-wall’ reason to give the state tax department another chance to assess tax on a tobacco products company, the company said in a lawsuit.”
Starbuzz Tobacco Inc. asked the Orange County Superior Court on Tuesday to block the Office of Tax Appeals from granting the California Department of Tax and Fee Administration a rehearing in the excise tax dispute. A three-judge panel granted the department’s request for a rehearing Sept. 9—with one of the judges dissenting—four months after another panel that included the dissenting judge unanimously ruled in the company’s favor that it is owed a $2.8 million refund.
Treasury Asks Federal Court to Reverse Ohio Pandemic Aid Ruling – Sam McQuillan, Bloomberg ($). “The U.S. Treasury is asking a federal court to let it claw back American Rescue Plan funds Ohio might use to offset losses from a tax cut. In a brief filed Tuesday, Treasury urged the Sixth Circuit to reverse a permanent injunction issued by the U.S. District Court for the Southern District of Ohio, saying it ‘rests on a series of independent legal errors.’ The court in July ruled that Congress exceeded its constitutional authority in placing restrictions on the $350 billion of federal aid and created uncertainty that could prevent Ohio from making tax changes.”
‘Congress unquestionably has authority to specify the permissible and impermissible uses of fiscal recovery funds,’ Treasury argued in the brief, adding: ‘As other courts addressing analogous challenges have emphasized, the Offset Provision does not prohibit state tax cuts; it merely prohibits a state from using the new federal funds to pay for a reduction in net tax revenue.’
What the House International Tax Plan Would Do (Podcast) – Michael Rapoport, Bloomberg ($). “The House Ways and Means Committee passed a proposal last week to revamp the way U.S. multinationals pay taxes—but to a lesser extent than other Democratic plans on the table.”
The proposal—part of a broader tax package to help fund Democrats’ planned spending of up to $3.5 trillion—would increase the minimum tax on U.S. companies’ foreign income and get tougher in other ways on those that do business overseas. It is more modest in some respects than what President Joe Biden and Democrats on the Senate Finance Committee have proposed.
IRS Official Offers Few Reassurances on Offshore Fund Lending – Andrew Velarde, Tax Notes ($). “Against a backdrop of a pending high-profile U.S. Tax Court case and a Large Business and International Division campaign, an IRS official did not offer many reassurances for cross-border fund lending.”
YA Global Investments v. Commissioner, which concerns a Cayman Islands-based investment fund, is before the Tax Court. The controversy centers on whether the fund was a dealer in securities under section 475 and was thus engaged in a U.S. trade or business for section 1446 purposes and therefore liable for $102 million in withholding tax. The case, which was argued last October, involves a volume lender taxpayer that held itself out to the public. YA Global has argued that it is an investor or that it qualified for the securities trading safe harbor.
Yellen Tells Ireland Not To Miss Chance For Int'l Tax Reform – Kevin Pinner, Law360 ($). “A push to revamp the international tax system, which Ireland has declined to endorse, represents a once-in-a-generation opportunity for reform, U.S. Treasury Secretary Janet Yellen told Irish Finance Minister Paschal Donohoe, according to readouts of a call between the officials."
During a call Wednesday, Yellen pledged to stay in contact with Donohoe about the Organization for Economic Cooperation and Development's global tax overhaul due to wrap next month, according to the U.S. Department of the Treasury's readout. The day after his meeting with Yellen, Donohoe told Parliament his government hasn't ruled out endorsing the deal.
Donohoe told lawmakers that whether or not Ireland joins, the deal would significantly impact the country's economy.
Electric-Car Shift Drains Fuel Taxes in Some Countries – David Hodari, Wall Street Journal ($). “Governments around the world have long encouraged motorists to buy electric cars. Now they are starting to grapple with a consequence of the green drive: dwindling income from fuel taxes. Several countries have sought to phase out gasoline and diesel cars by offering tax and other incentives to drivers who buy new electric vehicles, part of broader efforts to cut carbon emissions. But in places where more EVs are hitting the road, income from fuel tax, which often accounts for a significant chunk of public revenue, is falling.”
What!?!?! It’s National Punctuation Day!!!! Yippee!!!! Boo??? No!!!! Without punctuation my kids wouldn't read my texts!!!! Plus! Punctuation faces!!! :) :( Don’t forget winkie!!! ;) And, of course, the period:.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.