News: A deep dive into the GOP tax package

Monday, June 12, 2023

A deep dive into the GOP tax package

Jun 12, 2023

THE TAX CUT PACKAGE: Just ten days after President Joe Biden signed an agreement to cut spending and raise the debt ceiling, House Republicans are set to take up a tax cut package in the Ways and Means Committee that contains billions of dollars’ worth of tax cuts, as we reported last week.

But the American Families and Jobs Act, as the package is called, has some notable features that you may have missed upon first glance, so we wanted to take a deep dive here in Weekly Tax.

First, let’s start with the cost of the legislation.

According to Congress’s tax scorer, the Joint Committee on Taxation, the package contains around $237 billion of tax cuts, among other revenue-losing provisions, such as those that would increase thresholds for IRS reporting requirements.

The package is then financed by the repeal and modification of some of the green energy tax credits implemented by Democrats’ Inflation Reduction Act, H.R. 5376 (117). The stripping of the tax incentives for clean electricity production and used clean-energy vehicles, along with other green incentives, is estimated to raise $216 billion.

Altogether, that means the GOP tax package is expected to lose around $21 billion.

But here’s the thing: The bill is something of an opening salvo for negotiations over a bipartisan tax package that would most likely come together at the end of the year and, with Democrats in control of the Senate, the repeal of the green energy credits would be dead on arrival.

Yet you should know that the green credits are now estimated to cost a whopping $663 billion, according to “preliminary estimates” obtained by the trade publication Tax Notes.

So, it looks very likely that the GOP will use this proverbial green energy credit gold mine to, nominally at least, offset the cost of any proposed tax cuts going forward.

BACK IN A MOMENT: Welcome to the week. And what might former President Donald Trump have in mind if he wins re-election in 2024 as a follow-up to his 2017 Tax Cuts and Jobs Act?

A sweeping 12 to 15 percent tax on foreigners entering the U.S., Trump said on NewsMax.

“If they want to steal our wealth, they should pay 15 percent,” Trump said of the idea. “We’ll make a fortune.”

Got any exciting news for us?

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OTHER NOTABLE ITEMS: Along with business cuts that have long been prioritized by Republicans, the package has a certain emphasis on stimulating economic growth in rural areas that can likely be chalked up to Ways and Means Chair Jason Smith (R-Mo.).

Smith said in a statement on the release of the package, for instance, that many of the ideas for the tax relief came from field hearings the committee did with small business owners and farmers in West Virginia, Oklahoma, and Georgia.

Specifically, the package would borrow from the Trump-era Opportunity Zones program — designed to facilitate investment in economically distressed communities through tax benefits for capital gains — and establish such a program specifically for rural and impoverished areas.

In addition, Smith is known to have more of a populist conservative edge than some of his other colleagues on the committee and has indicated he would like to use the tax code for clap-backs against countries like China — and even companies that wade into the culture war.

In that vein, you should note a new excise tax in the package that would be imposed on the purchase of U.S. farmland by citizens from “countries of concern,” including China, Iran, Russia and North Korea. The provision proposes a steep 60 percent tax on a purchase by those citizens or a business that is 10 percent or more owned by such a citizen.

Lastly, House Republicans have also proposed an across-the-board boost in the standard deduction that they say would help Americans grapple with inflation.

That part of the package is forecast to cost $97 billion and would have benefits that skew (because of the progressive nature of our tax system) towards middle- and upper-middle class taxpayers.

AROUND THE CORNER: What’s lurking behind the scenes of all of this, though, is the big tax showdown of 2025. That’s because many of Trump’s tax cuts, including the income bracket rates for every taxpayer, are scheduled to expire at the end of the year unless Congress finagles a $3.5 trillion extension of those tax laws.

Planning for the tax battle royale in 2025 is evident, for one, in how long the GOP tax package proposes reviving certain tax provisions for businesses, such as immediate deductions for research and development costs, full allowances for asset depreciation and an expansion of business interest expensing.

The package would only restore those until the end of 2025 when the rest of the TCJA would also have to be reckoned with.

Democrats, meanwhile, are likely watching with interest at how the GOP positions itself ahead of the critical year with their own tax priorities in mind. And at the top of Democrats’ list is, of course, a restoring of the expanded Child Tax Credit that boosted the credit amount and made it fully refundable.

“House GOP tax bill does nothing on what should be our top tax priority: Extending the full #ChildTaxCredit to the 19 million kids who now get a partial credit or none at all b/c their incomes are too low,” tweeted Chuck Marr of the progressive Center on Budget and Policy Priorities.

Buckle up.

LETTERS FROM THE IRS: In other news, the IRS had extended the tax filing deadline to October 16 for most California counties because of severe storms they experienced in January, but the agency reportedly sent letters to taxpayers in California asserting that they had only 21 days to pay their tax obligations, causing not only distress but also a deluge of calls to IRS help lines.

The agency apologized and said it sent those letters in error, but Rep. Kevin Kiley(R-Calif.) is now calling on the IRS to send follow-up letters to the taxpayers to clarify the situation.

“I believe that if the IRS can find the time and resources to send inaccurate letters to taxpayers, you should be able to find the time and resources to remedy your error by writing a second time to directly inform the taxpayers of your mistake,” Kiley said.

Around the World

CNN: “The UK will scrap windfall tax on energy firms if prices keep falling”

Reuters: “Exclusive: Kazakhstan plans to hike mining tax, VAT, economy minister says”

Also Reuters: “France plans to close tax loophole benefiting Airbnb”

Around the Nation

NYT: “Energy Tax Credits, Meant to Help U.S. Suppliers, May Be Hard to Get”

NJ.com: “Corporate giants in line for big tax breaks from N.J. under fast-tracked bill”

Guardian: “Australia’s leading super funds halt future contracts with PwC amid tax scandal fallout”

Also Worth Your Time

FT: “UK tax agency asks people named in Pandora Papers to verify their affairs”

The Telegraph: “How inheritance tax is pushing families into high-risk investments”

Philadelphia Inquirer: “Vanguard and former tax lawyer are in mediation over wrongful termination lawsuit”

Let Weekly Tax know about your future events: taxcalendar@politicopro.com.

Did you know?

The English reggae group UB40, known for such songs as “Red Red Wine” and “Rat in Mi Kitchen,” was named after a British unemployment benefit form.

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