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Tax Update (October 28)

Oct 28, 2019 | SHARE  

Senate Rejects Democrat’s SALT Resolution

On Wednesday (Oct. 23), the Senate voted against the Democrats’ resolution to restore the full State and Local Tax (SALT) deduction capped by the Tax Cuts and Jobs Act of 2017 (TCJA).[1] The resolution was introduced by Senate Minority Leader Chuck Schumer (D-NY), and failed by a vote of 43-52. The vote was primarily on party lines: Sen. Michael Bennet (D-CO) was the only Democrat to vote against the resolution and Sen. Rand Paul (R-KY) was the only Republican to vote in favor. This was the first time Democrats have forced a vote to overturn Internal Revenue Service (IRS) rules related to President Trump’s tax law. TCJA caps the SALT deduction at $10,000. Democrats from high-tax states see the tax law’s cap on SALT as a top priority. Lawmakers will have an opportunity to revisit the TCJA in 2025 when parts of the law relating to tax changes to the individual code expire.


TCJA Helps Working Poor

According to a new study from the Congressional Research Service (CRS), the TCJA is reducing poverty. The CRS used the Supplemental Poverty Measure (SPM) and estimates that under current law, the income tax reduced total poverty by 15% (from 14.5% in poverty to 12.3% in poverty). [2] The impact of the income tax on the overall poverty rate was larger than the impact of many needs-tested benefits programs targeted toward the poor. CRS estimates that poverty among children who lived in families with workers fell by almost 40% (from 14.7% in poverty to 8.9% in poverty) as a result of the income tax. Additionally, the estimated $13.9 billion in poverty gap reductions came from the current income tax of families with children and workers. CRS estimates that poverty rates among families with no workers were unchanged by the income tax.


Digital Tax

Turkey has joined the ever-growing list of countries proposing to enact unilateral, French-style digital service taxes (DSTs). The proposed 7.5% tax would impact companies with $834 million worldwide revenue and $20 million of digital revenue in Turkey. This comes as a component of the country’s broader revenue-raising tax plan meant to address its growing deficit.[3] Speaking of France, Secretary Treasury Steve Mnuchin and French Finance Minister Bruno Le Maire met Thursday (Oct 24). A Treasury spokesman said the meeting was to “reaffirm the importance of the longstanding economic and trade relationship between the United States and France.”[4] The United States Trade Representative (USTR) opened a Section 301 investigation on the discriminatory nature of the French 3% DST, which required its first payments beginning Oct. 2019.


Meetings on Opportunity Zones

A bipartisan group of Ways and Means lawmakers will meet privately with civil leaders next week to explore the impact Opportunity Zone tax incentives, established by the TCJA, have had on their communities. The meeting comes as a result of growing interest in measuring how the new tax policies are designed to spur investment and impact economic development. [5] Although included in the TCJA, many Ways and Means Democrats that cosponsored the original Opportunity Zones legislation are not expected to push back on the program. However, there will likely be concerns over reporting requirements that were initially included in the legislation but stripped in the Senate.


E-Cigarette Legislation Approved by Ways and Means

On Wednesday (Oct 23), the House Ways and Means Committee approved legislation to establish an e-cigarette tax in an attempt to cut usage by minors. Introduced by Rep. Tom Suozzi (D-NY), H.R. 4742 would place an excise tax equivalent to the $1.01 federal levy-per-pack of cigarettes on tobacco alternatives like e-cigarettes and vaping devices. The legislation was approved by the committee 24-15 and was voted largely on party lines.[6] According to the Joint Committee on Taxation (JCT), the bill is estimated to raise nearly $10 billion between fiscal year 2021-2019, and the revenue could go towards other legislation the committee approved by a voice vote. H.R. 4716, H.R. 1922, and H.R. 3708 all focus on putting the revenue towards healthcare services. Similar legislation has been introduced in the Senate Finance Ranking Member Ron Wyden (D-OR).


References

[1] Jagoda, Naomi “Senate rejects Dem measure to overturn IRS rules on SALT deduction cap” The Hill, 23 Oct 2019 https://thehill.com/policy/finance/467158-senate-rejects-dem-measure-to-overturn-irs-rules-on-salt-deduction-cap

[2] The Congressional Research Service “The Impact of the Federal Income Tax on Poverty: Before and After the 2017 Tax Revision” https://crsreports.congress.gov/product/pdf/R/R45971

[3] Ali, Hamza “Turkey Proposes 7.5% Digital Services Tax” Bloomberg Tax, 24 Oct 2019 https://news.bloombergtax.com/daily-tax-report/turkey-proposes-7-5-digital-services-tax-1

[4] Lorenzo, Aaron “Another Trump tax cut?” Politico Pro, 25 Oct, 2019 https://subscriber.politicopro.com/newsletter/2019/10/another-trump-tax-cut-781527

[5]Lorenzo, Aaron “Another Trump tax cut?” Politico Pro, 25 Oct, 2019 https://subscriber.politicopro.com/newsletter/2019/10/another-trump-tax-cut-781527

[6] Davidson, Laura & Kaustuv Basu “Bill to Tax Vaping like Tobacco Products Clears House Committee” 23, Oct 2019 https://news.bloombergtax.com/daily-tax-report/bill-to-tax-vaping-like-tobacco-products-clears-house-committee

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