News: IRS funding, out ... for now — Free File no more — Undercutting corporate tax incentives

Monday, July 19, 2021

IRS funding, out ... for now — Free File no more — Undercutting corporate tax incentives

Jul 19, 2021

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BIG HOLE TO FILL: Sen. Rob Portman (R-Ohio) made it official on Sunday — using increased IRS enforcement was no longer an option to help pay for a bipartisan infrastructure framework, and it's not getting back into the mix.

Not only that, Portman essentially confirmed that Democrats would now be relying on that same potential funding stream when they write a larger go-it-alone measure via budget reconciliation later this year.

And he said on CNN's "State of the Union" that Democrats' interest in using revenues from boosted tax collections, whether it was in the bipartisan deal or not, was another problem that caused negotiators to drop the idea, as our Myah Ward reported.

But the larger issue, as Portman noted, was that Republicans just didn't want to give more money to the IRS. "We did have pushback," Portman said.

So now what? Senate Majority Leader Chuck Schumer has set up a preliminary vote on the bipartisan framework for just a couple days from now, in no small part because Democrats have this two-track process they're working and not a lot of time to do everything they want.

The issue, according to Republicans at least, is that the measure isn't done yet — and with all the money from more IRS audits off the table, no obvious solutions for filling the gap.

"There are other ways to do this," Portman said, specifically referencing something called the Medicare rebate rule. "We have a number of pay-fors."

But another GOP negotiator didn't sound quite as optimistic. "It can absolutely happen, but you need the pay-fors," said Sen. Bill Cassidy (R-La.) said on "Fox News Sunday," who said leading Democrats were seeking to box out the bipartisan group by preserving key offsets for use in the larger budget reconciliation measure.

"Now, if you really don't want a bipartisan package, if you want to kind of make the point that Congress doesn't work because you make it so it can't work, then take all our pay-fors."

MORE ON THAT IN A BIT. But first, thanks for coming back for more Weekly Tax — where we have to say, the parents are guiltier of talking like "Peppa Pig" characters in our house than the kids. (Nothing to be ashamed of, either!)

Get ready: Today marks both 69 years since the Summer Olympics in Helsinki kicked off and 41 years since the start of the Moscow games — though that one's not really celebrated here in the States.

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WHERE'S THAT IRS FUNDING? As it happens, your Weekly Tax author delved into at least one big reason why the IRS enforcement dollars were on their way out as a pay-for.

Long story short: Conservative activists' mileage varied on how much they thought the recent ProPublica articles on how the wealthiest people in America maneuver to pay very little in taxes actually helped their cause in getting that offset out of the bipartisan package.

But at the very least, those stories, based on leaks to the news outlet that are currently being investigated, illustrated some problematic handling of sensitive taxpayer information by the IRS — and for seemingly enough Republicans, brought back memories of Lois Lerner and the agency's tea party controversy.

Now, progressives will say that it should be no surprise that Republicans wouldn't get on board with $40 billion in new IRS funding. But in some ways, that's part of the point: It's hard to remember many times since 2013 when a decent chunk of congressional Republicans at least openly considered a large increase in the IRS budget, as they just did.

The fact that negotiators landed there in the first place speaks to the level of bipartisan interest in traditional infrastructure projects, not to mention the difficulty in paying for a package when Republicans rule out tax increases and Democrats don't want offsets on the spending side.

One last point: Let's not forget the bigger context here — the budget reconciliation measure of up to $3.5 trillion is the main event, so it's probably best to keep considering how the bipartisan deal fits into Democrats' effort to pass that package and the GOP's desire to stop them.

Portman and other GOP negotiators had tried to institute some kind of guardrails to the $40 billion in new IRS funding, before the provision was dropped — and it's hard to think that Democrats would put those sort of protections into a reconciliation measure.

So from the standpoint of conservatives, is there an argument for just accepting the bipartisan negotiators' new funding stream, since it would come with conditions?

No, said Ryan Ellis, a conservative tax lobbyist. "Bad ideas belong in the budget where Republicans can safely vote against them and preserve their brand integrity," he said.

"You can't be the anti-tax party and also be the party of super-sizing small business audits at an unreformed IRS."

SPEAKING OF THE IRS…: One last matter to keep an eye on — Intuit, the maker of TurboTax, said late last week that it was pulling out of the Free File program.

Intuit, of course, was one of the companies that ProPublica found had basically tried to hide Free File from taxpayers and instead steer them toward paid products.

The company announced it was leaving in a somewhat cryptic statement: "Due to the limitations of the Free File program and conflicting demands from those outside the program, we are not able to continue in the program." That decision, at least according to some experts, could also suggest that Free File might not be on the firmest of footing.

Around the World

SCROUNGING IT UP: The British government is looking for new revenues to help strengthen a safety net damaged by the pandemic, The Financial Times reports. Rishi Sunak, the chancellor of the exchequer, is looking at a range of potential tax increases to supply the necessary funding, and Prime Minister Boris Johnson is, in the FT's words, "grudgingly coming around" to that idea. The U.K. needs to raise about another 10 billion pounds a year to help pare down a backlog at the National Health Service and make other broader improvements to social care. Johnson is concerned that those tax hikes could fall heavily on middle earners, having already pooh-poohed the idea of a new tax on sugar and salt. But the issue is that focusing solely on top earners would require a pretty massive tax hike — some six percentage points on the top rates. One alternative being floated: A so-called "social solidarity" tax aimed at those 40 and above that could supply most of the necessary funding.

Around the Nation

HOW GOOD WAS OUR TIMING? It was only last year that New Jersey approved a $14 billion plan to boost corporate tax incentives. But as NJ.com reports, Gov. Phil Murphy has already signed changes to the law , with the state still yet to hand out any of the actual preferences from the package. On some level, it's probably no huge surprise that the coronavirus undercut the new set of incentives. Since the original law was signed, only a handful of companies have even filled out preliminary paperwork for the program. The changes approved by the legislature and signed by Murphy, which loosened eligibility requirements for the incentives by allowing companies to count remote workers, also hint at the problems caused by the pandemic. Before the new law was passed last year, the New Jersey incentive program had come under criticism — essentially accused of funneling taxpayer dollars to companies that really had no intention of relocating to other states.

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