Tax News & Views Coffee Is For Government Closers Roundup

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Trump to Host Last-Ditch Talks to Avoid Government Shutdown - Siobhan Hughes, Robbie Gramer, and Katy Stech Ferek, Wall Street Journal:

President Trump and congressional leaders are headed into dramatic last-minute talks just as Republicans and Democrats are bracing for a government shutdown by midweek that could also involve a fresh round of firings of federal workers.

A White House meeting is scheduled for Monday, ahead of an expected redo of a Senate vote that will determine whether Congress will keep the government funded beyond Tuesday. House Republicans narrowly passed a bill this month that would fund the government into late November and add millions for security for lawmakers and other officials, but Democrats blocked that measure in the Senate and are seeking bipartisan negotiations on healthcare funding.

The government will partially shut down Wednesday at 12:01 a.m. if Congress can’t pass a short-term spending patch.

Expectations for Trump Summit Low Before Shutdown Deadline - Erik Wasson, Bloomberg via MSN:

President Donald Trump and top congressional leaders have strong political incentives to stoke the ongoing stalemate during a White House meeting Monday even as they drive the US to its first government shutdown in nearly seven years.

Democrats are keen to use the shutdown battle to frame the next election around rising costs, particularly for health care. Republicans are equally eager to blame the Democrats and show them to be poor stewards of the government and the US economy ahead of the 2026 midterms.

Trump’s Threat of Mass Firings Risks Lasting Shutdown Damage - Ted Mann, Bloomberg ($):

If the administration acts on its current plans, it will permanently cut federal jobs en masse – essentially using the temporary closure of a shutdown to argue that those workers were never necessary anyway. Because agencies only received the directive on Wednesday to plan for permanent cuts, employees may find out on short notice that their job is slated to be eliminated.

Capitol Hill Recap: Crunch Time on the Budget - Alex Parker, Eide Bailly:

Republicans will need at least a few Democratic votes to pass any spending measure in the Senate. (Unless they decide to change the filibuster rules.) The Democratic leadership has chosen to focus on healthcare coverage as their primary demand, asking that any agreement reverse cuts to Medicaid enacted by the One Big Beautiful Bill Act and to extend the enhanced premium tax credits available for the Affordable Care Act exchanges.

Since Republicans would be loath to reverse any part of the massive legislation they spent most of the year trying to pass, that would leave the enhanced credits as the primary area of negotiation. The credits themselves were created with the ACA in 2010, but the enhancement—expanding the eligibility requirements and increasing their potential value—was passed in 2021, and extended in 2022 with the Inflation Reduction Act. Unless Congress acts, the enhancement will expire at the end of the year.

Tariffism

What to know about Trump’s new pharmaceutical tariff plan - Joseph Choi, The Hill:

In announcing that branded or patented drugs would be hit with 100 percent tariffs on Oct. 1, Trump also said drugmakers could escape the penalties if they have a U.S.-based pharmaceutical manufacturing plant for which ground has been broken, or is currently under construction.

It’s unclear how many companies can escape the tariffs under that rule, though many drug manufacturers have pledged billions in investments into the U.S. under pressure from the Trump administration.

This announcement exempts generic drugs, which account for the vast majority of prescriptions in the U.S.

Home Builders, and Homeowners, Brace for Impact of Kitchen Tariffs - Rachel Wharton, New York Times:

The tariffs, which also include a 30 percent tax on imported upholstered furniture, could increase the costs for homebuilders in the midst of a national housing shortage. If homeowners postpone projects to try to save money, he noted, it may have a “cascading effect” not just on designers, manufacturers and contractors, but also on plumbers and electricians.

...

According to Ms. Crook, the tariffs will add an extra hardship for homeowners who buy premade cabinets, vanities or mass-market furniture from the Home Depot and other big-box stores, which often source those products from around the world. It will be especially painful in her home state of California, she said, because so many homeowners are rebuilding after devastating wildfires.

China weaponizes ag imports to target Trump and US farmers - Phelim Kine, Grace Yarrow and Ari Hawkins, Politico:

Trump launched his tariff war earlier this year expressing confidence that China’s reliance on the U.S. market would force Beijing to accept trade terms that benefited American businesses and consumers. Six months after the president’s “Liberation Day” tariffs and weeks from the Nov. 10 White House cutoff for a trade pact between the two countries, U.S. soybean farmers are learning that China — long the predominant market for their product — doesn’t need them anymore.

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Beijing’s new pullback hits especially hard because some U.S. farmers have never fully recovered from the impact of Trump’s first-term trade wars on their access to China, which had previously made up about 60 percent of soybean exports.

Tax Administration

Shutdown Uncertainty Adds to Difficult Year for IRS Employees - Benjamin Valdez, Tax Notes ($):

Observers are expecting any furloughs at the IRS to be light, in part because the agency still has about $22 billion in special Inflation Reduction Act funding and had planned to retain all its employees under its most recent lapse plan, which was released during the height of the 2025 filing season.

But the lack of an updated plan coupled with a recent reduction in force threat from the Office of Management and Budget has felt to some like another chapter in a long series of hostile policies toward federal workers.

One IRS employee, who spoke on condition of anonymity for fear of retribution, said the OMB memo “is another hit” to agency employees’ already-low morale.

“It’s hard not to worry in this environment,” the employee said, adding that there has been a noticeable lack of communication regarding which jobs, if any, will be furloughed.

Justice Department Loses a Third of Career Leaders Under Trump - Sozanne Monyak, Bloomberg ($). "The Justice Department’s tax division has lost more than a third of its career managers under the current administration, while the national security division saw about half depart."

OB3 Update: Disappointing Tips.

Trump’s ‘no tax on tips’ promise falls flat with Las Vegas workers — and experts have branded it misleading - Mike Crisolago, Moneywise via yahoo!finance:

That’s because, much like Trump’s “no tax on overtime” promise from the same OBBBA, the idea of “no tax on tips” sounds great on paper. It even received bipartisan support, but it saddles the nation’s roughly 4 million tipped workers with tax rules and qualifying technicalities to navigate, with a payout that’s not as generous as they’d hoped.

...

And University of Nevada law professor Francine Lipman added it was “a little bit misleading to say no tax on tips because there's some conditions precedent to getting that deduction.”

Tip Tax Regs Prompt Questions On Eligibility, Withholding - Asha Glover, Law360 Tax Authority ($):

Additional guidance on what that means for content creators, such as those who use OnlyFans, could come in the aftermath of litigation, said Michael Chittenden, of counsel at Covington & Burling LLP.

"There is potentially a First Amendment issue with that carveout because it is potentially a content-based distinction," he said. "That type of distinction is often subject to strict scrutiny under current Supreme Court jurisprudence."

Taxpayers will also need clarification, Chittenden said, on a provision in the rules that says tips don't qualify for the deduction if they're received in the course of a specified service trade or business defined under Internal Revenue Code Section 199A, which outlines the qualified business income deduction.

The distinction could result in unequal treatment of people in similar jobs, Chittenden said, pointing to the potential for self-employed performing artists to be barred from the tax break.

Blogs and Bits

Even if federal government shuts down, tax laws still in effect - Kay Bell, Don't Mess With Taxes. "A government shutdown does not override current tax law. So, if you got an extension earlier this year to postpone filing of your 2024 tax return until Oct. 15, a shutdown will not affect that due date in any way."

Former Employee had Unreported Income from Post-Termination Stock Transfer - Parker Tax Pro Library. "The court concluded that while the former employee disputed ownership of the stock, she realized income upon receiving the stock because she had full ownership and control over the shares and there were no impediments to her transacting in, or selling, the disputed shares."

In (Sort of) Defense of (Something Like) Property Taxes - John Phelen, Econlog:

Property taxes are not a fee for living in your house, but a payment for locally provided and consumed goods and services, like schools, police, parks, the fire department, etc. If advocates of property tax abolition are willing to forego these goods and services, then there is no problem. But few of them are. The question then becomes: how will these goods and services be paid for?

...

There are notably few takers among the abolitionist ranks for the hefty sales tax hikes that could fill the gap.

Understanding Debt, Deficits, and Interest - William McBride and Nate Scherer, Tax Foundation. "These are difficult choices that will need to be made soon to avoid even more painful adjustments down the road. On the tax side, there are ways to support a growing economy and bring in more tax revenue. But true fiscal sustainability requires discipline on both sides of the ledger."

Happy Trails, Howard Gleckman

Howard Gleckman, a fixture at the Urban Institute Tax Policy Center and a founder of the TaxVox blog, has a valedictory post as he steps back from regular appearances at TaxVox. He concludes:

The goal is no longer good tax policy. It is only to win.

Thus, bills are increasingly partisan and, as a result, policy shifts with the political winds, and taxpayers are unable to plan more than a year or so ahead.

On top of all this, the IRS is scaling back enforcement efforts, and Congress continues to slash the agency’s budget and staff, making administration of the income tax increasingly difficult.

All these trends may lead to some form of consumption tax. Trump, of course, already has shifted about $3.3 trillion in revenue from income taxes to tariffs, assuming his import taxes remain for a decade.

The problem is that Trump’s exorbitant, constantly changing, and counterproductive tariffs risk damaging the US economy and probably are not sustainable.

What, then, will replace them? That, I believe, will be the next big question for tax policy.

What day is it?

It's National Coffee Day! Don't stop at just the seventh cup this morning.

Tax News & Views Coffee Is For Government Closers Roundup

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Joe B. Kristan, CPA