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Still No Deal After Biden Breakfast With Schumer, Manchin – Bloomberg ($). “A high-level agreement on tax-and-spend legislation continues to elude the White House and Democratic leadership. President Joe Biden held a rare Sunday morning meeting with Majority Leader Chuck Schumer and Sen. Joe Manchin, who has pushed for a more targeted spending package. The White House said Sunday that the meeting fostered a 'productive discussion' and that further talks among staffers are needed.”
One of the unsettled issues is what specific tax policies will be included. Negotiators shifted their attention last week away from increases to the top individual and corporate rates, which Sen. Kyrsten Sinema is said to oppose.
Democrats ready to put a wrap on dragged-out talks – Jordain Carney, The Hill. “Democrats are eager to finish talks over President Biden's sweeping spending bill, arguing the party is gaining little by dragging out negotiations. The push to wrap things up quickly comes as months of haggling has led to pent-up frustrations that have dominated headlines and conversations around Capitol Hill. Democrats missed a self-imposed deadline of working out a framework by Friday, though talks continued into the weekend.”
Even once Democrats lock in a framework, they’ll likely still have days of drafting and ironing out details. But, after days of patience wearing increasingly thin, lawmakers are eager to take the first step and show that they and Biden can deliver on the massive spending package.
‘It's hurting Biden. It's hurting the Democrats. It's undermining the vision of all the accomplishments we will have as being highly significant. The frustration is people's heads are blowing off. And they should be. It has to come to an end,’ Sen. Jeff Merkley (D-Ore.) said during a recent interview with MSNBC.
Biden Drives to Clinch Economic Bill Before Europe Trip – Erik Wasson, Laura Litvan and Ari Natter, Bloomberg ($):
The upcoming Glasgow global climate conference is providing the latest in a series of deadlines to wrap up work on at least the framework for the tax and spending plan. Democrats are aiming to include strong climate change provisions to meet Biden’s goal of a 50% cut in U.S. greenhouse gases by 2030, thereby giving the U.S. leader leverage to negotiate similar climate commitments from other countries at the meeting.
Biden will meet the Pope on Friday and attend the G-20 leaders meeting in Rome before going to Glasgow on Nov. 1.
Important to note: These negotiations are moment-to-moment and a deal could be announced at any moment:
Biden-Manchin Meeting Makes ‘Progress’ in Bid to Break Deadlock – Erik Wasson, Bloomberg ($). “House Speaker Nancy Pelosi said a framework for the legislation is close, with the White House and leaders trying to hammer out final matters such as taxes and which components of a Medicare expansion to include."
‘We have 90% of the bill agreed to and written, we just have some of the last decisions to be made,’ Pelosi said on CNN’s ‘State of the Union’ on Sunday.
Also, House Democratic leaders would like a vote Wednesday on the bipartisan infrastructure bill that the Senate has already passed. Will there also be a vote on reconciliation? That is supposed to be the plan: infrastructure and reconciliation are tied together.
Tax on Billionaires’ Unrealized Gains Will Likely Be in Budget Package, Democrats Say – Kristina Peterson and Richard Rubin, Wall Street Journal ($). “A new annual tax on billionaires’ unrealized capital gains is likely to be included to help pay for the vast social policy and climate package lawmakers hope to finalize this week, senior Democrats said Sunday. ‘We probably will have a wealth tax,’ House Speaker Nancy Pelosi (D., Calif.) said Sunday on CNN, noting that Senate Democrats were still working on their proposal, which isn’t technically a wealth tax but bears a strong resemblance to that idea."
The proposal under consideration from Senate Finance Committee Chairman Ron Wyden (D., Ore.) would impose an annual tax on unrealized capital gains on liquid assets held by billionaires, Treasury Secretary Janet Yellen said Sunday on CNN.
‘I wouldn’t call that a wealth tax, but it would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals and right now escape taxation until they’re realized,’ Ms. Yellen said.
While legislative text has not been made publicly available for the billionaire tax, press reports suggest that it would also apply to certain millionaires:
Democrats move to finalize new ‘billionaire’ tax proposal, targeting 700 wealthiest Americans as key source of revenue for spending plan – Jeff Stein and Mike DeBonis, Washington Post ($):
Under the ‘Billionaire Income Tax’ proposal, a summary of which was obtained by The Washington Post, the federal government would require billionaires to pay taxes on the increased value of assets such as stocks on an annual basis, regardless of whether they sell those assets. Billionaires would also be able to take deductions for any annual loss in value of those assets.
The plan would also set up a system for taxing assets that are not easily tradable, such as real estate. The tax would apply to billionaires and people earning more than $100 million in income three years in a row.
Apparently, a topline number is still a sticking point. Getting an agreement on this is step one when climbing the legislative mountain.
Punchbowl News ($):
Biden,Senate Majority Leader Chuck Schumer and Sen. Joe Manchin(D-W.Va.) met Sunday in Wilmington to hash out their differences over key elements of the reconciliation package, including the total cost. Manchin remains adamant about keeping the price tag as near as possible to $1.5 trillion, although he’s shown some flexibility on this front, according to sources familiar with the discussions. Biden, Schumer and other top Democrats want $2 trillion or so. This is a critical question. The cost of the package ultimately drives decisions on what’s in the legislation.
U.S. Tax Hike Deadlock to Lift 2022 S&P Earnings: Goldman Sachs – Nikos Chrysoloras, Bloomberg ($). “A failure to pass higher corporate taxes and additional levies on foreign income in the U.S. would mean that S&P 500 EPS will grow by 7% to $222, rather than current baseline forecast of 2% growth to $212, Goldman Sachs strategists led by David Kostin write in note."
Strategists say early 3Q earnings results have been strong, with 65% of companies reporting so far exceeding consensus expectations by at least a standard deviation, a rate that – if sustained – would rank among the strongest quarters on record behind 1Q and 2Q 2021.
High Inflation Creates Tax Winners and Losers. What Are You? – Richard Rubin, Wall Street Journal ($). “Inflation is about to ripple through the tax code—and the nation’s mishmash of tax provisions means some people will be hurt and some won’t.”
For example, the standard deduction for married couples is likely to rise to $25,900 from $25,100, according to Wolters Kluwer NV, which provides tax services to accountants and others. As nominal wages and prices rise, that adjustment will shield more money from taxation and block inflation—currently above 5% on an unadjusted annual rate—from causing a sharp tax increase.
Some home sellers, however, will be squeezed because married couples can exclude up to $500,000 in gains from capital-gains taxes. That figure hasn’t changed since a 1997 law, while the median home sale price has more than doubled since then.
Crypto Emerges As IRS Criminal Arm's Key Focus, Official Says – Amy Lee Rosen, Law360 ($). “Cryptocurrency has become a primary focus for the Internal Revenue Service's Criminal Investigation division because the technology offers a convenient means to hide assets and income as well as facilitate other types of criminal activities, an agency official said.”
The CI division is leading the way when it comes to tracing cryptocurrency and identifying criminal activity that's related to emerging cryptocurrency markets, said Ryan L. Korner, the special agent in charge of the CI division's Los Angeles field office. Korner spoke late Thursday during a virtual conference hosted by the University of California, Los Angeles Extension.
‘It's one of our top priorities,’ he said. ‘We're really looking at cryptocurrency from several different perspectives, obviously No. 1 being tax crimes.’
Estate Planners Game Out What Techniques Might Still Work – Jonathan Curry, Tax Notes ($). “House Democrats’ grantor trust proposals threaten to blow up traditional estate tax planning techniques, and without further details, estate planners are struggling to identify what will be left after the dust settles.”
‘It’s a tumultuous period we’re in,’ said Jessica D. Soojian of Milbank LLP, who during the Notre Dame Tax & Estate Planning Institute October 22 lamented the ‘legislative flux’ found in the ongoing negotiations between Democrats in the House and Senate and the Biden administration over the Build Back Better reconciliation package.
Uncertainty Looms In Adoption Of MTC Online Biz Tax Guidance – Paul Williams, Law360 ($). “Uncertainty surrounds how states may adopt fresh Multistate Tax Commission guidance regarding when internet business activities exceed federal protections against state income tax, including whether its concepts could also trigger sales tax liabilities, tax conference panelists said Friday.”
Key portions of the MTC's reinterpretation of the Interstate Income Act…provide that cookies downloaded and used for purposes other than solicitation of sales exceed the law's protections, and states could extrapolate that into sales tax contexts, said Marilyn Wethekam, an HBM Legal Counsel partner. She was speaking on a panel at the National Association of State Bar Tax Sections' annual meeting in Nashville, Tennessee.
State And Local Biz Tax Growth Slowed Amid Virus, COST Says – Asha Glover, Law360 ($). “The amount of state and local taxes paid by businesses increased by a smaller percentage than in previous years during the 2020 fiscal year because of the pandemic, according to a report released Friday by the Council on State Taxation.”
Businesses paid more than $839 billion in state and local taxes in fiscal year 2020, marking a 0.5% increase compared with 2019, according to the report released by COST and the State Tax Research Institute.
According to the report, business tax revenue accounted for 44.3% of all state and local tax revenue in 2020, with state business taxes decreasing by 1.9%. Local business taxes grew by 3.1% last year, which the report attributes to increases in local property tax and sales tax.
Digital Tax Pact With Europe May Complicate Maryland’s Ad Tax – Michael Bologna, Bloomberg ($). “The hottest state tax lawsuit in the country got hotter this week after the federal judge overseeing big tech’s challenge to Maryland’s digital advertising tax withdrew from the case. The abrupt change in oversight could lead to delays and create some running room for an international tax hot potato to complicate an already complicated legal battle, legal scholars said.”
U.S. District Court Judge Deborah K. Chasanow Tuesday pulled out of a lawsuit brought by four trade groups challenging Maryland’s first-in-the-nation Digital Advertising Gross Revenues Tax. The next day, Judge Lydia Kay Griggsby was assigned to the case.
Subpart F Extension Applies To Entire Return, IRS Says – Jaqueline McCool, Law360 ($). “The extension of the statute of limitations for failure to report Subpart F income applies to a taxpayer's entire return, not just the Subpart F-related items, the IRS said in an Office of Chief Counsel memorandum released Friday.”
In memorandum 202142009, the Internal Revenue Service said that when the statute of limitations is extended to six years under Internal Revenue Code Section 6501(e)(1)(C) for failure to report Subpart F income, the extension applies to the entire return.
Which Companies Could Be Caught in the Pillar 1 Net? – Martin Sullivan, Tax Notes ($). “Under pillar 1 of the recently agreed OECD inclusive framework on base erosion and profit shifting, international tax rules will, according to an October 8 release, 'bring dated international tax rules into the 21st century by offering market jurisdictions new tax rights.' The idea is that the largest (more than $23.4 billion of global revenue) and most successful (profits of more than 10 percent of revenue) multinational businesses would be taxed on a portion (25 percent) of their excess profit in countries where their products are used, even if they have no physical presence in those countries."
Here we estimate that about $100 billion of profit will be reallocated annually under the proposal, and we identify companies that could be subject to the rule.
Using 2018 data, Table 1 presents estimates showing that 73 multinationals could have $101 billion of profit reallocated under pillar 1. In OECD lingo, the $101 billion is referred to as amount A. The 20 companies with the largest reallocations account for more than 70 percent of the total. Table 2, using 2019 data, shows that 69 companies could have $99 billion of profit reallocated. Table 3, using 2020 data, shows that 67 companies could have $110 billion of profit reallocated.
Is the OECD Deal Good or Bad for the United States? – Mindy Herzfeld, Tax Notes:
Takeaway
There’s little data to allow one to conclude whether pillar 1 will increase tax revenues for the United States or how and how much GILTI would be required to conform to pillar 2 and what that conformity might do to U.S. revenues.
If the deal loses money for the United States, it would be difficult to pass it via reconciliation, which the administration is reportedly considering if there’s an insufficient majority to pass it in the Senate.
It’s National Greasy Foods Day and I could not be happier! Do I eat greasy food every day? I wish!
“Although not the healthiest of choices, every once in a while, it is okay to enjoy some greasy food. From fried chicken, pizza, nachos, and french fries to bacon and hash brown potatoes, we all like a treat in our regular diet,” states National Day Calendar.