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Congress Returns to Familiar Tax To-Do List After Recess - Chris Cioffi and Samantha Handler, Bloomberg ($):
The new IRS plan for how it will spend $80 billion it got in the tax-and-climate law will likely be the topic du jour among congressional taxwriters when they return this week, but there won’t be much time to digest it before the debt ceiling fight and reauthorization bills steal the spotlight.
The debt ceiling needs to be lifted by July (the current effort to extend it into May 2024 is expected to fail). ‘Reauthorization bills’ and funding the federal government need to occur before September 30th, if not sooner.
Lawmakers rarely act on anything until the last second. This could mean that the debt ceiling issue is addressed in July. Lawmakers then leave town for the August recess (for the entire month). In September, they return to fight about funding the federal government until September 30th (or maybe the 29th if they’re feeling ambitious). Under this schedule, tax issues aren’t addressed until October – which what some congressional staffers are expecting.
Possible tax issues addressed when Congress gets to it:
A laundry list of policy items awaits Congress, and though the political landscape has shifted, some tax-related issues on the table are familiar. Crafting a package that could include tax credits for housing, families, and businesses, and making changes to 1099-K forms filed often by gig workers are in the mix.
When it comes to business tax breaks, think R&D expensing, expanding 163(j) interest expensing, and returning Bonus Depreciation to 100%. When it comes to family tax breaks, think expanding the Child Tax Credit. When it come to passing all these provisions, think ‘probably not.’ It’s too expensive. Something has to go for the other provisions to be enacted.
Tax increases proposed in debt ceiling debate:
Centrist Maine Democrat floats compromise debt limit plan – Lindsey McPherson, Roll Call:
Rep. Jared Golden, D-Maine, co-chair of the fiscally conscious Blue Dog Coalition, wrote a letter to his constituents, published on his Substack page, to explain his policy views on the national debt and the debt limit.
Tax increases proposed:
He suggests raising $100 billion by increasing the corporate tax rate from 21 percent to 25 percent for businesses with more than $10 million in profits; $85 billion from restoring the pre-2017 tax law top marginal individual rate of 39.6 percent for taxpayers earning more than $400,000, up from 37 percent today; and $65 billion from expanding the 1 percent surtax on corporate stock buybacks and closing other unspecified ‘loopholes.’
Democrats propose tax increases. Republicans propose spending cuts. It’s in their DNA.
Republicans are vehemently opposed to raising taxes, while Democrats are leery of cutting spending, making such a suggestion easier said than done.
Regarding GOP proposals:
Key House GOP caucus releases debt ceiling priorities – Aris Folley, The Hill:
Leaders of the Main Street Caucus, a prominent House GOP caucus of more than five dozen members, released a list of priorities for Speaker Kevin McCarthy (R-Calif.) to pursue as part of a measure to raise the debt ceiling…
Among the items the pair outlined in a release on Thursday are pitches to claw back billions in coronavirus funds they say have gone unspent, end the ongoing pause on federal student loans repayment and return non-defense discretionary spending to fiscal 2022 levels.
The issue is that a Democratically-controlled Senate and a Republican-controlled House must agree on terms to raise the debt ceiling or the federal government defaults on outstanding loans.
Related:
Tax Day Cash Will Indicate Just How Close the US Is to Default - Alexandra Harris, Bloomberg ($):
The question of when the US could default will come into sharp relief this week when the Treasury reveals how big its tax take is likely to be.
With the political battle over the statutory debt ceiling set to amp up again, the Treasury’s tax receipts will give a clearer idea of how much cash it will have on hand as it approaches the limits imposed by the $31.4 trillion cap that will prevent it from borrowing.
Bipartisan Group Pushes to Modernize IRS Filings for Startups - Samantha Handler, Bloomberg ($):
House Financial Services Chair Patrick McHenry (R-N.C.), along with Reps. Adrian Smith (R-Neb.), Susan DelBene (D-Wash.), and Nydia Velázquez (D-N.Y.), reintroduced their bill, Eliminating Paperwork for Startups Act, according to a Friday news release.
The bill would require the IRS to allow Section 83(b) forms to be filed and for the responses to be received electronically.
This is not a ‘front burner’ issue on Capitol Hill. I mentioned it because it is backed by members of the tax-writing House Ways and Means Committee, which has jurisdiction over the IRS. This measure could appear in a larger tax bill that contains provisions that are ‘front burner.’ (Assuming that larger tax bill materializes.)
Retirement Insurers Adapt to Opportunity, Risks Under 401(k) Law - Austin Ramsey, Bloomberg ($). “The law enacted Dec. 29 earmarks new tax credits for small employers to cover the costs of setting up a plan and will establish new starter-401(k) designs next year that are intended to eliminate some of the headaches associated with plan development. Those two provisions alone could add 19 million new workplace savers to the market, according to the American Retirement Association.”
IRS Audit Rates for Wealthy, Corporations Down Sharply From 2012 - Naomi Jagoda, Bloomberg ($):
The agency had a 9.2% audit rate for 2018 individual tax returns that reported income of at least $10 million, up from 6.3% for 2017 returns and the highest level since 2014. But the rate was still lower than the level of 13.6% for 2012 individual returns with income of at least $10 million, according to the report.
The audit rate for corporations was 0.6% for 2018 returns, the same as the previous year and lower than the rate of 1.3% for 2012 returns. The rate for partnerships was 0.1% for 2018 returns, which was flat compared with 2017 returns and down from the 0.3% rate in 2012, the Data Book reported.
IRS Describes Safe Harbor Accounting Method for Gas Property - Isabel Gottlieb, Bloomberg ($). “The IRS released guidance Friday that offers a safe harbor method of accounting to help taxpayers determine whether they must capitalize certain expenses related to natural gas transmission and distribution property.”
IRS has $1.5 billion in unclaimed 2019 refunds. Is one yours? – Michelle Singletary, Washington Post. “But much like the lottery, you have to play to win; in this case, you have to file a 2019 return to collect. Nationwide, the midpoint for potential refunds for 2019 is $893, which means half are more than that amount and half are less, according to the IRS. In four states — Massachusetts, New Hampshire, North Dakota and West Virginia — the median potential refund exceeds $950.”
Arizona Floats Novel Solution for Sales Tax Compliance - Michael Bologna, Bloomberg ($):
Some retailers operating in multiple states have described their sales tax compliance obligations as hellish, particularly after the US Supreme Court’s ruling in South Dakota v. Wayfair.
Arizona recently considered legislation designed to ease some of those compliance burdens, but by some accounts the measure would only turn up the temperature—an unhappy result in a state where the unofficial motto is, ‘Where summer spends the winter, and hell spends the summer.’
Mass. House OKs Cut In Capital Gains Tax Rate – Sanjay Talwani, Law360 Tax Authority ($). “The Massachusetts House approved a tax package that included a capital gains tax rate cut championed by Democratic Gov. Maura Healey, a doubling of the estate tax exemption and other measures.”
Mont. Lawmakers OK Bar To More Tax On Some Digital Assets – Zak Kostro, Law360 Tax Authority ($):
Montana would prohibit local governments from imposing additional tax on certain digital assets under a bill passed by the state legislators and headed to the governor.
S.B. 178, which passed the state House of Representatives by a 64-35 vote Wednesday after having cleared the Senate by a 36-14 vote Feb. 27, next goes to Republican Gov. Greg Gianforte. The bill stipulates that digital assets used as a method of payment may not be subject to any additional tax, withholding, assessment or charge by a state or local government based solely on the asset's use as a payment method, according to the text.
A Pillar 2 Tour Around the World – Mindy Herzfeld, Tax Notes ($):
Countries worldwide have been announcing with fanfare their plans to introduce pillar 2 — the OECD-brokered global minimum tax, or GLOBE — into their domestic laws. A few have already passed legislation to do so. With countries jumping onto this bandwagon, it’s time to take a look at what implementation means in different jurisdictions. Although the agreement on the global minimum tax mostly requires conformity to the OECD model rules, those rules also leave room for variation in implementation, particularly for transition rules and thresholds.
Join me for a tour of pillar 2 implementation, region by region.
From the “I thought I was rich until I paid my bills and taxes” file:
A $300,000 Salary Feels Like $100,000 in Priciest US Cities – Jo Constantz, Bloomberg ($):
It’s tax season in the US, and nowhere is that felt more acutely than in three cities — New York, San Francisco and Honolulu — where you need a salary of over $300,000 to bring home $100,000 after taxes and adjustments for the cost of living…
Residents of the country’s priciest cities, contending with formidable housing costs and other mounting expenses, need a net income of over $180,000 for their purchasing power to break the $100,000 mark, according to SmartAsset’s analysis of the Council for Community and Economic Research’s cost-of-living data. And since high-earners are taxed upwards of 40% in those cities, they need to command top dollar for their take-home pay to actually feel like six figures.
Happy National Crawfish Day! This shout-out goes to my lovely wife, who is half Cajun! Her family’s crawfish boil on Christmas Eve is something to behold!