TAX TAKE: Money, Money, Money, Money. Money! Treasury Secretary Testifies This Week on President Biden's Budget Plan
This week, Treasury Secretary Janet Yellen will kick-off discussions on President Biden's FY 2023 budget plan, which includes the revenue proposals outlined in the Department of the Treasury's Greenbook. Secretary Yellen will testify before the Senate Finance Committee tomorrow, June 7, and then will testify before the House Ways & Means Committee on Wednesday, June 8. While the Treasury Secretary typically testifies on the president's budget around the time it is released in the spring, we expect these later-than-usual hearings to be lively given President Biden's robust tax agenda.
Members of the Finance and Ways & Means committees are expected to ask Secretary Yellen pointed questions gauging the Administration's position on a variety of domestic and international tax issues. While a focus of the hearings will be the proposals in the Greenbook, expect for members to also highlight their specific tax and fiscal priorities. Among the general issues likely to be raised during the hearing:
- Inflation Concerns and Taxes. As inflation concerns continue to keep Congress's attention, President Biden is doubling down on his tax plan as a way to reduce the federal deficit and ease inflation. Expect this issue to be front and center for members during the Finance and Ways & Means hearings.
- Return of Build Back Better? News continues to percolate that Senator Joe Manchin (D-WV) is engaged in preliminary discussions with Senate Majority Leader Chuck Schumer (D-NY) on a scaled-back Build Back Better (BBB) plan, which Democrats could seek to message as reducing the federal deficit given the revenue-raising proposals included in earlier BBB House and Senate packages. If Senators Manchin and Schumer reach a deal on a plan, we expect it to include a significant tax title, and that could be a focus during this week's hearings with Secretary Yellen.
- OECD and EU Tax Developments. As the OECD and EU work to advance a global minimum tax agenda, the chorus of voices questioning the U.S.'s participation in both Pillars 1 and 2 continues to grow. Chief among the concerns: a lack of clarity regarding the revenue effects of Pillar 1, the continued proliferation of digital services taxes despite the political agreement to "standstill and rollback," and the potential impact of non-refundable general business credits on the effective tax rate calculation in the Pillar 2 context. These are just a few of the key issues that have yet to be resolved and that have garnered interest from lawmakers on both sides of the aisle. And as progress on both Pillars continues to be made, the pressure is mounting on Treasury and Congress to act.
- Final Foreign Tax Credit Regulations. Since their publication in January 2022, these regulations have generated nothing but consternation as taxpayers push back on rules that have draconian implications for foreign taxes that had long been held to be creditable. While Treasury has indicated some additional guidance is forthcoming that will provide additional clarity and some limited relief, the harshest effects of the rules are not anticipated to change for most taxpayers. We expect Secretary Yellen to be asked pointed questions regarding the negative impact these rules will have on U.S. multinationals' competitiveness, with the subtext being that Treasury should withdraw the package altogether.
- ProPublica Leak of Taxpayer Information. Secretary Yellen has yet to formally respond to multiple Congressional inquiries regarding the leak of private taxpayer information by ProPublica. Expect Republicans, particularly the Ranking Members of both of the tax-writing committees, to ask about the status of the investigation.
- Destruction of IRS Documents. News recently broke about the IRS destroying an estimated 30 million paper-filed documents, which has been criticized by Republicans and Democrats. Expect this issue to be raised with Secretary Yellen this week, especially the potential impact on taxpayers.
As Congress returns from the Memorial Day recess, we anticipate this to be an active week for tax policy. Look for Finance and Ways & Means members to spotlight their priorities, which could set the stage for the tax legislative landscape the remainder of the year. #TaxTake
Upcoming Speaking Engagements and Events
Loren will speak on the "International Tax Update" panel at the 2022 Texas Federal Tax Institute Annual Conference in San Antonio on June 8.
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.
In the News
In Tax Notes, Loren discussed the possible impact of a recent IRS GLAM which concluded that a taxpayer's FDII deduction must be reduced by deferred compensation expense attributable to services provided in years prior to FDII's effective date.
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