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Individual Income Tax Payments on Pace to Reach Record Level – Richard Rubin and Amara Omeokwe, Wall Street Journal ($). “An unprecedented gush of income tax revenue is flowing into the federal government, driven in part by investors and business owners, and the size and speed of the increase has surprised even the nation’s fiscal-policy experts.”
Where the money came from is kind of a mystery.
CBO officials and other economists who monitor tax collections say tax revenue became disconnected from other economic data in ways they still don’t fully understand.
‘There’s a part that is unexplained that we need more time to figure out,’ CBO director Phillip Swagel said. ‘It’s a mystery. It’s a maybe happy mystery, to have strong revenues.’
Possible answers:
The $1.9 trillion American Rescue Plan, enacted in March 2021, pumped money into the economy. Much of that wasn’t taxed directly, including $1,400 per-person stimulus payments, aid to state governments and expanded child tax credits.
But as consumers spent that money on goods and services and states spent that money on workers and the pandemic response, the law created taxable income that otherwise wouldn’t have existed, and that showed up on 2021 tax returns. That came atop pandemic-era legislation in 2020 that aided households and businesses.
What Congress didn’t do may have mattered, too. Some high-income people might have accelerated income into 2021 because they feared that Congress was likely to raise taxes soon.
Tax reform's future:
GOP Ways and Means Race Pivots on Style More Than Policy – Colin Wilhelm and Kaustuv Basu, Bloomberg ($):
The three Republicans vying for the top spot on the influential tax-writing panel—Reps. Vern Buchanan (R-Fla.), Jason Smith (R-Mo.), and Adrian Smith (R-Neb.)—have all identified setting in stone expiring portions of the 2017 tax law that would otherwise sunset as a top priority if they lead the committee. That includes extending current individual tax rates, the pass-through deduction, and present levels of the child tax credit and standard deduction, all set to expire at the end of 2025.
Every election is important, but when it comes to the 2017 tax reform bill the 2024 election will be most important, and not the upcoming election. The political party who wins control of the House and the Senate in 2024 will have the power to extend the individual tax reform provisions that expire in 2025. Lawmakers normally don't extend something until it's on the verge of expiration. So resuscitating provisions in 2023 that expire in 2025 doesn't fit the pattern.
Speaking of the 2017 tax reform bill...
House Democrats push Treasury, IRS for repeal of rule blocking state and local taxes cap workaround – Kate Dore, CNBC. “Three House Democrats are still pushing for relief on the $10,000 limit on the federal deduction for state and local taxes, known as SALT. Reps. Josh Gottheimer, D-N.J.; Tom Suozzi, D-N.Y.; and Mikie Sherrill, D-N.J., on Friday sent a joint letter to U.S. Department of the Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig, pleading to reverse a 2019 rule blocking a state-level SALT relief workaround.”
From the letter:
We ask you to support state-led efforts to increase charitable giving by repealing the Internal Revenue Service’s rule, published in the Federal Register as a final regulation on June 13, 2019.1 Thirty-three states offer tax credits that encourage charitable giving to certain causes, and this rule unnecessarily restricts the ability of states to incentivize charitable donations to nonprofits.
If Republicans win control of Congress and the White House in the 2024 election it's a safe bet that the SALT cap gets extended.
Windfall Tax - Richard Tzul, Bloomberg ($). “The White House is carefully examining options to lower gas prices, including the idea of a windfall profit tax on oil and gas companies, a top Biden official said.”
‘We are very much open to any proposal that would provide relief to consumers at the pump and help defray some of those costs,’ Bharat Ramamurti, a deputy director at the National Economic Council, said last week during an event organized by the Roosevelt Institute.
Regarding Build Back Better:
Tax on the Hill: Tussling With Manchin, TCJA Impacts Debated – Doug Sword, Tax Notes ($):
Sen. Joe Manchin III, D-W.Va., was snubbed in recent days for being a Johnny-come-lately for comments he made May 31 in support of a drug pricing measure that would give Medicare authority to use its massive bargaining power to lower prices.
Rep. Ilhan Omar, D-Minn., tweeted in response that Manchin had “already killed this” proposal, an apparent reference to Manchin’s derailing of the Build Back Better Act (H.R. 5376), which includes a prescription drug pricing title. Manchin did sideline the roughly $2 trillion package passed by the House when he announced his opposition in December 2021 to the bill as written. An aide to Sen. Bernie Sanders, I-Vt., was similarly riled, calling Manchin 'a phony.'
Biden Renews Push for Tax Initiatives Amid Economic Uncertainty – Alexander Rifaat, Tax Notes ($):
President Biden is reaffirming his support for several of his tax proposals, insisting that the reforms could assist economic recovery efforts and help Americans deal with record-high inflation.
In a June 3 speech from Delaware, Biden marked the release of the May jobs report by highlighting steps his administration is taking to combat rising prices. He repeated familiar talking points, promising not to raise taxes on individuals earning less than $400,000 and to focus on ‘taxing the super wealthy and big corporations.’
With each passing day the odds grow slimmer that Congress will pass a Build Back Better plan.
Resurrected budget package no slam dunk as negotiations heat up – Paul Krawzak, Roll Call. “Democrats face big obstacles and a deadline measured in weeks as they attempt to salvage a scaled-down tax, climate and health care package that could give them a boost ahead of the November elections.”
Further down the article:
Democrats are facing a time crunch since the fiscal 2022 reconciliation instructions expire Sept. 30. After that, they'd need to adopt a new budget resolution in order to pass a filibuster-proof package.
Budget veterans say that, practically speaking, Democrats have until the end of July to pass a reconciliation bill. Congress will recess in August, and there are just a few weeks in September after Labor Day to pass must-pass legislation like stopgap funding to avoid a partial government shutdown.
Despite the questionable future of Build, Back Better, it appears to be the best chance Democrats have for moving energy-related provisions.
Scoop: Manchin's bipartisan energy talks crumble, paving way for Democrat-only deal – Hans Nichols, Axios:
Bipartisan Senate energy talks led by Sen. Joe Manchin (D-W.Va.) are essentially over, with Republican senators convinced that Manchin is close to a reconciliation deal with Majority Leader Chuck Schumer (D-N.Y.), according to people familiar with the matter.
Why it matters: The death of the bipartisan approach will allow Manchin and Schumer to focus on a potential deal that includes green energy tax credits and the tax increases to pay for them.
What they're saying: ‘These talks had been a long shot to begin with,’ Sen. Kevin Cramer (R-N.D.) told Axios. ‘Manchin informed us in the last meeting that reconciliation is probably the route he’s going down.’
Energy Tax Credits - Richard Tzul, Bloomberg ($). “A coalition of environmental advocacy and utility groups—including the Environmental Defense Fund, Edison International and the World Resources Institute—called on the Senate to pass a package of clean energy incentives that passed the House last year as part of Democrats’ budget reconciliation package.”
Inflation strikes twice for many retirees – Brian Faler, Politico:
Spiking inflation is helping push up taxes on a group that lawmakers are loath to cross: the elderly.
While Social Security benefits increase along with rising prices, and seniors just received a fat cost-of-living adjustment, the threshold at which they can begin to owe taxes on that money is not adjusted for inflation — and hasn’t been changed since the Reagan administration.
Vehicle Mileage-Fee Appeal Grows as Limits Persist on Gas Tax - Lillianna Byington, Bloomberg ($). “The US needs to move toward a more reliable way to pay for the nation’s highways and bridges, and will be ready for a vehicle miles-traveled fee in five years, according to the top House Democrat who oversees transportation.”
Rettig: ‘Take a Hard Look’ Before Entering Microcaptive Deals – Chandra Wallace, Tax Notes ($). “The IRS will be ‘going strong everywhere’ against promoted abusive transactions, and it plans to issue a further statement aimed at taxpayers and their advisers participating in abusive microcaptive insurance arrangements, according to the IRS commissioner.”
‘You’re going to see a message come out from the Internal Revenue Service with respect to the microcaptive case Reserve Mechanical,’ Commissioner Charles Rettig said June 2 at the Federal Bar Association Insurance Tax Seminar in Washington. ‘Read the message carefully.’
IRS May Let Partnerships Make Qualified Electing Fund Moves – Michael Rapoport, Bloomberg ($):
The IRS is considering allowing partnerships to make certain types of elections for their partners under new passive-foreign-investment rules, rather than requiring the individual partners to make them, an IRS official said Friday.
The potential move would let partnerships make the elections for qualified electing funds, or QEFs, under proposed new rules on passive foreign investment companies, or PFICs, said Taylor Kiessig, special counsel in the IRS Office of Chief Counsel. He was speaking at an International Fiscal Association conference in Washington.
There’s No Panacea to Improve IRS Capacity—Congress Must Help (Opinion) – Chad Hooper, Bloomberg ($). “Congress must perform its basic constitutional duty and fund the government on time to ensure the IRS can keep moving forward with agency modernization plans. One-off initiatives like mandating 2-D scanning will not bring the IRS into the 21st century…”
IRS ‘Looking’ at Life-Nonlife Insurance Regulations - Erin Slowey, Bloomberg ($). “The IRS is considering changes to life-nonlife insurance regulations, an agency official said Friday at a Federal Bar Association tax insurance conference.”
The IRS is ‘thinking about’ deleting the bumping rule after receiving comments about its complexity, special counsel Russell Jones said.
IRS Considering Relief from PFIC Partner-Level Elections – Andrew Velarde, Tax Notes ($). “The IRS is considering providing relief from the much-maligned partner-level elections laid out in its proposed regulations for passive foreign investment companies, but an official stopped short of promising taxpayers a sought-after solution.”
State Coffers Are Flush, But Signs Hint At Tax Revenue Drop – Maria Koklanaris, Law360 Tax Authority ($). “Worries about budget shortfalls that struck fear into states early in the pandemic are ancient history, as revenue reports show big gains in tax receipts, but warning signs suggest states should plan for a coming tax revenue slowdown.”
South Dakota to Vote on Supermajority Rule for Tax Increases – Michael Bologna, Bloomberg ($):
Voters across South Dakota will decide whether to make it harder to use ballot initiatives to either bump taxes or boost state spending.
Citizens participating in Tuesday’s primary election will consider Amendment C, which would modify the South Dakota Constitution to require three-fifths supermajority approval of ballot measures that increase taxes or fees, or compel the state to appropriate $10 million or more in the first five fiscal years.
New York Crypto Mining Moratorium Bill Goes to Hochul – David Pan, Bloomberg ($). “New York state lawmakers passed a bill that would trigger a two-year moratorium on new permits for certain power plants involved in Bitcoin mining. The measure, which was approved by by a vote of 36 to 27 in the state Senate early Friday morning, now moves on to Governor Kathy Hochulfor consideration. The state Assembly approved the bill last month. Hochul has 10 days to sign or veto the legislation.”
Kan. Will Offer Pandemic Property Tax Relief For Retail – Jaqueline McCool, Law360 Tax Authority ($). “Kansas, under a bill signed by the governor, will allow qualifying retail businesses to claim a property tax refund for 2020 and 2021 if they were harmed financially by pandemic shutdowns and restrictions.”
Illinois May Revenue Drops YOY Given Delayed 2021 Tax Deadline - Shruti Date Singh, Bloomberg ($). “Illinois revenue from state sources fell about 27% last month from a year earlier, as expected given that the tax filing deadline in 2021 had been delayed by a month, according to the Commission on Government Forecasting and Accountability.”
Ohio Cities Lack 'Virtual Jurisdiction' For Tax, Teleworkers Say – Paul Williams, Law360 Tax Authority ($). “Three Ohio residents pressed a state appeals court to reverse a judge's dismissal of their constitutional challenge to a state law that allowed cities to tax employees working remotely in 2020, arguing that cities don't have ‘virtual jurisdiction’ over nonresidents.”
IRS Not Contemplating Delaying FTC Regs' Effective Date – Andrew Velarde, Tax Notes ($). “The IRS is not inclined to delay the effective date of its foreign tax credit regs amid practitioner requests for postponement.”
‘We’ve had some experience with postponing things that then seem to get postponed forever,’ Peter Blessing, IRS associate chief counsel (international), said at a June 3 event sponsored by the International Fiscal Association's USA branch in Washington. ‘People can take different views on more targeted postponements, but there’s not a great appetite for that either.’
Input Needed on U.S. Pillar 1 Tax Certainty Ideas, Plowgian Says – Stephanie Soong Johnston, Tax Notes ($). “The United States is alone on two proposals for ensuring certainty under the OECD global tax reform plan’s new profit allocation rules and wants stakeholders to comment on those ideas, a U.S. Treasury official said.”
Salute: Today marks the 78th anniversary of D-Day.
The battle liberated Northern France. Britain, the United States and Canada sent more than 160,000 Allied troops under the leadership of General Dwight Eisenhower. The troops manned more than 5,000 ships and 13,000 aircraft the day of the initial landing.
After nearly five years of war, D-Day represents a vital turn in the war. During World War II, much of the world faced tragedy and hardships. D-Day continues to be a significant point in the war.