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Democrats battle CBO over whether the rich will be spooked into tax compliance – Brian Faler, Politico Pro ($). “A simmering dispute between Democrats and the Congressional Budget Office over how much money could be raked in by improving IRS enforcement largely boils down to a single question: How afraid will rich people be of a newly empowered tax collector? Lawmakers and the White House want to count $400 billion in budget savings toward the cost of their reconciliation package, including $240 billion projected to come from increased audits of corporations and the wealthy.”
More controversially, they also want to pencil in $160 billion in savings from people who aren’t themselves audited but who they say would see the IRS cracking down on scofflaws and decide it’s not worth trying to cheat on their own taxes.
That has become a major point of contention with the CBO, which is working on a much-anticipated cost estimate of Democrats’ plans.
IRS enforcement could raise $150 billion over ten years, not $400 billion. That is not good for lawmakers who want the reconciliation bill to not add to the deficit.
Democrats agonize over tax cuts for rich: 'Bad policy, bad politics' – Burgess Everett and Heather Caygle, Politico Pro ($). “Democrats are struggling with a huge problem that could sink them at the ballot box: They may end up looking more sympathetic to rich people than Republicans.”
After spending several election cycles campaigning against the GOP’s tax cuts as a boon for the wealthy, House Democrats are on the verge of passing a massive tax break for high-income earners — raising a cap on local and state tax deductions that primarily affects high-cost states. Though it’s good politics for many coastal-area members to include that tax relief in President Joe Biden’s social spending and climate bill, it’s a move that Democrats say threatens to become a national liability ahead of next year’s midterms.
SALT Proposal Gives Windfall to Top Earners in High-Cost Areas – Ben Steverman and Laura Davison, Bloomberg ($). “Well-off professionals in costly areas of the U.S., such as New York and California, are set to get a windfall from competing plans by Congressional Democrats to change the deduction limit for state and local taxes.”
Americans with six-figure salaries and high property and state income tax bills will see the most noticeable effects from lifting the $10,000 SALT cap, according to an analysis by accounting firm Marcum conducted for Bloomberg News.
Democrats are deciding between at least two proposals to tweak the limit imposed by the 2017 tax law signed by former President Donald Trump.
The reconciliation bill under consideration by the House of Representatives would allow all taxpayers – including the superrich – to deduct up to $80,000 of SALT.
Senate SALT Plan Would Fully Lift Cap Within Income Limits - Laura Davison and Kaustuv Basu, Bloomberg ($). “Senator Bernie Sanders said he is working on a proposal to set an income threshold for an unlimited state and local tax deduction while letting high earners continue to deduct $10,000 from their federal taxes as they can under current law.”
‘I am working with some of my colleagues to make sure that we come up with a proposal that protects the middle class, but does not end up with an overall reconciliation bill, in which millionaires are better off tax-wise than they were under Trump,’ the Budget Committee chair told reporters Tuesday.
Sanders, a Vermont independent who caucuses with Democrats, said he is working on a plan that would give an unlimited deduction on federal returns for state and local taxes, or SALT, under a certain income level that is still being negotiated. Sanders has previously floated about $400,000 in annual income as the limit for unlimited SALT write-offs.
Renewable Companies Say Biden Tax Threatens Climate Goals – Mark Chediak and Josh Saul, Bloomberg ($). “Corporate tax changes proposed in President Joe Biden’s $2 trillion spending plan threaten to undercut his ambitious climate goals and undermine clean-power development, according to energy companies that oppose it.”
The latest version of the spending package, which is still being debated in the U.S. Congress , includes a minimum tax of 15% on a corporation’s book income. That would sharply diminish the benefits of other financial incentives in the legislation designed to hasten the build-out of green power, the American Clean Power Association said in a letter to Senate leaders and seen by Bloomberg News.
Ivy League Wrestles With Windfalls as Student Costs Rise - Janet Lorin, Bloomberg ($). “All told, it’s as if the Ivy League added another Harvard to its combined fortune in the space of a single year. The investment gain in the last fiscal year for the eight members: about $50 billion, for a total of more than $190 billion in assets. Call them the ivory tower’s 0.1%. Like America’s hyper-rich, the nation’s elite universities are amassing vast wealth with astonishing speed -- and raising some uncomfortable questions in the process.”
At the same time, colleges have been lobbying against a tax on schools with endowments of at least $500,000 per student since it was passed in 2017 as part of a Republican-led tax reform. It affects roughly three dozen schools including Harvard, Yale and Princeton. The Democratic plan announced in September for President Joe Biden’s then-$3.5 trillion economic agenda curtailed the tax as long as schools addressed tuition costs. But that provision was removed in early November.
Crypto Brokers Face Redefinition Under Proposed U.S. House Bill – Colin Wilhelm, Bloomberg ($). “A bipartisan group of House lawmakers wants to alter how the government defines who counts as brokers of crypto assets, less than a week after the current designation became law.”
Cryptocurrency transactions totaling $10,000 or more would no longer be treated as similar to cash for tax reporting purposes, though sales would continue to be taxed as capital gains.
The bill, sponsored by Representatives Patrick McHenry, a North Carolina Republican, and Tim Ryan, an Ohio Democrat, would exclude hardware and software developers, as well as miners who validate crypto transactions through the blockchain.
It’s November 2021: Do You Know Where Your Workers Are? – Kelly Phillips Erb, Bloomberg ($). “Nearly half—45%—of full-time U.S. employees worked from home all or part of the time in September, according to Gallup. Those numbers were the same as those in July and August, suggesting that workers may be settling into a new normal. As employees increasingly embrace the idea that work doesn’t always have to happen inside of an office building, some employers are struggling to adjust. Beyond the obvious—tech and communications issues—employers must sort out tax issues that aren’t quite so obvious.”
Working at home in one state when your company is located in another state may mean that you’re subject to tax in both places.
For example, if you live in Pennsylvania, but normally work in New York, you may have to file a resident tax return in Pennsylvania and a nonresident tax return in New York. You typically would file and report income to the state where you work and then claim the credit on your resident tax return.
SALT Workarounds Off to a Slow Start Despite State Eagerness - Sam McQuillan, Bloomberg ($). “More than 20 states have passed workarounds to the federal cap on state and local income tax deductions, but early feedback shows most eligible taxpayers aren’t jumping on the opportunity.”
Bloomberg Tax submitted inquiries to the 20 states with optional pass-through entity taxes. Out of the four which responded with data—New York, Maryland, Wisconsin, and Louisiana—about 8% of eligible businesses have opted in so far.
California Budget Surplus for Next Year Seen at $31 Billion – Romy Barghese, Bloomberg ($). “California will likely have a budget surplus of $31 billion for its next fiscal year, according to the state’s nonpartisan adviser, which would mark the second straight year of staggering excess as revenue continues to exceed expectations.”
The surplus for the year beginning in July, as estimated by the Legislative Analyst’s Office in a report Wednesday, gives Governor Gavin Newsom even more opportunity to press his priorities in the budget he will present to the legislature in January. This year, the surplus was $75.7 billion.
Reserves will reach about 10% of general fund revenue, still below the pre‑pandemic level of 11%, the report said.
New Mexico Governor Pitches Plan to Cut Gross Receipts Tax Rate – Brenna Goth, Bloomberg ($). “A reduced gross receipts tax rate will be among New Mexico Gov. Michelle Lujan Grisham’s top legislative priorities in 2022, she said Wednesday.”
- Lujan Grisham (D) will pitch lawmakers a plan to lower the statewide rate to 4.875% from 5.125%. The rate hasn’t been cut since 1981, according to her office.
- The change would result in a $145 million tax cut annually for businesses in the state, her office said. The move would ‘put more money in the pockets of New Mexico families and businesses,’ Lujan Grisham said in a statement.
Treasury Staffers Laud Global Tax Pact, Cite Looming Challenges – Michael Rapoport, Bloomberg ($). “Treasury Department officials on Wednesday touted the recent 137-nation global tax agreement as a landmark achievement that will help the U.S. and U.S. multinational companies, but they acknowledged that the work was far from done.”
The agreement, which will impose a global minimum tax and reallocate some of multinationals’ taxable profits from one country to another, will provide a level playing field and greater tax certainty for U.S. companies competing abroad, Treasury officials Rebecca Kysar and Itai Grinberg said in an interview at the Bloomberg Tax Leadership Forum.
Global tax rules have been ‘creaking under the weight of digitalization and globalization in recent years and needed structural reform,’ said Grinberg, Treasury’s deputy assistant secretary for multilateral tax.
Happy National Princess Day! Oh! The memories! My daughter was soooo into princesses when she was little. She’s older now and into Goth. When does this stage end?