Embattled GOP Tax Plan; OECD in Jeopardy; IRS Rakes In The Cash

House GOP Tax Plan Faces Challenges from Competing Interest Groups?

As we reported earlier this year, House Republicans fast-tracked a tax package through the Ways & Means Committee with the promise of bringing the bill to the House floor by the August recess. With the annual summer break scheduled to start on July 28, some competing forces are flexing their muscles as we get closer to potential floor consideration of the legislation.

A coalition of moderate House Republicans from California and various states in the northeast are threatening to hold up consideration of the package if language is not included to address the $10,000 cap on the deduction of state and local taxes (SALT) that was created by the Tax Cuts and Jobs Act (TCJA). Also Hoping to influence consideration of the bill are House and Senate? Republicans and Democrats who support the restoration of the expanded? Child Tax Credit (CTC).

The Cloakroom Says:

As both sides feel strongly about these issues, some concessions will be necessary for House Republicans to successfully move the package through the House and get it over to the Senate.

Global Taxation

More Reaction from OECD decision to delay Global Minimum Tax

As we reported last week, The OECD issued revised guidance for the Pillars I and II plans and agreed to postpone implementation of Pillar One’s Digital Services Tax (DST) by one year as some of the 143 countries that have committed to the deal struggled to put compliance mechanisms in place.?

The revised guidance includes changes to how green taxes established by last year’s Inflation Reduction Act (IRA) will be treated by the OECD. Five countries (Canada, Belarus, Russia, Pakistan, and Sri Lanka) declined to approve the delay. Canada indicated that it declined to endorse the delay because it would put the country at a disadvantage in relation to other nations that have already put the tax in place. Meanwhile, the OECD pledged to continue efforts to forge a consensus on both pillars of its Global taxation plan. Canada said it remained committed to reaching a deal on the OECD plan.

In recent days, reaction to the postponement was strong. In the U.S., Congressional Republicans charged that the delay illustrated that the Undertaxed Profits Rule (UTPR) contained in the revised guidance issued by the OECD is an “illegal extraterritorial tax” and is unworkable under U.S. law. Opposition to the OECD proposal has been strong among House Republicans, and opposition has not abated in response to the announcement of the delay as House Ways & Means Committee Chair Jason Smith (R-MO) announced a hearing on the plan to focus on how it harms American workers and the U.S. economy.? At the hearing, Ways & Means Tax Subcommittee Chair Rep. Mike Kelly (R-PA) was highly critical of the OECD. ?At the same time, Ways & Means Committee member Rep Ron Estes (R-KS) introduced The Unfair Tax Prevention Act that would impose a reciprocal tax on any country that charges U.S. companies with a UTPR levy. This is the second retaliatory tax proposed by House Republicans in response to the OECD plan this year.

Reaction on Capitol Hill was not entirely negative. Senate Finance Committee Chairman Ron Wyden (D-OR) praised the OECD action as a benefit for American workers and companies. He also lauded the OECD for its revised treatment of the Biden Administration’s green taxes. The real question is, what does the postponement of the DST and revised guidance mean for the future of the OECD’s global tax initiative? The future of Pillars I and II is dependent on what happens in the U.S.?

The Cloakroom Says:

As we’ve pointed out previously, all eyes look to the U.S. when it comes to international agreements and treaties, and much depends on the U.S. adoption of laws to allow enactment of tax laws to enable the U.S. to conform with the OECD’s rules. U.S. domestic politics play a key role in the future of global taxation, as much is riding on the 2024 Presidential and Congressional elections. If Republicans win control of the White House and either the House or Senate. U.S. adoption of any global tax plans would be unlikely, effectively dooming Pillars I and II. Does the political reality in Washington, D.C. mean that the OECD delay will extend until after the 2024 elections? If so, how long will the 143 countries who have committed to the plan hold on? With the future of Global Taxation in doubt, The Cloakroom will keep a sharp eye on how things evolve in Washington and around the globe.

Accounting Policy IRS/ Tax Administration News

IRS Enforcement Yields $38 Million

IRS commissioner Danny Werfel told reporters last week that the service has collected $38 million in delinquent taxes from 175 wealthy taxpayers in recent months in an enforcement crackdown. Werfel said the effort was funded by the Inflation Reduction Act (IRA).

Increased IRS enforcement was a cornerstone of The IRA and widely touted by the Biden Administration to offset the cost of the bill. The IRA allocated about $80 billion for the IRS to enhance its enforcement capabilities, raising the ire of many Congressional Republicans who have made repeated efforts to rescind the funding. Currently, Republicans are seeking to strip the money through the appropriations process, the IRS says. If successful, that effort will limit the agency’s enforcement capabilities. Despite the opposition, Senate Finance Committee?Chair Sen. Ron Wyden (D-OR) praised the effort,?

Interesting Tax Note of the Week

As you may have heard, last night’s Powerball drawing was for a jackpot of more than $1 billion.? There are reports that one person in California won the jackpot. The only thing to temper the joy of winning is the state and federal tax bills the winner is liable for.? Luckily (as if the new billionaire needed more luck), California is one of eight states that do not tax lottery winnings. Congratulations to the lucky winner!

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