Lately on the Hill
In the wake of the Ohio train derailment, many members of Congress spent the last week focused on introducing a bipartisan rail safety bill, Democrats were busy with their annual House Democratic retreat, and there was a lot of talk about China and TikTok, but there is still plenty of tax policy-related news to catch up on:
- Biden proposes tax increases to extend Medicare solvency. Earlier today, the White House released a fact sheet with President Biden’s proposal to extend Medicare solvency for at least 25 more years by increasing the net investment income tax (NIIT) rate on income above $400,000 from 3.8% to 5%. The proposal also would expand the NIIT to apply to more types of income from pass-through entities. This is an early preview of the fiscal year 2024 budget that the White House is expected to release later this week.
- New bills introduced. With the start of a new session of Congress, there’s been a lot of activity as bills from prior sessions are reintroduced and new legislation is released to set the negotiation stage for what’s included in any major legislation this session. Here’s this week’s roundup:
- A bipartisan group of senators introduced the Charitable Act, proposing to allow taxpayers who do not itemize on their tax returns a below-the-line deduction for charitable giving of up to one-third of the standard deduction, e.g., approximately $4,500 for individual filers and $9,000 for married joint filers for 2023.
- U.S. Rep. Mike Kelly (R-PA), Chairman of the Ways & Means Committee's Subcommittee on Tax, and U.S. Rep. Jimmy Panetta (D-CA) reintroduced the More Homes on the Market Act, which seeks to incentivize more homeowners to sell their houses and increase the market supply by increasing the sales gain tax exclusion to $500,000 for single filers and $1 million for joint filers (currently, these limits are $250,000 and $500,000, respectively).
- Rep. George Santos (R-NY) introduced his first bill, bringing back the discussion on state and local tax (SALT) cap limits. The SALT Relief Act proposes to increase the limitation on the deduction for state and local taxes, which is currently capped at $10,000, to $50,000 for individual taxpayers. This policy has played a continued role in tax policy negotiations in Congress over the last few years but continues to stall out.
- A bipartisan group of senators introduced the IRS Whistleblower Program Improvement Act proposing to reform the IRS Whistleblower Awards Program by establishing a presumption of anonymity for whistleblowers before the court and providing that interest be paid to awardees if the whistleblower award has not been paid within one year of the IRS collecting all proceeds, among other recommendations.
- Rep. Greg Steube (R-FL) introduced legislation to treat Hurricane Ian as a qualified disaster for purposes of determining the tax treatment of certain disaster-related personal casualty losses. Companion legislation is expected to be introduced in the Senate shortly. In general, losses attributable to federally declared disasters are subject to the $100 per casualty and 10% of adjusted gross income (AGI) limitations unless the losses are attributable to a qualified disaster loss. The tax code allows taxpayers to deduct qualified disaster losses without itemizing deductions and the net casualty loss doesn’t need to exceed 10% of AGI to qualify for the deduction. Steube is asking the House Ways and Means Committee to complete markup of his bill on March 22 so that the bill can pass on a standalone basis by the end of March or April.
- Rep. Bill Johnson (R-OH) introduced the East Palestine Tax Relief Act, proposing that East Palestine residents and businesses that receive disaster relief payments following the East Palestine train derailment should be exempt from paying taxes on compensation related to the derailment.
- A group of Senate Democrats reintroduced the Disclosure of Tax Havens and Offshoring Act, which would require country-by-country reporting of financial information—including profits, taxes, employees, and tangible assets—for large multinational companies.
- Everyone’s got China on their mind. The House Select Committee on China held its first hearing last week, featuring former Deputy National Security Advisor Matt Pottinger and former National Security Advisor H.R. McMaster. The three hours of questioning and witness testimony centered around the Chinese Communist Party’s threat to the U.S., particularly about the national security concerns regarding TikTok and Taiwan, and economic competition, especially in manufacturing.
- China’s relationship with the U.S. is one of the few issues that Republicans and Democrats are somewhat united on, so expect to see more bipartisan efforts on this front. But it’s not only Congress that’s talking about China lately—a recent Goldman Sachs study found that U.S.-China tensions are the number one global macro risk that investors are most worried about for 2023, ahead of worries about inflation, other geopolitical risks, and policy-induced recession.1
- ESG resolution passes Congress. Sens. Joe Manchin (D-WV) and Jon Tester (D-MT) joined all the Republican senators to pass a resolution blocking a recent Labor Department rule allowing retirement fund managers to consider environmental, social, and governance (ESG) factors when making investment decisions. This resolution passed the House earlier last week, but President Biden is expected to veto this bill.
IN CASE YOU MISSED IT
- The Senate Finance Committee advanced Danny Werfel’s nomination for IRS commissioner with a 17 to 9 vote. This will now go for a full vote on the Senate floor.
- In Notice 2023-21, the IRS modified the lookback period for refund claims for credit or refund on tax returns with due dates postponed due to COVID-19 under Notice 2021-21 and Notice 2020-23.
- A bipartisan group of senators is urging the Biden administration to begin negotiations on a tax agreement with Taiwan to further strengthen economic ties between the U.S. and Taiwan. Currently, the U.S. does not have a double-taxation agreement with Taiwan.
- The U.S. Department of Commerce released applications and further guidance on how to apply for the $50 billion worth of loans, grants, and loan guarantees available to the semiconductor industry through the CHIPS for America Fund, established by the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act of 2022. Treasury is expected to release guidance on the semiconductor manufacturing tax credit in March.
- Rep. Elise Stefanik (R-NY) spoke on the House floor last week to urge the House to pass the Reduce Exacerbated Inflation Negatively Impacting the Nation (REIN IN) Inflation Act. The REIN IN Inflation Act would require the president to work with federal agencies to provide estimates of how any major executive order impacts inflation.
- The Republican-led House Ways and Means Committee shared its list of hearings and oversight-related priorities for the next two years. At the top of the list: oversight of the IRS and how the Biden administration implements the Inflation Reduction Act.
- Treasury is joining forces with the Federal Reserve, the National Security Council, and other federal agencies to create a working group focusing on whether the U.S. should develop a digital dollar and explore other payment innovation opportunities. Republicans in Congress are already trying to pass legislation to stop these efforts, citing privacy concerns.
- The White House is asking Congress to authorize $1.6 billion to help federal prosecutors combat fraud from COVID-19 relief programs, including the Paycheck Protection Program and unemployment benefits.
- Senate Majority Leader Chuck Schumer (D-NY) is asking Treasury to work with state and local leaders to use funds from the American Rescue Plan Act’s State and Local Fiscal Recovery Funds (SLFRF) program to build new capacity for revitalizing local economies. Schumer’s focus is to make the best use of funding from the Infrastructure Investment and Jobs Act, CHIPS and Science Act, Bipartisan Safer Communities Act, and Inflation Reduction Act, among other bills passed in recent years to allow more communities, especially in rural and distressed areas, to benefit from these federal investments.
This newsletter features developing content that is subject to change at any time. It does not constitute legal or tax advice. Consult your professional advisors prior to acting on the information set forth herein.
- 1“China’s growth—and relations with the US—weigh on investors’ minds,” Goldman Sachs BRIEFINGS, briefings@gs.com, March 2023