Taxation & Representation, Sept. 25, 2024

Programming Note: Taxation & Representation will return on Nov. 11, following the one-month congressional recess.

2025’s Potential Tax Writers

Sen. Tina Smith (D-MN)
Tina Smith has served as the junior senator from Minnesota since 2018. Smith’s career in Minnesota politics, spanning multiple positions both in state government and in the Senate, demonstrate her passion for advocacy for Minnesota and the Midwest and she would be a compelling pick to continue the legacy of Sen. Debbie Stabenow (D-MI), who is retiring from the Senate this year.

Sen. Smith was born in Albuquerque, New Mexico, moving around the country before working as a union member on the Trans-Alaska Pipeline at age 19 and later attending Stanford University. She earned an MBA at Dartmouth College and moved to Minnesota in 1984. Her pre-Senate political career includes participating in and managing various political campaigns in Minnesota in the 1990s and 2000s before becoming an executive at Planned Parenthood. She later served as chief of staff to Gov. Mark Dayton in 2011 and as the 48th lieutenant governor of Minnesota in 2015. Over her six-year Senate career, Sen. Smith has focused on workforce and small business issues, introducing bills such as the 21st Century Workforce Partnerships Act (S. 1626), which establishes grant initiatives for career and technical education programs, and the Expanding Access to Capital for Rural Job Creators Act (S. 294), which would remove regulatory hurdles for rural small businesses that are trying to access capital to grow their businesses. She has even ensured that such initiatives reach tribal communities, working with the Red Lake Nation and Lower Sioux Indian Community to secure funding to support small business development on tribal lands. Within tax, Smith sponsored the Tax Relief for Coerced Debt Act (S. 4801) to protect survivors of domestic abuse from taxes owed due to abusers who have taken out debt in victims’ names.
 

Sen. Smith’s primary role on the Finance Committee would be to represent a voice for the agricultural community. She has been a strong advocate for farmers as a member of the Senate Agriculture Committee. Her initiatives have included fighting for safety-net provisions in the 2018 Farm Bill and expanding health care opportunities at the U.S. Department of Agriculture for disbursements in rural communities. She has also been active in helping to regulate agriculture trade and exports, providing a valuable perspective should she be selected to serve on the Finance Committee. Smith’s long and impactful state and federal career would make her a great addition to the Finance Committee, providing her another platform to advocate for better working and living conditions for Minnesotans, Midwesterners and Americans as a whole.

Legislative Lowdown

Funding Bill Update – House, Senate Release Compromise Stopgap Bill: On Sept. 22, House and Senate lawmakers released H.R. 9747, a compromise continuing resolution (CR) that would fund the federal government until Dec. 20. Unlike the last proposed CR that failed on the House floor on Sept. 18, the pending bill does not include provisions aimed at preventing voting by non-U.S. citizens. The new CR is largely a clean extension of fiscal year 2024 funding, with a few “exceptions and modifications for technical budgetary issues and certain extensions and authorities,” including increasing funding for the Secret Service by $231 million, in the wake of the assassination attempts on July 13 and Sept. 15 on former President Donald Trump.
 
Johnson Provides Roadmap of Economic Agenda in 2025 with a GOP Sweep: In a speech to the America First Policy Institute on Sept. 17, House Speaker Mike Johnson (R-LA) outlined multiple tax-policy goals for 2025, set out in a one-pager called “securing a brighter economic future,” should Republicans control the White House and both chambers of Congress after the election. Speaker Johnson’s plans include extending the Tax Cuts and Jobs Act (TCJA, Pub. L. 115-97) and using the reconciliation process to pass major legislation without support from Senate Democrats. Speaker Johnson expressed support for restoring the TCJA’s provision providing full expensing for research and development expenditures, as well as enacting a “strong child tax credit” that “respects the dignity of work.” The one-pager also notes that the speaker aims to “use the Tax Code to deter illegal immigration” by eliminating purported tax benefits for undocumented immigrants, but the one-pager did not provide detailed specifications. Speaker Johnson signaled disapproval of many of the energy-tax credits passed by Democrats in the Inflation Reduction Act (IRA, Pub. L. 117-169), but left the door open to retain some IRA credits, preferring to use a ”scalpel and not a sledgehammer” to eliminate wasteful regulations while keeping beneficial ones.
 
Trump Calls for Repealing SALT Deduction Cap: In a post on Truth Social on Sept. 19, followed by a presidential rally in Uniondale, New York, former President and 2024 Republican presidential nominee Donald Trump called for restoring the deduction for state and local taxes (SALT), which was capped at $10,000 for both single and joint tax filers in the Tax Cuts and Jobs Act, a bill that Trump signed in 2017. The SALT cap tends to disadvantage middle- and upper-income taxpayers in states with high state taxes, such as California, New York, New Jersey and Illinois. Trump’s decision to support a SALT cap repeal is likely an effort to buoy Republican candidates who are running for House seats in those states, many of which will be competitive and may determine control of the House. The proposal is the latest tax-policy proposal by Trump that would raise the federal deficit, absent revenue-raising offsets. The Committee for a Responsible Federal Budget released an analysis in August finding that the expiration of the SALT cap at the end of 2025 would increase federal revenues by $1.2 trillion over the next 10 years, suggesting that the recent Trump proposal would eliminate a significant revenue offset and increase the cost of extending the expiring TCJA provisions.
 
Sen. Warren in Senate Hearing Calls for Letting TCJA Expire: During a Senate Banking Subcommittee on Economic Policy hearing on Sept. 18, Sen. Elizabeth Warren (D-MA) called for letting the tax provisions in the Tax Cuts and Jobs Act (TCJA) expire, arguing that the law provides an unwarranted “wealth transfer to help multimillionaires and billionaires at the expense of working families.” She advocated for making changes to the Tax Code that more directly benefit families, such as expansions to the child tax credit. Current analysis suggests that, should the TCJA be allowed to expire, 80% of U.S. taxpayers would face a tax increase, including most lower- and middle-class individuals. Warren and other liberal lawmakers have claimed that the benefit of the tax cuts skews disproportionally to wealthy individuals versus middle-income individuals.

Energy-Tax Mainlines

Treasury Department Releases Proposed Regulations on Section 30C Credit: On Sept. 18, the Treasury Department and Internal Revenue Service (IRS) released proposed regulations concerning the Section 30C Alternative Fuel Refueling Property Credit, which was extended and expanded in the Inflation Reduction Act (IRA). The proposed rules outline types of charging infrastructure that will qualify under the credit, including requirements for electric vehicle (EV) charging stations as well as expanding the credit to include individual “charging ports.” The rules also provide guidance on energy storage properties that qualify for the credit and the application of prevailing wage and apprenticeship requirements to eligibility criteria.
 
The credit is designed to expand charging and refueling infrastructure, but is limited to qualifying property in low-income and rural areas. The IRS also released an accompanying notice delineating which census tracts will be eligible for the credit. Public comment on the proposed regulations may be submitted until Nov. 18.
 
Democratic Lawmakers Urge Treasury Department, IRS to Develop Guardrails on Section 45Q Credit: Led by Sen. Elizabeth Warren (D-MA), six Democratic lawmakers wrote a letter to Treasury Secretary Janet Yellen, Internal Revenue Service (IRS) Commissioner Daniel Werfel, and Environmental Protection Agency (EPA) Administrator Michael Regan, urging their agencies to construct additional guardrails for the Section 45Q Carbon Oxide Sequestration Credit, which was extended and modified in the Inflation Reduction Act. The letter argues that the 45Q credit was intended to incentivize investment in carbon capture and sequestration projects, but that the credit has instead been used to increase oil production, necessitating the need for guardrails. The letter includes three recommendations for the IRS and EPA: (1) requiring “independent, third-party verification of carbon sequestration” to claim the credit; (2) improving the coordination between the IRS and EPA, including “shar[ing] basic data about the credit’s implementation;” and (3) “requir[ing] more stringent record-keeping requirements and establish[ing] a 12-year recapture period for the 45Q credit.” The letter does not address the significant statutory changes that likely would be required to provide regulatory authority for the IRS and EPA to respond to at least the first two recommendations.

Tax Worldview 

House Republicans Express Opposition to OECD-Enacted Global Minimum Tax: On Sept. 17, House Republican leadership and all Republican members of the Ways and Means Committee wrote a letter to Organisation for Economic Co-operation and Development (OECD) Secretary-General Mathias Cormann stating that Congress will not endorse the current global minimum tax deal outlined in the OECD’s two-pillar economic framework.
 
The letter also expressed support for the American Free Enterprise Chamber of Commerce lawsuit against Belgium challenging its imposition of an undertaxed profits rule (UTPR). The lawmakers contend that the enactment of a UTPR and other proposed OECD policies would result in a loss of U.S. revenue of $120 billion to foreign governments and that U.S. executive agencies lack the statutory authority to enter into a deal that imposes such a burden on U.S. multinationals without congressional approval. The letter also asserts that, if the deal were implemented, U.S. workers and businesses will stand to lose to China, as China could “exploit the OECD global tax deal’s loophole for direct government subsidies, which are a hallmark of Chinese economic activity."

1111 Constitution Ave

Treasury Department, IRS Release Regulations on Estate Tax Basis Reporting: On Sept. 16, the Treasury Department and Internal Revenue Service (IRS) released final rules on basis reporting guidelines between an estate and a person acquiring property from a decedent as it applies to the federal estate tax. The rule implements a mandate that beneficiaries of an estate take a tax basis that is consistent with the value of the property as determined for federal estate tax purposes. In addition, the guidance provides statutory requirements that executors must follow to report basis information to the IRS, as well as additional reporting requirements to enforce compliance.

At A Glance

Lawmakers Introduce Bill to Halt ERTC Claims Processing: On Sept. 18, Sens. Mitt Romney (R-UT), Thom Tillis (R-NC) and Joe Manchin (I-WV) introduced the Employee Retention Tax Credit (ERTC) Repeal Act (S. 5079), which would deny ERTC claims filed after Jan. 31, 2024. The bill would also increase civil penalties for unscrupulous ERTC promoters who sought to defraud businesses through filing claims for businesses that were not eligible for the credit. Reps. David Schweikert (R-AZ), Jared Golden (D-ME), Mike Kelly (R-PA) and Glenn Grothman (R-WI) introduced the companion bill in the House on Sept. 23.
 
House Passes Bill to Increase Penalties on Tax Return Leakers: On Sept. 17, the House passed the Taxpayer Data Protection Act (H.R. 8292) by voice vote. The bill would increase the maximum criminal penalty for the unauthorized disclosure of sensitive tax return information to $250,000 and up to 10 years in prison. The bill also provides that, in the case of an unauthorized disclosure involving the returns or return information of multiple taxpayers, a separate violation occurs with respect to each such taxpayer whose information is disclosed. The bill was introduced in response to the prosecution of Charles Littlejohn, a former Internal Revenue Service (IRS) contractor who was sentenced to five years in prison for leaking tax return information of wealthy filers, including former President Donald Trump, to ProPublica and The New York Times in 2021.
 
Senate Advances Nomination of Rose E. Jenkins to Tax Court: On Feb. 25, the Senate confirmed Rose E. Jenkins by a 76-15 vote to be a judge on the U.S. Tax Court for a 15-year term. Her confirmation follows those of Kashi Way and Adam Landy, who were confirmed on July 25.
 
Yellen Signals Opposition to Full TCJA Extension: On Sept. 19, Treasury Secretary Janet Yellen stated that the United States “can’t afford” to cleanly extend the tax provisions in the Tax Cuts and Jobs Act (TCJA), pointing to the results of a study by the Congressional Budget Office in May showing that extending every provision would cost a net $4.6 trillion over 10 years. She said that the United States should consider extending only provisions that help low- and middle-income taxpayers, such as the expansion of the Child Tax Credit, but indicating that any such extensions need to be offset with new revenues.

Hearings and Events

House Ways and Means Committee
The House Ways and Means Committee has no tax hearings scheduled for this week.
 
Senate Finance Committee
On Sept. 25, the Senate Finance Committee will hold a hearing titled “Providing Small Business Relief from Remote Sales Tax Collection.”

• Tax Relief for Coerced Debt Act of 2024 (S. 4801)
• Medicaid Bump Act (S. 3921)
• American Made Pharmaceuticals Act of 2023 (S. 3311)
• Emergency Access to Insulin Act of 2023 (S. 1497)