TAX TAKE: Money, It's a Hit: Scoping Out the Reconciliation Tax Package
As Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV) continue to discuss a slimmed-down version of the Build Back Better Act (BBBA), speculation continues to swirl regarding the potential contours of a tax package to fund the bill's spending and deficit reduction provisions. Setting aside our own prognostications as to what specific provisions may be in or out, we thought it useful to lay out the assumed parameters of such a package:
- The full suite of revenue raisers in the House-passed bill should be more than sufficient to fund a slimmed-down reconciliation vehicle. Simple math suggests that as the cost of a new package comes down from what passed the House in November, less tax revenue will be needed to fund it, even if it includes a substantial deficit reduction component.
- As a result, new revenue raisers (including those in the Treasury's Greenbook and those provisions that were in the Committee on Ways and Means-passed bill but dropped from the version voted on by the full House) are extremely unlikely to be considered – including the corporate tax rate increase from the Committee-passed bill, particularly given Senator Kyrsten Sinema's (D-AZ) continued objection to it.
- In the international tax arena, the provisions in the House-passed bill are widely believed to be the cornerstone of any reconciliation package. This is especially true for the modifications to the global intangible low-taxed income (GILTI) regime, which would be required for it to be deemed Income Inclusion Rule (IIR)-compliant. Less clear is the utility of enacting a modified base erosion and anti-abuse tax (BEAT), given the FY23 Greenbook's proposal to repeal section 59A altogether and replace it with an undertaxed payments rule (UTPR)/Qualified Domestic Minimum Top-Up Tax (QDMTT) framework, which would bring our domestic rules completely in line with those of the Global Anti-Base Erosion (GloBE) framework set forth under Pillar 2. Thus, while the GILTI modifications are probably a sure bet, there is the potential for significant tweaks to the other international provisions in the bill, reflecting OECD progress in developing the GloBE rules since last November.
- A number of other proposals may be tweaked in light of concerns raised by Senator Sinema, including changes that would limit the scope and application of both the proposed 15 percent book income minimum tax and the proposed surtax on high-income individuals.
- Any included state and local tax (SALT) deduction cap relief will likely be much more modest. Rather than the cap increase from $10,000 to $80,000 through 2030 in the House-passed bill, alternative plans could provide relief only to taxpayers making under a certain income threshold amount.
- Effective dates from the House-passed bill will need to change. Given the passage of time (and the general preference to have tax provisions start at the beginning of a year), effective dates will need to be updated. Congress will be wary of any potential manipulation (income or deduction acceleration or deferral), and that wariness could either temper any appetite for enacting prospective effective dates, or result in transition or grandfather rules being considered.
As the clock winds down on the prospect of enacting a reconciliation bill pursuant to the FY22 budget instructions, hard decisions are going to have to be made as to the exact contours of a slimmed-down BBBA. #TaxTake
Upcoming Speaking Engagements and Events
On June 14, Loren will speak at the TPMinds International 2022 Summit in London on a panel titled "Latest U.S. Tax Developments."
Loren will speak on the "Transfer Pricing Debate" panel at the 2022 NABE Transfer Pricing Symposium on July 19.
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