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PROGRAMMING NOTE: We'll be off for Thanksgiving this Thursday and Friday but back to our normal schedule on Monday, Nov. 29.
KEEPING THE FOCUS ON THE IRS: The CBO’s projections about how much the government could raise from enhanced IRS enforcement might have been the big story about revenues last week.
But those proposals to ensure the wealthier pay more of what they owe still can tell us a fair bit about Democrats’ efforts to pass their big social spending package, even after the House labored to pass that measure last week.
First of all: Democrats dropped the proposal that would force banks, credit unions and other financial institutions to give more account information to the IRS — in no small part because it made for bad politics.
But Republicans have made it clear that they’re also going on offense on the proposal to boost IRS funding by $80 billion, to increase audits and find other enforcement measures.
For instance, House Minority Leader Kevin McCarthy (R-Calif.) sharply criticized that proposal during his eight-hour speech that unloaded on many parts of the Democrats’ climate and safety net agenda.
McCarthy cited statistics from House Ways and Means Republicans that found that the $80 billion in funding would lead to 87,000 new IRS agents and about 1.2 million more audits in a given year, close to half of which would land on households making under $75,000 a year.
MORE ON THAT IN A BIT, but first — thanks for joining the “it has to be more quiet this week, right?” version of Weekly Tax.
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BACK TO THE IRS: The Republicans on the Ways and Means Committee reached their findings by extrapolating off of a September report from CBO, which estimated that the $80 billion in new IRS funding would help the agency bring audit levels back to where they were around a decade ago.
CBO also noted that the IRS is completing far fewer audits of higher-income taxpayers these days, while the audit rate for households of more modest means has stayed basically level since early in the Obama administration.
But because a healthy majority of tax filers make under $75,000 a year, that would still lead to a noticeable increase in audits among people at that income level, at least according to the GOP projections.
For their part, supporters of the Democrats’ IRS proposal argue that Republicans are making something of a leap with those projections — noting, for instance, that Treasury has stressed repeatedly that its goal is for audit rates not to rise for those making under $400,000 a year.
“The administration’s clear intent is to focus additional enforcement resources on very high-income households and businesses,” said Samantha Jacoby of the liberal Center on Budget and Policy Priorities, who also noted that it’s no sure thing that the administration is aiming to bring the audit levels back to where they were in 2010.
Not only that: The new funding for the tax collector is supposed to help modernize the IRS’s technology, which proponents say will lead to better audit selections.
And even if the IRS does want to so substantially increase the amount of audits it conducts, Jacoby added there are plenty of better targets than seeking out middle-income households, including four million partnership returns and 4.8 million S corporation returns which she said aren’t audited much currently.
NOT DEAD YET? What do you know — the Biden administration and Senate Democrats haven’t given up on IRS reporting requirements and are trying to craft a narrower version that can get the needed support, as Bloomberg Tax’s Colin Wilhelm reported late last week.
It’s tough to say how realistic a chance those reporting requirements have to make a comeback. Sen. Joe Manchin (D-W.Va.), for instance, hasn’t exactly sounded persuadable when outlining his opposition to that proposal.
But perhaps the most interesting part of this development: The House just passed a version of President Joe Biden’s Build Back Better agenda that had plenty of offsets to meet the budget instructions in the Senate — and, if you believe the Treasury Department’s projections for IRS enforcement, brings in more money than it spends.
So why exactly might the Senate be searching for still further revenues? It’s been clear for awhile that the Senate would make changes to the package that just cleared the House — which means that some of those tax increases that made it through the House could be vulnerable in the Senate.
It’s not just that some tax increases could be struck from the bill entirely, either. Consider the proposed 15 percent minimum tax on corporations’ book income — some people on the left are worried that proposal could undercut clean energy projects that Democrats want to make more of a priority.
There are other concerns with the book tax too, like its potential impact on pension plans, which means that there likely will at least be discussions about paring back that proposal.
Though it’s also worth noting: Sen. Kyrsten Sinema (D-Ariz.), for instance, has already had a fair amount of influence on what tax proposals made the cut in the House bill. (Want to know why changes to carried interest fell out of the bill? Look her way, as The Wall Street Journal noted.)
NEXT UP FOR THE BBB: Both the House and the Senate will be out of Washington this week for Thanksgiving. But once lawmakers return, Senate Majority Leader Chuck Schumer has made it clear that he wants to pass the social spending package before Christmas.
In the meantime, Senate Democrats will be running their proposals by the parliamentarian this week, as they try to figure out which of those policies will pass muster under the chamber’s rules for budget reconciliation, as our Marianne LeVine reported.
Around the World
DIDN’T GET THERE: Prime Minister Justin Trudeau of Canada hasn’t made much headway in getting the U.S. to scrap proposed tax incentives for electric vehicles — but he’s going to keep trying, as Reuters reported. Trudeau visited Washington late last week, and the tax credits were his first order of business when he met with President Joe Biden. The prime minister didn’t mince words on the matter either, saying that the Biden administration was well aware of Canada’s concerns over the tax credits and “the threats it poses to over 50 years of integrated automaking in our two countries.” Mexico has joined Canada in expressing its opposition to the electric vehicle preferences, but so have other European and Asian allies of the U.S. The proposed credits add extra benefits for union-made vehicles and for batteries produced in the U.S., which other countries believe undercuts their automobile manufacturing.
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Around the Nation
LOTS OF LEGAL MACHINATIONS: Arizona voters could get a chance to give an up or down on a recent round of tax cuts, The Associated Press reports. That is, unless they don’t. Here’s the deal: Opponents of the tax cuts have lined up enough signatures to get a referendum on the ballot next November, which also blocks implementation of those $2 billion a year in tax cuts until voters weigh in. But supporters of the tax cuts have two separate efforts working through the courts right now — one which argues that referendums can’t be used for tax cuts, and another that challenges the signatures opponents gathered to get on the ballot. The new law in question gradually establishes a flat state income tax of 2.5 percent, collapsing the current structure that includes rates from 2.59 percent to 4.59 percent — a plan that gives most of the benefits to the better off.
Quick Links
WSJ: “Tax Plan Inflames Democratic Debate in Senate Over Biden’s $2 Trillion Spending Bill
Bloomberg: “Libor Legal Fix for Phase-Out Hits Hurdle in Congress Tax Spat.”
Also Bloomberg: “El Salvador Plans Tokenized Bitcoin Bonds and Tax-Free ‘Bitcoin City.’”
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