With help from Benjamin Guggenheim
FIRST LOOK: A bipartisan crew of House members is urging the Treasury Department to give businesses a further break on new Foreign Tax Credit regulations.
Treasury announced back in July that they were giving taxpayers a two-year reprieve from those rules, which were finalized at the beginning of last year, until the end of December.
But the eight House members, all of them either current or former Ways and Means members, noted that the IRS has suggested that it’s looking at extending that relief — and is prodding the Biden administration to announce that it’s offering at least another year of the reprieve with no further hesitation, and to make other timing tweaks for businesses as well.
“This further extension is necessary considering fiscal year taxpayers are already or will soon start filing fiscal year 2024 quarterly financial statements and will need to comply with 2022 FTC final regulations in the absence of additional relief,” the lawmakers, led by Reps. Kevin Hern (R-Okla.) and Brad Schneider (D-Ill.) wrote to Treasury Secretary Janet Yellen.
MORE ON THAT IN A BIT, after we thank you once again for reading Weekly Tax. We’ve had lions and bears on the loose recently, it seems — now we just have to wait for the tiger.
Cover your head, indeed: Today marks 44 years since a basketball player named Darryl Dawkins shattered a backboard for the first time while dunking in an NBA game. (The second time happened a few weeks later, leading the league to install different backboards.)
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LET’S TALK FTC: The subtext to the new letter is that the lawmakers remain worried that the foreign tax credit regulations are far too expansive — a concern most certainly shared by the business community.
In fact, Hern and Schneider also spearheaded a letter to Yellen last year outlining those problems, before returning with this latest note that does thank the department for its “acknowledgment that the 2022 FTC final regulations may have been broader than the original intent.”
“We look forward to working together on FTC-related policy to ensure we focus on long-term economic growth that protects U.S. companies’ competitiveness abroad,” the lawmakers added in the most recent letter.
Yellen and other Treasury officials have made it clear that the new rules are intended to ensure that companies can’t get a foreign tax credit — essentially giving companies a break on taxes paid to other governments — when it pays a digital services tax to another country.
Those DSTs have been discussed and enacted in a range of countries — but generally haven’t gone into effect, as governments around the world have been working on trying to get a global tax deal into place. (As it stands, Canada is scheduled to bring its digital tax into force in January.)
For their part, critics of the regulations say they understand that goal. But they also believe that Treasury way overshot the mark with the rules, which would lead to companies being double taxed on income that was previously covered by the foreign credit.
So now what? Let’s see any next steps that Treasury might take, though certainly tax lobbyists and lawyers think (or at least hope) that there’s a decent chance that the Biden administration might ease off on the FTC rules.
Related note: “Treasury pushing to extend pause on digital services taxes,” via Pro Tax’s Brian Faler.
THE WEEK AHEAD: It’s basically mid-November now, so there will be lots of people searching for any progress on a year-end tax deal in the days to come.
The big news last week was that Senate Democrats had whittled down what they were seeking in an expansion of the Child Tax Credit to $49 billion over two years — essentially the same cost as a top priority for Republicans, which is reversing three business tax increases from their 2017 tax law.
Of course, the push for a tax deal will be a secondary concern for most this week — with a potential government shutdown looming on Friday, and some serious questions hanging over the current House GOP strategy for avoiding it.
Pulling back even more: Those issues keeping the government funded, and the general unrest among House Republicans, are the major reasons that lots of people are skeptical about a tax bill happening this year.
But it’s also worth keeping in mind: Any year-end tax deal would be a mere appetizer to 2025, when the individual provisions from the Tax Cuts and Jobs Act are scheduled to expire.
And in case anyone had any doubts, policymakers’ choices in two years’ time could get very, very expensive.
The budget hawks at the Committee for a Responsible Federal Budget projected that the price tag could soar past $7 trillion, as Pro Tax’s Benjamin Guggenheim noted on Friday.
That number includes interest costs, and assumes that, for instance, lawmakers will bring back and then extend the expensive monthly child payment program that Democrats enacted in 2021 — which might not be very likely, given GOP opposition.
Still, both CRFB and the right-leaning Tax Foundation have estimated recently that extending the expiring TCJA provisions would cost in the range of $3 trillion over a decade.
The Tax Foundation projected that cost at $3.7 trillion over a decade if scored conventionally, and $3.1 trillion when accounting for economic growth spurred by keeping the tax cuts.
That projection also assumes that Congress reverses those TCJA tax increases for businesses, and then keeps those tax cuts, too. (That would mean allowing companies immediate deductions for research, a more generous interest deduction and full expensing of investments.)
And looking ahead: It’s quite possible that both Democrats and Republicans would easily agree to keeping a healthy portion of the expiring TCJA policies, given that President Joe Biden has vowed not to raise taxes on anyone making under $400,000 a year.
It’s far from a sure thing that Biden will be in office to negotiate this coming fiscal cliff.
But if Democrats do keep to that basic guideline, Erica York of the Tax Foundation told Weekly Tax in a follow-up email that it could add up to about three-quarters of the cost of just extending all the expiring provisions, based on some back-of-the-envelope projections. (That would be close to $2 trillion for extending the expiring provisions up to $400,000, and about $2.6 trillion to extend them all.)
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Bloomberg: “Nigeria Seeks to Lure Foreign Investment With Tax Incentives.”
New York Times: “The ‘Georgists’ Are Out There, and They Want to Tax Your Land.”
Anchorage Daily News: “The history of the proposed Alaska bill that was to levy a $50 tax on single women.”
WSFA: Gov. Kay Ivey of Alabama “signs tax cut on overtime pay into law.”
Financial Times: “Developing countries and Europe in dispute over global tax role for UN.”
Reuters: “Germany approves global minimum corporate tax.”
Wall Street Journal: “Yelp Profit Soared With Help From IRS Guidance on R&D Tax Deductions.”
Darryl Dawkins was the first basketball player to go directly from high school to the NBA.
