Can We Expect New Tax Bill By End of Week?

INFRASTRUCTURE UPDATE

 As with yesterday, let’s just get this out of the way first (yes, today some of this is a cut and paste):

• Talks continue on a bipartisan infrastructure plan.
• Senior Administration officials met with the entire Senate Gang of 10 negotiators for the first time yesterday.
• Senate negotiators say they’ve made real progress.
• The White House wants to see progress.
• They still don’t know how they are going to pay for it.
• GOP is putting the onus on the White House to come up with a replacement for indexing the gas tax and a tax on the miles driven by electric vehicles.
• White House spokesperson Jen Psaki has now personalized this debate, saying the Administration is “not for a Ford F-150 tax,” referring to the electric version of the popular truck.
• The White House says both of these are out because they violate the pledge not to increase taxes on anyone making under $400K.
• Closing the tax gap - that magical, infinite pot of gold - is still in play as an offset, despite Republican criticisms of giving the IRS more money to close the gap and their disdain of the proposed inflow/outflow information reporting proposal.
• Sen. John Cornyn (R-TX), a member of the Senate Finance Committee, said that the pay-fors are the hardest thing about the process and should have been the first thing to be addressed.
• They’d like to come to an agreement before the end of this week when the Senate leaves for an extended Independence Day recess.
• We won’t see a plan unless the President approves of it. No sense in Dems ceding anything unless it’s going to amount to something.
• Sen. Markey (D-MA) summed up the position of many Democrats who are wary of agreeing to a bipartisan bill and then having the rug pulled out from under them when it comes time for a reconciliation package. The senator said, “Both trains have to arrive at the station at the same time: Bipartisan and reconciliation.” … “Then meld them together as they arrive at the station and pass them as a package.”
• Budget Chairman Sanders suggested that his $6T infrastructure package might not have to be fully paid for. He indicated openness to paying for the longer-term policies (human infrastructure programs like expanding Medicare and funding child care) and borrowing for one-time projects (apparently “hard” infrastructure, like roads and bridges), citing low interest rates. He added that he might throw in even more pay-fors than have been previously floated, depending on what Democratic goodies are in the legislation that need to be offset. 
• If the House passes a surface transportation plan prior to the July 4 recess it almost certainly won’t have a tax title (pay-fors). This isn’t just because Dems probably couldn’t agree on the offsets or don’t want to tip their hands. It is a strategic move so that the House preserves its Constitutional authority to initiate revenue measures. If the House sends over legislation to the Senate with a tax title, the Senate could strip out the House language and insert its own tax plan. The House could then be at risk of getting jammed by the Senate, say at fiscal year-end when the government turns into a pumpkin if funding isn’t approved, and the Constitutional prerogative of the House would be lost. 
• Sen. John Kennedy (R-LA), known for his colorful turns with words, observed that he doesn’t think President Biden will take corporate tax increases off the table. He said the Administration keeps knocking down proposed pay-fors like “bowling pins,” adding “until there’s nothing left besides ‘sic the IRS on half the Western Hemisphere to raise the money.”

 SPEAKING OF THE IRS BUDGET

 The House Appropriations Committee is recommending an IRS budget of $13.2 billion for FY 22, plus an additional $417M aimed at reducing the tax gap. The subcommittee on financial services and general government is slated to consider the bill tomorrow. This would be an increase of $1.7/b compared to FY 21.

 Note that this does not include the additional $80B that the Administration has proposed to really go after the tax gap. That type of a funding increase would more appropriately be left for the big budget reconciliation infrastructure package with the hopes that Democrats can structure it in such a way that it will count as raising revenue to pay for the legislation. 

 INTERESTING OBSERVATION ON THE GENESIS OF THE BOOK MINIMUM TAX PROPOSAL

An IRS Associate Chief Counsel (International) explained the genesis of the Biden Administration’s book minimum tax proposal that would impose a 15% tax on book income for companies with over $2B in revenues. The attorney, Peter Blessing, said the proposal arose out of a noticeable difference between how stock option expenses are treated for book and tax. Companies can deduct an estimated value of stock options at the time they are granted to employees for book purposes, but must wait to deduct them for tax until the options are actually exercised. The tax deduction is at actual value. Assuming the value of the stock went up, this could give a much larger deduction for tax (and lower income) than book.

 INTERNATIONAL UPDATE

 The US doesn’t have a lock on all the tax action. Following are several items of interest on the international stage - let us know if you’d like further details. All of these proposals could affect US multinationals and/or US subsidiaries of foreign-owned companies and some of them will sound familiar from US policy discussions.

•  Reports are that a draft G20 document ahead of the July 9-10 meetings of the group endorses the OECD’s ongoing efforts to develop a global methodology to tax the digital economy. At this point in time the G20 document reportedly supports a minimum tax but does not include a minimum tax rate. Sec. Yellen has consistently said that the US is pushing for at least a 15% minimum tax rate. On the other hand, Ireland has said they are not budging off their current 12.5% (although they seem to be waffling on that a bit - see below). So maybe it’s just easier and safer to stay away from specifics. [Americans for Tax Reform, the conservative group led by Grover Norquist, today released a letter signed by an international coalition of 76 conservative groups and activists from 40 different nations opposing a global minimum tax. As in the US, these folks will be lobbying or consulting with their local officials urging them not to support the OECD effort to impose such a tax.]
• The OECD global framework is scheduled to meet on June 30-July 1 to try to reach political agreement before the G20 meeting. Note that political agreement can be some distance from an agreement on specific rates and other design issues, like allocation and nexus rights.
• The European Commission plans to release its own version of a digital tax regime shortly after the G20 finance ministers meet. While supportive of an OECD approach as a lowest common denominator, EC leaders say they are still going ahead with a plan that would be broader and include more companies within scope. They assured members of the European Parliament that the EU tax will not conflict with an OECD agreement, but rather it will be “complementary.” They insist an EU tax is necessary to fund the EU budget and toward repayment of COVID borrowing and continuing COVID recovery. 
• Irish Finance Minister and Eurogroup President Paschal Donohoe said he supports large companies paying more in taxes and thinks an OECD agreement is “really, really important.” He added “the fact that I am acknowledging that this will deliver a revenue loss in Ireland but I’m still willing to make the case for an agreement is a sign of my intent to do that.” So maybe Ireland is prepared to endorse the 15% minimum rate, after all. 
• The EC continues to tackle other significant tax initiatives, including the common consolidated corporate tax base, known as “Business in Europe: Framework for Income Taxation, aka “BEFIT.” They somehow will need to meld whatever the OECD recommends (which will require some sort of reconciliation of a base taxable income figure among countries with different financial reporting and tax regimes) with an EU-wide common tax base. 
• The EC plans to release a proposal next year that would require companies to publicly report their effective tax rates in each country they operate in. 
• On July 14, the EC intends to propose a revision to the energy taxation directive and a new revenue raiser, a carbon border adjustment mechanism, or “CBAM.” The purpose of CBAM, which we’ve reported on before, would be to equalize the price of carbon on domestically produced products and imports, particularly imports from countries not pursuing emissions reductions. Like many Democrats, the EU wants to eliminate fossil fuel subsidies and promote clean energy. 
• The EC plans to introduce an initiative soon aimed at cracking down on shell companies that lack economic substance.
• The EC is working on initiatives related to tax residence. 
• The OECD is working on information exchange initiatives to deter tax avoidance and evasion in the digital space, including cryptoassets. The regime would allow jurisdictions to require intermediaries involved in the transfer of cryptoassets to report on those activities. 
• The EC is developing a directive on the exchange of tax information on cryptocurrency and e-money, in coordination with the OECD.
• Whew. Do not expect tax computations to become any simpler anywhere.