Tax Tidbit

Biden to Release 2024 Budget Proposal Later this Week. On March 9, President Joe Biden will send his updated budget proposal to Congress, outlining the administration’s policy priorities for fiscal year 2024. Biden is expected to officially unveil the document on Thursday at a public event in a Philadelphia union hall. While most of the president’s legislative objectives are unlikely to receive sufficient support to pass in a divided Congress, these proposals will establish the policy framework for Biden’s expected upcoming presidential campaign.
 
At his State of the Union (SOTU) address in February, Biden commented that his budget proposal would lower the deficit by $2 trillion over the next 10 years without cuts to Social Security or Medicare programs.
 
To achieve this reduction in net spending, Biden is expected to offer several tax increases but will likely not propose significant reductions to current federal spending levels. Biden defended this approach during a Feb. 28 speech, arguing that new taxes “will allow [him] to raise enough money to do the things [he has] been able to do.” Notably, Biden’s previous two budget requests included several tax increases, many of which are expected to be reintroduced in the upcoming fiscal year 2024 version.
 
The complete roster of tax proposals will be explained in greater depth through the Treasury Department’s “Greenbook,” which will likely also be released on March 9. In recent weeks, Biden has frequently reiterated his promise that the items included in the budget proposal will not be intended to increase taxes on those with annual income below $400,000.
 
However, the budget will include several tax increases targeting high-net-worth individuals, including the proposed “Billionaire’s Tax” previewed in Biden’s recent SOTU address. This proposition is expected to resemble a similar provision in his fiscal year 2023 budget that would impose a minimum tax of 20% on all realized and unrealized gains of taxpayers with wealth greater than $100 million. In an op-ed published on March 7, Biden outlined another proposal to raise the current Net Investment Income Tax (NIIT) from 3.8% to 5% for taxpayers with over $400,000 in annual income. The modification will also expand the scope of NIIT to apply to active passthrough income. Biden said these changes will be used to support the Hospital Insurance Trust Fund, which is currently set to be depleted before 2030.
 
In addition to tax increases for wealthy individuals, the budget will include sections dedicated to reforming the taxation of large businesses and multinational corporations. In a Feb. 6 memo, the Biden administration indicated that this would include a proposal to increase the current 1% stock buyback excise tax to 4%. The budget may also recommend increasing the corporate tax rate or aligning the U.S. tax regime with Pillar Two of the Organisation for Economic Co-operation and Development’s global tax agreement.
 
On Friday, March 10, Treasury Secretary Janet Yellen will appear before the House Ways and Means Committee to answer lawmakers’ questions concerning the proposal.
 
In the coming weeks, Republicans are expected to release their own fiscal year 2024 budget proposal. As opposed to Democrat’s use of tax increases to balance the budget, the GOP plan will likely include significant reductions in non-defense federal spending. However, House Speaker Kevin McCarthy (R-CA) has indicated that Social Security and Medicare cuts will be “completely off the table” in budget negotiations.

Legislative Lowdown

Senate Finance Committee Greenlights Werfel Nomination. On March 2, the Senate Finance Committee favorably reported the nomination of Danny Werfel to be the next commissioner of the IRS. Sens. Chuck Grassley (R-IA), Bill Cassidy (R-LA) and Todd Young (R-IN) voted with all 14 Democrats in favor of the nomination. In addition, Sen. Thom Tillis (R-NC) had previously said he would support the nomination, but he was ultimately unable to attend the executive session to cast his vote. Following this action, the Senate will soon consider Werfel’s nomination in a floor vote of the entire chamber.
 
Ultimately, committee Ranking Member Mike Crapo (R-ID) voted with eight of his fellow GOP committee members against the Werfel nomination. In the hearing the week prior, Crapo expressed his distrust of the IRS for its failure to ensure transparency and accountability in tax administration. Sen. John Cornyn (R-TX) echoed this sentiment, telling reporters, “if confirmed, Werfel will face a number of challenges in rebuilding the trust America’s tax collector has lost with the taxpayer over the years.”
                                                                                                  
Several Republicans also expressed concern over the IRS’ development of an operational plan detailing the agency’s proposed allocation of new Inflation Reduction Act (IRA) resources. Last year, Treasury Secretary Janet Yellen requested that the IRS furnish this operational plan by Feb. 17, but recent reports indicate that the agency has missed this deadline. At a conference held by the California Society of Enrolled Agents, IRS Wage and Investment Division Commissioner and Chief Taxpayer Experience Officer Ken Corbin tempered public expectations for the plan’s timeline, informing audience members that the operational document would be ready sometime in the spring.
 
Despite some GOP opposition, Werfel is expected to secure the needed simple majority of Senate support. An exact timeline for floor consideration has not yet been established, but Senate Majority Leader Chuck Schumer (D-NY) said on Monday that it could occur as early as tomorrow. Following the initial nomination hearing, Senate Finance Committee Chairman Ron Wyden (D-OR) has repeatedly expressed his desire to expedite the process to ensure proper implementation of IRA funding.
 
Jason Smith Informs Budget and Oversight Committees of Priorities. On Feb. 28, the House Ways and Means Committee held a markup of its Estimates Letter to the Committee on the Budget and Oversight and Authorization Plan for the 118th Congress. In the letters, committee Chairman Jason Smith (R-MO) reaffirmed his commitment to pursuing tax policies that benefit American workers and small businesses.
 
Generally, Smith said the committee’s proposed tax policy agenda will include efforts aimed at “re-shoring investment and jobs, strengthening our supply chains, growing retirement savings, developing workforce skills and experience and encouraging small business growth.” In reference to the looming debt limit, Smith said the committee would pursue policies to address the growing federal spending and reduce the need for future debt limit increases.
 
Smith also offered specifics on other legislative priorities, including his intention to reauthorize and modify the Temporary Assistance for Needy Families and Title IV-B entitlement spending programs. With these extensions, Smith hopes to include new oversight mechanisms and more substantial work requirements to prevent fraud and abuse.
 
Smith also focused his trade agenda on the committee’s plans to increase economic competitiveness with China and other U.S. adversaries. Specifically, Smith discussed the implementation of the Uyghur Forced Labor Prevention Act and the enactment of potential new legislation to expand the monitoring of intellectual property theft.
 
In his letter to the Oversight Committee, Smith said that Ways and Means Committee members would keep a close eye on how the IRS implements the funding increases enacted in the Inflation Reduction Act and monitor the agency’s tax enforcement rates. In addition, Smith committed to investigating the processes through which the IRS selects individual taxpayers for audit, explicitly focusing on ensuring the agency did not violate President Joe Biden’s commitment to limit expanded enforcement of taxpayers with less than $400,000 in annual income. The oversight agenda also reflects Smith’s intention to investigate and restrict perceived abusive tax practices used by charities and other tax-exempt organizations. Moreover, Smith announced his plans to simplify the tax code and filing process to minimize complexity for individuals, families, farmers and small businesses.
 
Ultimately, the committee approved the outlines through a pair of party-line votes, despite complaints from Democrats that they were not consulted on the drafting of the material. In the markup, committee Ranking Member Richard Neal (D-MA) referred to the procedure as “deeply partisan” and claimed that “room for consensus didn’t seem possible.”

1111 Constitution Avenue

Smith and Schweikert Continue Investigations into IRS Leaks. On March 2, House Ways and Means Committee Chairman Jason Smith (R-MO) and Oversight Subcommittee Chairman David Schweikert (R-AZ) sent a letter to acting IRS Commissioner Douglas O’Donnell regarding possible taxpayer data security inadequacies. The letter specifically referenced the accidental disclosure of private information on two occasions in 2022.
 
Both leaks involved a set of Forms 990-T, a document used by tax-exempt organizations to report and pay income taxes unrelated to the entities’ exempt purposes. In August 2022, the IRS discovered that they had accidentally allowed a data set containing confidential filing information to be published on a searchable public IRS database. After correcting this error and deleting the files from the portal, the IRS accidentally republished most of the documents on Nov. 23, 2022, allowing them to remain online until early December.
 
The letter accused the Biden administration of thus far failing “to produce any information about the cause of the leaks or hold anyone accountable.” Furthermore, the GOP lawmakers requested that O’Donnell turn over all documents and communications related to the pair of leaks to the committee by March 16. Using this information, the Ways and Means Committee will look to enact policies to prevent such disclosures from happening in the future.
 
This request is part of Smith’s larger effort to crack down on data security at the IRS—a key topic of concern for myriad lawmakers on both sides of the aisle. Previously, Smith sent a letter to Treasury Inspector General for Tax Administration J. Russell George requesting an investigation concerning the high-profile leak of confidential taxpayer information to ProPublica in 2021. This request also compelled TIGTA to make public the results as quickly as possible after concluding the investigation. In the coming months, TIGTA will issue a report with recommendations concerning the IRS’ data security.
 
In the 118th Congress, Smith will continue ramping up his inquiries into IRS data security to cast doubt on the agency’s ability to properly utilize $80 billion in new funding provided by the Inflation Reduction Act.

At a Glance
 

• Wyden Expands Private Placement Life Insurance Inquiries. Last week, Tax Notes obtained letters from Senate Finance Committee Chairman Ron Wyden (D-OR) to five companies that offer private placement life insurance products. The firms that received letters of inquiry in this round of questioning were Crown Global Insurance Group LLC, Investors Preferred Life Insurance Co., Pacific Life Insurance Co., John Hancock and Winged Keel Group Inc. In the letters, Wyden asked myriad questions concerning the total value and structures of private life insurance policies, which he believes are “loopholes exploited by the wealthiest one percent of Americans to avoid paying their fair share in taxes.” These requests follow similar notes sent to several other insurers in July and August 2022.
   
• Lawmakers Begin Discussions on Potential Housing Tax Bill. On March 7, the Senate Finance Committee held a hearing to discuss the role of tax policy in the housing sector. In the hearing, Senate Finance Committee Chairman Ron Wyden (D-OR) referred to a potential housing tax agreement as the “next opportunity for a big, bipartisan initiative,” which he compared to recent legislative efforts on retirement reform. Lawmakers discussed several proposals to expand affordable housing availability, including the bipartisan Neighborhood Homes Investment Act—a bill that would establish a new tax credit for investments in neighborhoods that fall below certain average income thresholds. Ranking Member Mike Crapo (R-ID) concurred with the possibility of bipartisan tax legislation but highlighted other ways to lower housing prices by curbing inflation or reducing regulatory burdens on homebuilders.
   
• GOP Tax Writers Accuse E-File Study Think Tank of Biases. On March 6, a letter sent to acting IRS Commissioner Douglas O’Donnell by Republican members of the House Ways and Means Committee accused the agency of violating provisions included in the Inflation Reduction Act related to a statutorily mandated study. The provision in question provided the IRS $15 million to work with an “independent third party” to study the feasibility of programming and operating a free electronic filing system. However, in their letter, the GOP lawmakers argue that New America, the think tank selected to work with the IRS on the study, holds “radically biased points of view”—violating the requirement for an independent assessment.
   
• House and Senate Approve Challenge to DOL’s ESG Rule. The House and Senate approved a Congressional Review Act (CRA) resolution on Feb. 28 and March 1, respectively, to overturn a Department of Labor investing rule. The Biden administration guidance at issue allows retirement plan fiduciaries to consider environmental, social and governance (ESG) factors when making decisions related to retirement investments and proxy voting, among other shareholder rights. In the House, Rep. Jared Golden (D-ME) was the sole Democrat to vote in favor of passage (216-204), while Sens. Jon Tester (D-MT) and Joe Manchin (D-WV) broke rank and voted with Republicans in the Senate (50-46). Ahead of the vote, President Joe Biden reaffirmed that he would veto the resolution should it reach his desk.

Brownstein Bookshelf
 

• House Republicans Restrict Earmark Requests. On March 3, the House Appropriations Committee released guidance for fiscal year 2024 congressionally directed spending requests. Notably, the new house rules prevent the use of earmarks in the Financial Services, Defense and Labor-HHS-Education bills.
   
• NAM Letter on Business Tax Extenders in the Budget. On March 6, the National Association of Manufacturers (NAM) sent a letter to Assistant Secretary for Tax Policy Lily Batchelder to advocate for the inclusion of three manufacturing tax incentivizes in the Biden administration’s budget.
   
• IRS Top Corporate Lawyer Set to Retire. Last week, Robert Wellen, IRS associate chief counsel (corporate), announced that he would depart the agency on March 31. To date, the position of IRS chief counsel also remains vacant.

Hearings and Events

• 
  House Ways and Means Committee
   
  On Tuesday, the full committee held a field hearing in Yukon, Oklahoma, entitled “State of the American Economy: The Heartland.” The following witnesses testified:

  On Friday, the full committee will hold a hearing entitled “President Biden’s Fiscal Year 2024 Budget Request.” The following witness will testify:
   
  Senate Finance Committee
   
  On Tuesday, the full committee held a hearing entitled “Tax Policy’s Role in Increasing Affordable Housing Supply for Working Families.” The following witnesses testified:

  Administration
   
  Thursday, March 9
   
  President Joe Biden
  Budget Message of the President, Fiscal Year 2024
   
  Small Business Administration
  Resources and Guidance for the 2023 Tax Filing Season
   
  Private Sector
   
  Tuesday, March 7
   
  Peterson Institute for International Economics
  Summers and Blanchard Debate the Future of Interest Rates
   
  Thursday, March 9
   
  Cato Institute
  Exploring the Risks of Central Bank Digital Currencies, Featuring: Rep. Tom Emmer (R-MN)
   
  Peterson Institute for International Economics
  Federal Reserve Vice Chair Michael S. Barr on Crypto Activities
   
  Friday, March 10
   
  Brookings Institution
  A Country in Flux: Recent and Future Policy Shifts in China
   
  National Bureau of Economic Research
  Law and Economics Program Meeting, Spring 2023

  • Bryan Jackson, Co-Founder, Route 66 Processing
  • Chuck Mills, Owner and President, Mills Machine Company, Inc.
  • Kelli Payne, former President of the Oklahoma National Stockyards
  • Joe Brevetti, Founder and Managing Member, Charter Oak Production Co., LLC
  • Janet Yellen, United States Secretary of the Treasury
  • Denise Scott, President, Local Initiatives Support Corporation (LISC)
  • Steve Walker, Executive Director, Washington State Housing Finance Commission
  • Sharon Wilson Géno, President, National Multifamily Housing Council
  • Mark A. Calabria, Senior Advisor, Cato Institute
  • Garrett Watson, Senior Policy Analyst and Modeling Manager, Tax Foundation