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TAX TAKE: March Madness Kicks Off With a Slew of Tax Policy Developments

Tax Alert

The NCAA basketball tournament may be a few weeks away, but March Madness has already started in the tax policy world with a flurry of activity in Washington.

Runway Extended for Tax Relief for American Families and Workers Act

Although reports of substantive negotiations on the pending tax bill are scarce, the timeline for its consideration moves in tandem with the deadlines for the two legislative vehicles most likely to carry it. The deadlines for fiscal year (FY) 2024 government funding and the Federal Aviation Administration (FAA) reauthorization bill keep getting extended, hopefully providing more time to cut a deal on the tax bill. With the first tranche of appropriations bills passing last week, Congress now has until March 22 to fully fund the government by passing the remaining six appropriations bills. That date could be moved further out by another continuing resolution (CR) – until as late as April 30 – before the automatic one percent across the board spending cut provided for by the Fiscal Responsibility Act of 2023 would take effect. In addition, FAA reauthorization was extended last week through May 10. There is still plenty of time to negotiate a deal on the tax bill if policymakers decide they want to get in the same room and hash one out.

State of the Union Tax Increases

Last week's State of the Union address had a substantial tax component. President Biden proposed a number of tax increases on businesses and the wealthy as detailed in the fact sheet released by the White House. Although these proposals – including an increase in the corporate tax rate to 28 percent and an increase in the corporate alternative minimum tax (CAMT) rate to 21 percent – will not receive consideration this year or if divided government (in one form or another) continues in 2025, they do represent the Democratic playbook if Democrats keep the White House and Senate and recapture the House of Representatives in November.

House Pillar One Hearing

Last week, the House Ways and Means Tax Subcommittee hosted a hearing on Pillar One, where discussions centered largely on the score the Joint Committee on Taxation (JCT) released just one day before, and whether to abandon or support continued U.S. engagement in the Pillar One negotiation process. The JCT score presented three possible scenarios, each of which had some amount of revenue loss associated with it. The projected revenue loss was based on 2021 receipts and ranged from $100 million to $4.4 billion for the year. Members on both sides of the aisle expressed concerns about the overall revenue loss, though some Democratic members were more circumspect and emphasized what the U.S. might also gain from the process. A part of that calculus involves weighing the efficacy of Amount B, rather than just thinking of Pillar One in the context of the potentially reallocated profits under the Amount A framework.

There was general consensus that the proliferation of digital services taxes (along with other types of extraterritorial taxes) cannot continue, but members differed along partisan lines on the best means of shutting them down. Ultimately, the overarching theme was that Congress should be involved in the ongoing negotiations to ensure that the final package is acceptable from the point of view of not only congressional taxwriters and the administration, but also the business community.

Guidance Train Keeps Rolling

Last week, significant guidance was issued by the Treasury Department and the Internal Revenue Service (IRS) – the long-awaited "elective payment" final regulations for Inflation Reduction Act (IRA) clean energy credits and the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act advanced manufacturing investment credit. While important regulations are still pending, including those relating to the CAMT, the stock buyback excise tax, and the advanced manufacturing investment credit more generally, Treasury and the IRS are soliciting proposals for new guidance projects to be added to the Priority Guidance Plan. Proposals are due May 31 and represent an excellent opportunity to influence the guidance process. #TaxTake

Upcoming Speaking Engagements and Events

Jorge will speak to the American Chamber of Commerce Peru on March 13. He will discuss the November 2024 U.S. presidential and legislative elections and their possible impact on fiscal and tax laws.

In the News

Marc commented on Senator Kyrsten Sinema's (I-AZ) decision not to seek re-election in the Bloomberg Government article "Sinema's Exit Has Lobbyists Fearing for Future Bipartisan Deals." "It's a numbers game. When you are that swing vote, your priorities and your concerns need to be addressed."

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