Tax Update (May 12)
April Tax Collection Down 55 Percent
A Congressional Budget Office (CBO) report released Friday (May 8) indicated the federal government incurred a deficit of $737 billion in April, rather than seeing its traditional April surplus. CBO estimates April receipts totaled $239 billion, 55 percent less than April 2019.
CBO estimates changes relative to April last year were as follows:
- Individual income and payroll (social insurance) taxes together decreased by $258 billion (or 55 percent)
- Corporate income taxes fell by $41 billion (or 92 percent), largely because of the delay in the tax-filing deadline for corporations
- Receipts from other sources increased by $3 billion (or 13 percent). That increase was the net result of offsetting changes in the following sources: Federal Reserve remittances increased by $6 billion (or 146 percent); Miscellaneous fees and fines increased by $4 billion (or 100 percent); Excise taxes fell by $4 billion (or 58 percent); and Estate and gift taxes decreased by $2 billion (or 98 percent).
The drastic change primarily results from the extension of tax filing deadlines due to the coronavirus pandemic, and other provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and the Families First Coronavirus Response (FFCRA) Act that drove down tax collection. Declining wages and economic activity have also played a role.
Compounding the steep decline in revenue, total April spending was $976 billion in April – more than two and half times last year’s spending.
White House Eyes Tax Cuts in Next Stimulus
The White House has discussed a wide range of options to push for in the next coronavirus stimulus package, according to Politico reporters. The administration has indicated interest in including: expanding the business expense deduction; a payroll tax cut, or a full suspension; and/or a reduction of capital gains tax rate. Democrats have pushed back on these proposals.
“It’s extraordinarily naïve to think that tax cuts are going to bring this economy back faster,” said Rep. Don Beyer (D-VA), Vice Chairman of the Joint Economic Committee. “I have not talked to a single economist yet who says tax cuts are a viable solution here.” 
The White House hopes to soon release a tax and regulatory proposal to boost the economy, according to former and current administration officials.
Although President Trump this week has called for a payroll tax cut to be included in any new coronavirus stimulus legislation, the proposal has met resistance from Republican lawmakers.
“I’m going to give it due consideration, if I can see a strong group of people who think it’s the right thing to do,” Senate Finance Committee Chairman Chuck Grassley (R-IA) said. However, Grassley expressed concern that the tax cut could drain the Social Security Trust Fund and threaten retirement funds.
Rather than a payroll tax cut, the Republican party has united behind proposals to provide business with liability protections.
Treasury Extends Deadline to Use Energy Tax Credits
In a letter sent Thursday (May 7), the Treasury Department indicated to Senator Chuck Grassley (R-IA) the department plans to issue rules soon that could grant wind and solar developers an extra year to complete their projects Grassley led a bipartisan letter last month asking Treasury to extend the safe harbor provisions for both the Production Tax Credit (PTC) and the Investment Tax Credit (ITC) in light of construction delays caused by the coronavirus pandemic. Wind and solar developers hope for legislation in a future stimulus bill that would provide a program to convert the credits into a grant program.
Worker Retention Credit
The IRS will now allow businesses to qualify for the Employee Retention Tax Credit if they are only paying health benefits. Lawmakers expressed concern with the original IRS decision that only allowed businesses to receive a break if they still paid wages, leading to concerns that furloughed workers would lose health insurance.
There has been a bipartisan push to expand the Employee Retention Tax Credit with legislation introduced Friday (May 8) that would increase the credit percentage to 80%, increase per-employee limitation to $15,000 per quarter, and change the threshold for treatment as a large employer to 1,500 employees. 
Global Digital Tax Talks May Continue into 2021, OECD President says
The Organization for Economic Cooperation and Development (OECD) provided an update on its digital tax talks on Monday (May 4). OECD President Pascal Saint-Amans explained that the timeline for the 137-member Inclusive Framework on base erosion and profit shifting (BEPS) to approve the first reform package has been pushed back from July 1 to October. This package will likely encompass many issues under Pillar 1 and Pillar 2. Saint-Amans described the approval as a “stage process” and indicated that talks will likely continue into 2021.
The OECD will not be able to provide information on the economic impact of changes until Fall 2020.
IRS on PPP
On Wednesday (May 6), a bipartisan group of senators introduced legislation that would allow companies to write off expenses that were covered by the Small Business Administration’s Paycheck Protection Program. Notably, House Ways and Means Ranking Member Kevin Brady (R-TX) has remained silent of this issue. The legislation is in response to the IRS interpretation that notes both the forgivable loans and business write-offs would be improper double dipping. Top IRS lawyer Michael Desmond acknowledged that he was aware of lawmakers’ unhappiness with the IRS interpretation but declined to say if the IRS would reverse course.
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Tankersley, Jim “Trump Eyes New Tax Cuts for Next Stimulus Package” New York Times, 5 May 2020
 Everett, Burgess “Trump’s tax cut dreams hit Republican resistance” Politico Pro, 5 May 2020
 Wolff, Eric “Treasury to extend deadlines for accessing wind, solar tax credits” Politico Pro, 7 May 2020
 Faler, Brian “After outcry, IRS revises guidance on employee retention credit” Politico Pro, 8 May 2020
 Lorenzo, Aaron “Morning Tax” Politico, 8 May 2020
VanderWolk, Jefferson “The OECD’s Tax and Digitalization Project-No End in Sight” Bloomberg Tax, 4 May 2020
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