Summers Says Raise Taxes ‘Right Now’ to Help Battle Inflation - Christopher Anstey, Bloomberg ($):
Former Treasury Secretary Lawrence Summers said that Washington is forgoing a key tool in helping the Federal Reserve quell inflation, and urged that lawmakers look at raising taxes.
‘Fiscal policy makes a big difference,’ Summers said on Bloomberg Television’s ‘Wall Street Week’ with David Westin. ‘Just the right thing to do is to raise taxes right now to take some of the demand out of the economy.’
Tru dat. Raising taxes does lessen demand. All demand. Like for hiring.
Given the current state on Capitol Hill, the tax increases in Biden’s budget will likely not see much action. Still, here are the details on those provisions:
Estimated Budget Effects Of The Revenue Provisions Contained In The President’s Fiscal Year 2023 Budget Proposals – Joint Committee on Taxation:
The staff of the Joint Committee on Taxation has prepared revenue estimates of the Administration’s Fiscal Year 2023 revenue proposals. These proposals are described in General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals, Department of the Treasury, March 2022. The Joint Committee staff estimates are estimates prepared relative to the Congressional Budget Office 2022 macroeconomic baseline.
The proposals raise over $1.7 trillion in new revenue over ten years.
There is only one legislative vehicle that could raise taxes in the current Congress, and it's in a holding pattern:
Increased IRS Funding in Limbo After Reconciliation Slim-Down - Colin Wilhelm, Bloomberg ($).
Increased IRS funding, a major piece of President Joe Biden’s domestic agenda, remains in limbo after Sen. Joe Manchin (D-W.Va.) put the brakes on Democrats’ broader tax and spending plan.
The “tax and spending plan” referred to in the article is the reconciliation “Build Back Better” bill that Democrats have been trying to pass for quite a while. The House passed the bill late last year and it included all sorts of tax increases and $80 billion for the IRS. The Senate has yet to act on the bill. And the legislation appears to have dwindled from including multiple provisions to containing just two:
Last week, following a stark Consumer Price Index report showing increased inflation, Manchin told Democratic leadership he wanted to more narrowly focus on prescription drug price controls and extending subsidized health insurance under the Affordable Care Act to avoid a premium price hike in October.
The Senate parliamentarian must approve the provisions in the bill before the Senate can vote on it.
Other provisions could also be added to the bill, but tax increases are unlikely due to Manchin currently being opposed to them.
Democrats scramble to squeeze priorities into budget bill – Alexander Bolton, The Hill:
The collapse of plans to include climate and tax legislation in a bill Democrats can pass this summer through the Senate with 51 votes has set off a scramble among Democrats to squeeze other priorities into the package.
Senate Health, Education, Labor and Pensions Committee Chairwoman Patty Murray (D-Wash.) says she wants money for more COVID-19 vaccines and therapies, which would cost at least $10 billion.
Senate Appropriations Committee Chairman Patrick Leahy (D-Vt.) is pushing for money to fund international COVID-19 vaccination efforts, which is projected to cost another $5 billion.
The Rx fix would raise roughly $250 billion over ten years. Democrats are trying to use the money to fund their policy piorities. But Sen. Manchin wants to use the money to reduce the deficit. Again, Democrats are at odds with Manchin when it comes to this bill.
The legislative protections for this piece of legislation that allows it to pass the Senate with just Democratic support will end on October 1. This means that come October the already narrow prospect for tax increases narrows considerably more because it will take Republican support to pass legislation and they oppose tax increases.
Democrats are well aware of this reality and are considering creating another reconciliation bill in October:
White House holds out hope for Manchin climate deal – Hans Nichols and Alayna Treene, Axios:
The White House and some Senate Democrats aren't giving up on Sen. Joe Manchin (D-W.V.) just yet — and are leaving the door open to pursuing climate legislation in a potential second reconciliation package, Axios has learned.
Creating another reconciliation bill in October as lawmakers become more focused on their re-election bids is a HUGE lift. I'll believe it when I see it.
Let’s not forget about the other bill:
‘It looks terrible’: Dems prep a tax cut for business as broader agenda stalls – Brian Faler, Politico:
Democrats are poised to approve their first big tax break of this year — but it’s not any of the ones they’ve spent so much time talking about.
Their efforts to expand the Child Tax Credit and beef up green energy breaks, not to mention their plan to raise taxes on the rich, are all dead.
But they are on the verge of passing a new $24 billion credit for the semiconductor industry, with legislation now on a glide path to President Joe Biden’s desk.
This is the CHIPS bill that the Senate is expected to pass this week and the House will pass shortly thereafter. The bill creates a 25 percent investment tax credit for semiconductor manufacturing. The credit is for property placed in service after December 31, 2022, and where construction begins before January 1, 2027.
A big issue with this bill is that it does not provide any tax relief for individuals - and roughly 125 House Democrats swore to oppose any bill that gave tax breaks to businesses without providing the same relief to individuals. We'll soon see if they will keep their word.
An R&D fix (which would allow for expensing instead of amortization) is not included in this bill.
SEE YOU IN DECEMBER? – Brian Faler, Politico. “It’s hardly the end of the road though for those concerned about the R&D provisions, which now look to be added to the growing list of tax items people will want Congress to deal with in a post-election lame duck session of Congress. So, see you in December.”
December is when lawmakers attempt to pass legislation that they have been promising to pass all year long. A year-end tax bill is likely, which is expected to include a fix for R&D, the interest deduction, as well as other provisions.
Dems Keen On Retirement Bills Despite Tax Breaks For Wealthy – Stephen Cooper, Law360 Tax Authority ($). "Congressional Democrats, intent on passing bipartisan retirement legislation this year, are sidestepping their long-standing objection to providing tax breaks for more affluent Americans and are supporting an expansion of the ability to transfer wealth into tax-favored savings plans for heirs."
The IRS is doing itself no favors when trying to get more money from Congress:
IRS grilled over fake charity fraud schemes – Michael Cohn, Accounting Today:
House Ways and Means Oversight Subcommittee chairman Bill Pascrell, D-New Jersey, sent a letter to outgoing IRS Commissioner Chuck Rettig demanding answers to a set of questions prompted by a New York Times article about a scammer who used the same address in Staten Island, New York, to apply for tax-exempt status for 76 fake charities using the names of seemingly legitimate-sounding nonprofits like the American Cancer Society of Michigan and the United Way of Ohio. In most cases, the scammer used the streamlined Form 1023-EZ, which the IRS began allowing organizations to use for applying for tax-exempt status after a scandal erupted in 2013 over slow approval of applications by Tea Party groups and other political organizations, mostly on the right. The so-called 'Tea Party targeting scandal' led to the departures of a number of high-ranking IRS officials, including Lois Lerner, director of exempt organizations at the agency.
Taxwriter Presses IRS on Approval of Fraudulent EO Applications – Fred Stokeld, Tax Notes ($):
A House taxwriter is demanding information about the IRS’s ‘haphazard approval process’ for section 501(c)(3) charitable organizations following recent revelations that it granted exemptions to nearly 80 bogus charities.
Pascrell asked the IRS several questions about Form 1023-EZ and Form 1023, 'Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.' He asked for the number of applications received since 2015, how many applications have been approved and how many have been rejected, and the number of applications returned for more information that then provided the additional information as well as how many applications were returned for more information that didn’t provide it.
Pascrell asked the IRS to describe how Form 1023-EZ is processed, including who reviews the application, how much time it takes to review the form, and how long it takes the IRS to make a determination after receiving an application. He also asked what the IRS does when it suspects fraud.
Answers due by August 3rd.
Gem State sees record $6.2B tax revenue in fiscal 2022 – Moscow Pullman Daily News. “General fund tax revenues hit a record $6.2 billion in Idaho in fiscal 2022, beating expectations by more than $1 billion… That was a 23.7% increase over last year, and 19.4% higher than projections.”
Gov. Brad Little quickly took credit for the results, saying the state’s ‘red hot’ economy reflects the resiliency of its citizens and businesses.
‘Combined with years of fiscal conservatism, reining in state spending and our status as the least regulated state in the country, we will be able to provide Idahoans even more tax relief and make key investments where they count,’ he said in a news release.
Massachusetts Senate approves $250 stimulus checks for Bay Staters, tax relief for renters and low-income residents – Alison Kuznitz, Mass Live:
Tax relief is one step closer for Bay Staters buckling under the financial strain of soaring inflation, as the Massachusetts Senate on Thursday approved $250 one-time rebates, as well as far-reaching permanent relief for families, seniors and low-income residents, among other vulnerable communities… The House and Senate will have to reconcile differences in their bills before it can be sent to Gov. Charlie Baker, who since January has repeatedly pressed the Legislature to pursue his $700 million tax relief package.
Fracking Co. Tells Ohio Justices Its Equipment Is Exempt – Jaqueline McCool, Law360 Tax Authority ($). “A hydraulic fracturing company asked the Ohio Supreme Court to find that its equipment purchases used in oil and gas production were exempt from sales and use tax.”
Hyundai Gets 26-Year Property Tax Abatement in Georgia Deal - Angélica Serrano-Román, Bloomberg ($). “Hyundai Motor Group will receive a property tax abatement for its investment in an electric vehicle and battery manufacturing plant near Savannah, Georgia, the state said Friday.”
Wis. Buttresses Bid For Tax Authority On Native Land – Caleb Symons, Law360 Tax Authority ($). “Wisconsin has sought to bolster its argument for taxing certain land on Native reservations, telling the Seventh Circuit that a recent U.S. Supreme Court decision extending state criminal jurisdiction to tribal land also expands its authority over civil matters in those places.”
NY Matches Federal Tax Filing Extensions – Michael Nunes, Law360 Tax Authority ($). “New York's tax agency will match filing extensions for federal tax returns granted by the Internal Revenue Service as part of a bill signed into law by Democratic Gov. Kathy Hochul.”
Legacy Retailer Rebates Costing States Billions Under Scrutiny - Michael Bologna, Bloomberg ($). “When states started levying sales taxes almost a century ago, some gave shopkeepers small rebates for manually collecting and submitting the money. Now those rebates cost states more than $1 billion a year, and critics say they make no sense in the age of automated tax systems.”
Countries Mull Temporary Safe Harbor for Calculating Minimum Tax - Hamza Ali, Bloomberg ($):
Countries are considering temporary ‘transitional’ safe-harbor rules for the global minimum tax, an OECD official said Friday.
In October, more than 130 countries signed up to a two-pillar plan to change how multinationals are taxed. Pillar Two introduced a global minimum tax of 15%. Companies have complained that the minimum-tax calculations are complex and often don’t lead to any extra tax being levied.
Penalty for Willful Foreign Account Reporting Failure Upheld - Aysha Bagchi, Bloomberg ($). “A nearly $1 million penalty for failing to report a foreign bank account was supported by credible evidence that the account holder’s reporting failure was willful, an appeals court concluded.”
Coincidence? It’s National Hire a Veteran Day and National Wine and Cheese Day. Hiring a veteran will allow more time for wine and cheese! Brilliant!
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