Tax Update (February 11)
After a 3 percent European Union tax proposal on digital services failed to pass, France is now looking to impose a fee of its own. The tax proposal would target two types of services under a draft framework for a national digital tax. The tax is targeted at US companies that play the middleman for users seeking or offering a service, such as Airbnb, or that sell space for online advertisements, such as Google and Facebook.
Sen. Chuck Grassley (R-IA) issued a warning to countries like France from “any unilateral actions that target U.S.-based multinationals.” Grassley said those countries should put their energy into an Organization for Economic Cooperation and Development project that would seek a more global solution to digital tax issues. To hear Grassley’s full comments, click here.
Sen. John Cornyn (R-TX) is cosponsoring two bills aimed at expanding existing transportation tax-exempt bond and loan programs for surface transportation without turning to tax increases. The first bill, cosponsored by Sen. Mark Warner (D-VA), would increase by $5.8 billion the amount of tax exempt Private Activity Bonds the Transportation Department could issue for highway and freight improvement projects.
“This bipartisan bill will help finance improvement projects through public-private partnerships, resulting in minimal cost to taxpayers with maximum impact on America’s roads, bridges, and rails,” Cornyn said in a statement about the Building United States Infrastructure and Leveraging Development (BUILD) Act, which would address Private Activity Bonds. The pair introduced similar legislation in 2018.
Meanwhile, Cornyn and Kaine introduced a bill to make it easier for state and local governments to apply for loans under the Transportation Infrastructure Finance and Innovation Act (TIFIA), which offers direct loans, loan guarantees, or lines of credit to transportation projects of national or regional significance.
Democrats Tax Plans
Katherine Monge, Tax Counsel to Speaker Nancy Pelosi (D-CA), said on Friday (Feb. 8) that Democrats number one priority in the 116th Congress is health care. Regarding tax-related issues, Monge said that infrastructure improvements are a top priority as well but it will be tough to pay for such a bill, due to Democratic Caucus rules require that tax provisions be paid for. Asked about the expired tax credits, including the Alternative Fuels Tax Credit and Section 179D energy efficient buildings credits, Monge noted that House Ways and Means Chairman Richard Neal (D-MA) wants to extend those provisions – retroactively for 2018 and through 2019 – in Q1 2019 and they would also need revenue offsets. She mentioned the ongoing and intensifying lobbying process stating there was a biodiesel tax credit fly-in this week.
According to Monge, the extenders package could be attached to the Department of Homeland Security (plus other agencies) funding package. The deadline to further fund those agencies is February 15 and the longer it takes to pass that bill, the harder it will be to pass the extenders package. When asked about the feasibility of that occurring, she said that if the four corners” (House Ways and Means and Senate Finance Committee majorities/minorities) agree, it can happen.”
Finance Republicans have generally opposed paying for an extenders package in the past, which presents a problem for House Democrats, particularly the newly strengthened “Blue Dogs,” for whom pay-fors and less (or no more) deficit spending is a problem. However, it depends what the leadership and tax writers agree to. There is likely no chance that technical corrections or substantive improvements can be made to the Tax Cuts and Jobs Act (TCJA), at least until Ways and Means Democrats hold their promised hearings on the tax reform bill.
Retirement Security Hearing
The House Ways and Means Committee held a retirement security hearing this week. Monge noted that the Retirement Income Securities Act (RISA) package that was passed in the House last year contains a number of bipartisan provisions, but that while it is important, the real issue is preventing another government shutdown and that a modest retirement bill is unlikely to be added.
Monge also spoke about the multi-employer pension plan problem. In response to a question, she said Speaker Pelosi views the Butch Lewis Act – which sets up a Treasury loan program for critical and declining plans to ensure they pay benefits and in some cases restore cuts to benefits – as a good starting position to show that loans can prop up plans and preserve benefits while saving the Pension Benefit Guaranty Concept (PBGC).
Regarding a proposal to tax incomes above $10M at 70%, Monge said that Democrats care about income inequality and that progressiveness is important but the question of the rate is open. For Democrats from wealthy suburbs, it is a possible concern, but that those from poorer inner cities have been supportive. She also mentioned the estate tax repeal is a serious problem for Democrats, who might turn to higher rates as an solution.
Middle Class Tax Cuts
President Trump is considering another round of tax cuts for middle-class Americans, according to Larry Kudlow, his Chief Economic Adviser. “We’re kicking it around,” Kudlow told reporters on Thursday. “Looking at a couple of very interesting things that may wind up surprising voters.”
No further details were offered. While the president also told reporters that he was open to discussing the $10,000 cap on the state and local tax deduction (SALT), a spokesman for Senate Finance Committee Chairman Grassley said his committee was not going to revisit that provision. Michael Zona, a spokesman for Grassley, criticized Democrats who want to repeal the SALT deduction cap.
“It’s ironic that the same Democrats who criticized the Tax Cuts and Jobs Act for supposedly benefiting only the wealthy are now advocating for a change to the law that would primarily benefit the wealthy,” Zona said.
 Courtney Shaun. “Amid Gas-Tax Gridlock, Senators Weigh Public-Works Bonds, Loans. Bloomberg Government. 6 Feb 2019. https://www.bgov.com/core/news/#!/articles/PMINU96JTSE8