— Welcome back: Congress has plenty on its tax policy plate going into the fall.
— Tell us what you really think: Jason Smith takes his gripes about the global tax deal into the belly of the beast.
— What could Moore cost? The Tax Foundation gives us some estimates.
THAT LONG WEEKEND, didn’t seem so long. At least not to yours truly. It’s Tuesday already, and we could use some tips.
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THEY’RE BAAACK: Well, the Senate is at least, officially reconvening today after Congress’s August recess. (The House is set to return Sept. 12.)
Both chambers left a pile of stuff on their plates they’ll return to, including plenty in the tax realm. As a public service, Weekly Tax gives you this refresher:
Appropriations: Both chambers made some progress on spending plans for fiscal 2024, though, as usual, not nearly enough to be able to make the Sept. 30 deadline. That leaves two possibilities: a temporary stopgap (which some lawmakers are working on) or a government shutdown (always a threat given the pull of GOP hardliners in the House).
In the House, appropriators have sharpened their ax for the IRS. In July, the Republican-led Appropriations Committee pushed through a plan that would reduce the IRS’s annual budget by about 9 percent, to $11.2 billion, and rescind a big chunk of the $80 billion infusion Democrats gave the agency last year.
The Senate’s Democrat-controlled counterpart voted to essentially keep regular IRS funding flat, while pulling back $10 billion of the additional 2022 funding, per the debt-ceiling agreement between President Joe Biden and House Speaker Kevin McCarthy.
What’s next? Gridlock, until the two chambers work something out that all sides (well, most) can accept, which probably won’t be until the end of the year.
Republican tax cuts: House GOP leaders had hoped to bring their tax cut package — passed by Ways and Means back in June — to the floor before the August recess. But they ran into a wall of opposition from a handful of members from high-tax states who want some relief from the $10,000 cap on sate and local tax deductions imposed by the GOP’s 2017 tax law.
Republican leaders will pick up where they left off, trying to find a way to resolve the impasse without causing a revolt by other factions in the GOP caucus.
Taiwan tax pact: Republicans and Democrats in both chambers agree that the U.S. needs a tax agreement with Taiwan, both to buttress legislation encouraging domestic computer chip manufacturing and as a sign of support for the island amid military threats from China.
But a turf battle has slowed progress. The Senate Foreign Relations Committee, led by Bob Menendez (D-N.J.), has claimed jurisdiction over the issue, while Senate and House tax writers say the responsibility is theirs.
Foreign Relations passed legislation in July authorizing the Biden administration to negotiate an agreement with Taiwan.
On the same day, the chairs and ranking members of the Senate Finance and House Ways and Means committees released legislation that would make Taiwan-specific changes to laws involving withholding taxes, income tax thresholds, employment income and residency determinations.
In a joint statement, Finance Chair Ron Wyden (D-Ore) and ranking member Mike Crapo (R-Idaho) said their committee would take up the legislation “shortly after Congress returns” from recess.
GOING THE DISTANCE: House Ways and Means Chair Jason Smith (R-Mo.) finally got to make his trip to Europe, after being delayed by the debt limit fight last spring, to express in person the GOP’s displeasure with the global tax deal negotiated through the OECD.
Smith and a delegation of seven other Republican committee members held meetings in Paris and Berlin over the holiday weekend and their message was clear: The deal as currently structured, and embraced by the Biden administration, won’t fly in the GOP-controlled House.
In a meeting with OECD Secretary-General Mathias Cormann, Smith reprised the litany of Republican objections to the plan, which would impose a 15 percent global minimum tax on the world’s largest multinationals and levy them where they do business.
In prepared remarks released by his office, Smith complained to Cormann that the agreement will only invite more tax gamesmanship, by China and others, and the “top up” tax that other countries could impose on corporations if they aren’t paying at least that 15 percent could unleash “tax and trade countermeasures” by the U.S.
Smith did give the OECD props for “an admirable job of facilitating discussions among countries and seeking common ground. While we have concerns with many aspects of the project, we appreciate the willingness to engage in a dialogue.”
And he gave a nod to the U.S.’s existing GILTI minimum tax, saying: “We do not object to Europe or others implementing their own GILTI-type taxes. However, we will not suddenly repeal our proven system in favor of an untested regime with substantial complexity and uncertainty.”
Of course, the Biden administration missed its best chance to make tweaks to GILTI that may have passed muster with the global agreement when Sen.Joe Manchin (D-W.Va.) blocked them from inclusion in the reconciliation bill that carried the Democrats’ Inflation Reduction Act.
MORE MOORE: Teasing out the possible implications of the Moore case the Supreme Court agreed to take up challenging the constitutionality of the 2017 mandatory repatriation tax has become a parlor game in tax circles. The Tax Foundation recently weighed in with estimates of the damage an adverse ruling could do to the U.S. fisc.
Given all of the uncertainty surrounding the case, the numbers laid out by the group’s researchers run the gamut — from a hair-raising $5.7 trillion over 10 years to a more modest $3.5 billion over a decade. The former is based on a scenario where the court strikes down all taxes on undistributed business earnings, which the authors — Daniel Bunn, Alan Cole, William McBride and Garrett Watson — acknowledge “seems unlikely.”
The lower estimate comes from a potential ruling in which the justices strike down the tax for pass-throughs and individuals only. A broader ruling that also affects corporate taxpayers would push the cost to $346 billion.
Then there’s a ruling that would “more broadly impact the constitutionality of major corporate tax provisions that apply to foreign income if the court decides that actual (rather than deemed) repatriation is a requirement for income to face U.S. tax.”
The Tax Foundation reckons that would hit the new 15 percent “book income” tax on corporations, GILTI, and Subpart F rules governing U.S. shareholders of controlled foreign corporations. The tab: $678 billion.
An interesting aside: A brief filed with the Supreme Court last week by the plaintiffs, Charles and Kathleen Moore, plays down at least some of the concerns about the sweep of a possible ruling in their favor.
The brief, first reported by Tax Notes, cites Subpart F, mark-to-market taxes and other levies, saying “no income tax provision cited to date” by the U.S. government “shares the MRT’s defect of taxing property because of ownership. Instead, each rests on a theory of constructive realization of income by those being taxed.”
“Ultimately, this case does not call on the Court to mark the constitutional limits of the constructive realization doctrine, because it is undisputed that the Moores realized nothing in any fashion.”
Of course, the Supreme Court is going to decide on its own how far to reach.
CNBC: ‘Very stupid’: Italy’s bank tax remains controversial as government scrambles to update it
Bloomberg: Sweden Plans $1 Billion Income Tax Break to Help Consumers
Cointelegraph: Failure to tax the metaverse ‘will create a tax haven’ — Harvard legal expert
Wall Street Journal: Inside a Sales Army Turning a Tax Break Into a Modern-Day Gold Rush
“Fisc” is derived from the Latin term “fiscus,” which, literally translated, means “basket” or “purse.” In ancient Rome, it was used to denote the emperor’s private treasury.
