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Build Back Better Reboot. Taxation & Representation and Tax Tidbit - Pat Soldano

Build Back Better Reboot. Rep. Richard Neal (D-MA), the House Ways and Means Committee chair, and Sen. Ron Wyden (D-OR), chair of Senate Finance Committee, are cautiously optimistic negotiations over the Build Back Better Act (BBBA) can resume after Sen. Joe Manchin (D-WV) retracted statements earlier in the week that the package was “dead.”

Last week, hours after Manchin somewhat spontaneously told reporters that BBBA was “dead,” he clarified that he was referring to the version of the package he dismissed in December 2021. Not to be confusing, Manchin later said he remained open to alternative packages that may, for instance, be smaller or less costly.

Manchin has maintained, as recently as last week, that one of his top priorities is to “fix the tax code” and that he is willing to accomplish this through budget reconciliation because “it’s the reason we have reconciliation.” Faithful Taxation & Representation readers will remember that Manchin was and is still willing to accept the following tax provisions:

  • Increasing the corporate tax rate to 25%;
  • Imposing a 15% corporate minimum tax;
  • Establishing a 28% “all in” capital gains tax;
  • Eliminating “tax loopholes such as carried interest”; and
  • Raising rates on wealthy taxpayers.

Neal was encouraged that Manchin swiftly clarified his statements regarding the status of the BBBA discussions. Because Manchin “did it immediately; he didn’t do it like two days later,” Neal has since pushed for a “reset” in discussions.

In the Senate, Wyden has said of the issues Manchin has prioritized, “virtually all of them go through the Finance Committee.” Like Manchin, Wyden has also remained open to compromise, saying he is “trying to meet [Manchin] where he is,” adding that there are policies on which there could be “common ground,” such as tax permanence, revising the Tax Cuts and Jobs Act (TCJA, P.L.115-97), prescription drugs and climate change. In fact, it was reported last week that Democrats have begun discussing alternative revenue raisers and spending offsets in the bill that will more effectively address deficit reduction, a perennial concern for Manchin.

While Neal and Wyden have acknowledged that lawmakers should try and make enough headway on BBBA for President Biden to announce progress during the State of the Union on March 1, both dismissed the idea of setting another artificial deadline for action. Manchin also has other short-term priorities that will delay movement on BBBA, such as appropriations. Speaking on the Sunday news shows, Manchin said that Congress must “get a budget bill first” before moving onto BBBA.

CTC Extension Efforts Endure. With BBBA discussions ebbing and flowing, members of Congress and their aides are searching for a more reliable vehicle to extend the Advanced Child Tax Credit (CTC) that expired at the end of last year. Although the Advanced CTC has been included in some versions of the BBBA, it has been specifically targeted by Sen. Joe Manchin (D-WV) as a provision that might be too costly for the package. As a result, lawmakers have been exploring other avenues to advance an extension. (The White House and congressional Democrats renewed their push for the CTC and the Earned Income Tax Credit in twin press conferences today. However, as of this writing, those events have not yet occurred.)

Even if the extension moves through another package—in fact, especially if it does—Democrats will need to garner support from Manchin and multiple Senate Republicans. Because of this, Democratic aides from both the House and Senate told reporters last week they are considering changes to the credit that might make it more palatable to potential holdouts. Such changes could include lowering the eligibility threshold, imposing a work requirement and reducing the per-child value of the credit.

There is optimism among those on Capitol Hill pushing for the extension since some Republicans have displayed a willingness to partner with Democrats on the issue. Rep. Kevin Brady (R-TX), the ranking member on the House Ways and Means Committee, said Republicans could find “common ground” on a compromise that includes permanency for the CTC changes made under the TCJA. Likewise, Sen. Marco Rubio (R-FL) has long supported the credit and thinks “this should be bipartisan.”

White House Weighs COVID-19 Refill Package. Funding for COVID-19 testing, therapeutics and vaccines has been mostly exhausted, according to reports of confidential White House documents shared with congressional offices, causing the Biden administration to consider another legislative proposal to provide additional pandemic funding.

The documents reportedly did not contain detailed accounts of each spending category and a timeline for how long remaining funds will last. It is also unclear which congressional offices received the White House documents. Regardless, the White House could soon approach Congress for additional funds. Jeff Zients, for instance, who spearheads the White House COVID-19 response effort, recently said the administration “will be working with Congress as needed to make sure we have the funding to continue to fight this virus.”

However, stronger-than-expected economic numbers on Friday could provide fodder for those opposed to enacting more COVID-19 response legislation. Republicans are generally reluctant to embrace additional spending, arguing that previously allocated COVID-19 spending has not yet been fully expended or obligated. For example, Senate Minority Leader Mitch McConnell (R-KY) has said lawmakers should “start the discussion by talking about repurposing the hundreds of billions already sitting in the pipeline.”

Other Republicans are more prepared to accept another COVID-19 response package. For instance, Sen. Roy Blunt (R-MO), the ranking member on the Senate Appropriations Subcommittee on Labor, Health and Human Services, Education, and Related Agencies, recently said such a package will be necessary. At the same time, though, he said the White House has not yet sent Congress a request or explained why such a package is necessary. Speaking with reporters last week, Blunt said the administration is “going to have to explain why they need it,” adding that he would “be more enthused about a supplemental if it was part of an overall package that gets our work done.”

Other lawmakers are already working on a package to provide COVID-19 relief for small businesses and nonprofits. Sen. Ben Cardin (D-MD), the Senate Small Business Committee chair, said there is a group of senators, including Finance Committee Chair Ron Wyden (D-OR), interested in reinstating the Employee Retention Tax Credit (ERTC), a COVID-19-era break that was ended in September 2021. Cardin explained that the ERTC is “on the table depending on how we proceed on COVID relief, and it’s also on the table in terms of tax issues.” Wyden said he is considering such legislation, saying “it makes sense and I want to talk to my colleagues about what we can do.”

Wyden’s Republican counterpart on the Senate Finance Committee, Ranking Member Mike Crapo (R-ID), has not been involved in discussions, but he is open to the proposal. Saying as much, Crapo recently said, “I’m certainly not opposed,” before adding that “the employee retention program was a good program. The question I have is whether we need additional COVID packages right now while we’re still rolling out the previous packages.”

IRS Drops Facial Recognition After Congressional Scrutiny. Both Republican and Democratic senators raised issues with Internal Revenue Service (IRS) use of ID.me, a software company that provides identity proofing, authentication and group affiliation verification for government and private entities. After an onslaught of congressional activity in response to the IRS plans, including both legislation and letters, the agency announced  on Monday it would transition away from facial recognition. According to the IRS, “the transition will occur over the coming weeks in order to prevent larger disruptions to taxpayers during filing season.”

That may not put an end to the congressional inquiry, however, given the overwhelming interest from lawmakers. For example, two bills were introduced—one by Rep. Bill Huizenga (R-MI), who sits on the House Financial Services Committee, and another by Rep. Jackie Walorski (R-IN), a member of the House Ways and Means Committee. Both would prevent the IRS from requiring the use of facial recognition technology to access online accounts or services.

In addition to the legislative response, lawmakers probed the IRS for additional information. Last week, for instance, Senate Finance Committee Republicans, led by Ranking Member Mike Crapo (R-ID), sent a letter  to IRS Commissioner Charles Rettig expressing their “serious concerns about how ID.me may affect confidential taxpayer information and fundamental civil liberties.” After listing the types of consumer data collected by ID.me—including passport, birth certificate, Form W-2, Social Security Numbers and “selfies”—the lawmakers noted that “government and private companies have an unfortunate history of data breaches.” The lawmakers asked the IRS to provide additional information about the IRS relationship with ID.me by Feb. 27 and for a subsequent briefing.

In a separate letter , Sens. Jeff Merkley (D-OR) and Roy Blunt (R-MO) expressed concern “about the IRS outsourcing biometric verification to third party vendor ID.me.” As a result, they specifically asked the IRS to “immediately discontinue any programs that collect, process, and store facial recognition or other types of biometric data of American taxpayers” and “implement a comprehensive ban on the use of such biometric data collection at the agency.” Similar to the Senate Finance Committee Republicans, Merkley and Blunt asked for the IRS to respond by Feb. 28.

As the top Republican on a committee with jurisdiction over data privacy matters, Sen. Roger Wicker (R-MS), ranking member on the Senate Commerce Committee, also initiated an inquiry into ID.me. He sent a letter  to the IRS commissioner last week with several questions and, after noting his longstanding interest in data privacy, said, “The IRS must treat its responsibility to protect the privacy and security of American taxpayers’ data with the utmost seriousness.” He gave the IRS the least amount of time to respond, asking for additional information by Feb. 17.

Perhaps most importantly, though, Senate Finance Committee Chair Ron Wyden (D-OR) sent a letter  on Monday to Rettig asking the agency to drop ID.me. In the letter, Wyden said, “While the IRS had the best of intentions—to prevent criminals from accessing Americans’ tax records, using them to commit identity theft, and make off with other people’s tax refunds—it is simply unacceptable to force Americans to submit to scans using facial recognition technology as a condition of interacting with the government online.”

Read the FULL “Build Back Better Reboot. Taxation & Representation and Tax Tidbit” update from Brownstein Hyatt Farber Schreck.

 


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