News : Biden and tax regulations — Exodus, beginning

Monday, November 16, 2020

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Nov 16, 2020

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LOOKING ADMINISTRATIVELY: There's a lot of good reasons President-elect Joe Biden might use the regulatory process to move tax policy to the left.

Here's a big one: Biden could easily be the first president in more than three decades to enter the White House without his party also controlling both chambers of Congress, depending on the results of January's Senate runoffs in Georgia. So let's look at some ways that a President Biden could try to use the regulatory state to his advantage on taxes.

First up: Taking aim at the 2017 tax law, H.R. 1 (115). Big business groups like the U.S. Chamber of Commerce are already gearing up for a regulatory fight over preserving the Tax Cuts and Jobs Act, as The Washington Examiner's Jay Heflin reported. (Worth noting: Chamber officials aren't yet willing to predict which parts of the tax law will most be in need of defending.)

For Democrats, attacking the Republicans' signature legislative achievement during the Trump administration via regulation comes with some limitations — after all, the most straightforward way to change tax laws is to actually change the law. But it's not clear how much headway Democrats could make rolling back key parts of the TCJA with even a senator or two more than their current best-case scenario of 50. Which brings us back to the regulatory arena.

One example: Democrats have hoped to expand the 2017 law's tax on global intangible low-taxed income, but could be forced to focus on rolling back rules that allow companies to opt out of GILTI if certain thresholds for paying foreign taxes are met, as Bloomberg Tax's Allyson Versprille, Isabel Gottlieb and Kaustuv Basu noted. (Another good point there: It's not so easy to target the tax law's rules if the Congressional Review Act, which Republicans have used to great effect during President Donald Trump's tenure, isn't a viable option because the GOP controls the Senate floor.)

WE'RE BACK FOR MORE TAX — and, living in D.C., we can tell you how the right statue really pulls together a traffic circle.

Still a metaphor with some juice, two generations later: Today marks 68 years since Lucy first pulled the football out of the path of the would-be kicker Charlie Brown in a "Peanuts" comic strip.

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A second area: There are other areas where a Biden administration could go on the offense on tax regulations, outside of the tax law. Brian Galle, a Georgetown law professor, outlined several in a piece in the journal Democracy — including zeroing in on the preferential treatment of carried interest or targeting the estate and gift taxes via regulation. (Another potential administrative avenue would be reversing the Trump administration's decision to allow the White House budget office more authority over tax regulations.)

But Galle, who at least one progressive group has been pushing for a Biden administration job, notes there are probably some limits to what the incoming White House will want to take on in this area.

For instance: Taking a second crack at new rules governing 501(c)(4) groups, which turned out to be too big of a lift for the Obama administration, might be too much for a Biden administration as well. "I happen to think that heaps of anonymous money makes our political system more extreme and more toxic, so I lament that result," Galle wrote in an email.

Now what could be more doable in that area? Reversing the Trump-era ruling that allows nonprofits to not tell the IRS about their donors. "There are a lot of regulatory partners — state AG's and House Oversight, among others — that I know are interested in that happening," Galle added.

Finally: In 2020 of all years, we should acknowledge that Biden could take a lot of administrative actions over the next four years that can't be predicted right now. Who had the Trump administration unilaterally delaying the income tax filing deadline this year and then, more controversially, deciding to delay payroll tax collections for workers for four months?

Still, this doesn't necessarily mean that the amount of attention on tax regulations now has reached new highs or will under a Biden administration.

Mark Mazur, the director of the Urban-Brookings Tax Policy Center, noted that Trump administration was also active with regulations early on, and added that the new White House will have plenty of perhaps more pressing issues to deal with in its opening days.

Still: "I think the situation of divided government may exacerbate the issue," said Mazur, a senior Treasury official in the Obama administration.

EXODUS, BEGINNING: Chip Harter, Treasury's deputy assistant secretary for international tax affairs, will be leaving that position at the end of the month, scooped Stephanie Soong Johnston of Tax Notes.

People closely watching the global tax talks being run through the Organization for Economic Cooperation and Development had been looking for Harter to exit after the election, even if Trump had been re-elected. Who will replace Harter is up in the air right now, and the incoming Biden administration has a lot of slots to fill. But this much is clear: Switching up the U.S.'s top negotiator in the OECD talks adds yet another complication to the efforts to implement new global standards for taxing the digital economy.

Related: "Digital Tax Talks Deadline Puts Pressure on Biden Treasury," via Bloomberg Tax.

KEEP AN EYE OUT: Biden and Vice President-elect Kamala Harris are scheduled to speak about the economy today in Delaware.

With that in mind, where do matters stand on a next coronavirus response? Ron Klain, Biden's choice to be White House chief of staff, backed House Speaker Nancy Pelosi's approach to negotiating with Republicans on NBC's "Meet the Press." But as The New York Times noted over the weekend, there are pluses and minuses to both cutting a smaller deal with Republicans now or trying to strike a bigger agreement after Biden takes office.

PRO TAX ICYMI: Intuit, producer of TurboTax, agreed to pay $40 million to settle class action lawsuit over its handling of IRS Free File program, via Aaron Lorenzo; IRS Commissioner Chuck Rettig to appear at virtual House Ways and Means subcommittee hearing on Friday, also from Aaron; and the IRS is going to start masking sensitive data on business tax transcripts, once more via Aaron.

Around the World

COVID RESPONSE UPDATES: The Japanese government is thinking about offering companies tax incentives to embrace digital technology, Reuters reports, via the Japanese broadcaster NHK. Prime Minister Yoshihide Suga has made increased digitalization a key priority, to give a kick in the pants to Japan's struggling economy. It's not clear how the government will structure the tax breaks aimed at increasing companies' digital capabilities, but the incentives would be put in place for the next fiscal year. Japan is also considering new tax breaks to promote mergers and acquisitions among smaller companies, according to Nikkei.

Over in the U.K.: Rishi Sunak, the chancellor of the exchequer, will have a tricky time balancing the rise in debt with the need to keep away from austerity, The Guardian reports — advising that Sunak "should announce that cuts to welfare will be avoided while he looks imaginatively at ways to raise money through tax increases."

Around the Nation

DEFINITELY A WE'LL SEE: Gov. Asa Hutchinson of Arkansas has rolled out a collection of new tax proposals, and hasn't exactly gotten a warm reaction either from his fellow Republicans or Democrats, the Arkansas Democrat Gazette reports. Hutchinson's proposals include reducing the sales tax on used cars priced between $4,000 and $10,000, cutting the income tax for lower-income households and cutting the state's top income tax rate to 4.9 percent for new residents. But top Republicans in the state House at least say they still like prefer idea for cutting sales taxes on used cars, which would have extended the current exemption of $4,000 to $7,500. Hutchinson's long-term goal is to cut the top state income tax rate for everyone to 4.9 percent, from its current 6.6 percent. (The top rate, which was 6.9 percent last year, will fall further to 5.9 percent next year.) But lawmakers in both parties aren't sure about the idea of giving the lower rate just to new residents, which Hutchinson hopes would attract tech and manufacturing employees, instead of longstanding constituents.

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