CTC and filing season surprises

Delivered every Monday by 10 a.m., Weekly Tax examines the latest news in tax politics and policy.

Mar 14, 2022 View in browser   By Bernie Becker With help from Aaron Lorenzo WELCOME TO TAX SEASON: The political debate over last year's expansion of the Child Tax Credit might be at a standstill right now. But those monthly child payments have their fingerprints all over this current tax filing season, throwing a range of wrinkles at millions of families, as Pro Tax's Brian Faler reported. This won't be a surprise to policymakers. But for regular taxpayers, refunds might be bigger or smaller, whether they know why or not. The millions of taxpayers who opted out of the monthly payment option — believe us, no easy feat — will likely be getting more money out of the IRS this year. Families that had a baby in 2021 could expect a little extra from the IRS — or perhaps quite a bit more, since those new additions might also get stimulus checks, too. But the expanded CTC will eat into the refunds for the many, many taxpayers who unquestionably like to get big payments from the government come tax season. (This despite tax practitioners saying that a big refund just means that you're giving the government an interest-free loan.) It's possible that could put Democrats in a bit of an awkward spot with at least some of those taxpayers, in a similar way to what Republicans faced when refunds briefly declined in size after their 2017 tax law. Generally speaking, those who took the monthly payments will at least see a modest decrease in their refund. Look at it this way: The expanded CTC offered at most $3,600 a child — so $1,800 at tax time, and $1,800 through monthly payments. The credit maxed out at $2,000 a child before the Democrats' expansion. (For whatever it's worth, early IRS statistics suggest that the number of returns sparking a refund is down ever so slightly.) And then there are refund issues caused by specific family situations — like divorced parents who might take turns claiming children on their tax returns. MORE ON your favorite tax topics in a bit, but first thanks for joining the "Local quarterback returns for more games in low-tax state" edition of Weekly Tax. (Sticking to sports: The New York Mets have their own tax now?) Huh, o.k.: Today marks four years since a preliminary NASA study found the astronaut Scott Kelly returned from a year in space with a different genetic expression than his identical twin, the fellow astronaut and future senator Mark Kelly. (Worry not: About a year later, Nature reported that the Kelly twins " are back to being nearly identical.") Email: bbecker@politico.com, alorenzo@politico.com, bfaler@politico.com and teckert@politico.com. You can also reach us on Twitter at @berniebecker3, @aaronelorenzo, @tobyeckert, @Brian_Faler, @POLITICOPro and @Morning_Tax.   SUBSCRIBE TO NATIONAL SECURITY DAILY : Keep up with the latest critical developments from Ukraine and across Europe in our daily newsletter, National Security Daily. The Russian invasion of Ukraine could disrupt the established world order and result in a refugee crisis, increased cyberattacks, rising energy costs and additional disruption to global supply chains. Go inside the top national security and foreign-policymaking shops for insight on the global threats faced by the U.S. and its allies and what actions world leaders are taking to address them. Subscribe today.     Want to receive this newsletter every weekday? Subscribe to POLITICO Pro. You'll also receive daily policy news and other intelligence you need to act on the day's biggest stories. RATCHETING UP THE PRESSURE: American officials aren't done when it comes to trying to find ways to make life difficult for Russia — not by a longshot. Here's an example: Senate Finance Chair Ron Wyden (D-Ore.) announced on Friday that he wants to strip away the tax benefits that American companies can get when doing business in Russia and Belarus, and the tax advantages that allies of President Vladimir Putin in either country receive from any income tied to the U.S., as Pro Tax's Aaron Lorenzo reported. There's still a lot to flesh out there, as Wyden and his staff acknowledge. Plus, it's not clear yet whether this is an idea that could gain support from Republicans. The proposal would give Treasury Secretary Janet Yellen more authority to identify those supporters of Russia's invasion of Ukraine that "should lose their tax goodies," as Wyden put it. Among the issues that still need to get worked out: The tax code currently doesn't allow companies to take the preferential tax rate from the levy on Global Intangible Low-Taxed Income, or GILTI, or foreign tax credits on income earned in four separate countries — Iran, North Korea, Syria and Sudan. That blacklist is for countries that don't have diplomatic relations with the U.S. or are considered supporters of terrorism, and Wyden's proposal is to add to it any countries participating or offering certain levels of support to the Ukraine invasion. Normally, it takes six months between when a country is added to that list and when any tax advantages are taken away. But Wyden believes that time span could be reduced, because of Russia's actions in Ukraine. One more question to consider there: How exactly would the U.S. decide what countries are "materially supporting" Russia's invasion, which could conceivably open up further countries to these tax sanctions? CHECK IT OUT: For POLITICO'S 15th anniversary, we're hosting unfiltered one-on-one conversations about the next 15 years. In the first installment of our series, former Treasury Secretary Larry Summers sits down with the billionaire hedge fund manager Ray Dalio. Inflation, political polarization, competition with China — they all came up in Summers and Dalio's conversation. But there's some tax stuff in there, too. Dalio, for instance, argued that polarization was playing a role in why people are relocating within the U.S. — and that, at the very least, it's far more than just those in high-tax areas seeking low-tax locales. And both Summers and Dalio both stressed that the U.S. needs to raise more in tax revenues, and that policymakers would be smart to look at a carbon tax — something that's long seemed like it had more support from experts than from elected officials. Around the World WE'RE DOING THIS: The new government in Chile plans to make a tax overhaul a top priority , Reuters reports. Finance Minister Mario Marcel said the new administration planned to send a proposed tax revamp to Congress within months — and that it would focus less on corporations, and more on individuals, natural resources and green taxes. The left-wing Gabriel Boric won Chile's presidency last year, and has vowed to boost services, redistribute wealth and generally move away from a more market economy. But Marcel told Reuters that Chile really couldn't raise taxes further on businesses without hurting the country's competitiveness. (In fact, Boric's choice of Marcel, who previously led Chile's central bank, was viewed as a sign that the new administration might not rock the boat as much on fiscal matters, at least initially.) The new government hopes an overhaul of the tax code will help increase tax collections by five percentage points of gross domestic product. Chile is the world's top producer of copper, and the finance minister said that administration wants to build on existing congressional proposals on mining royalties. Around the Nation OFF THE BOOKS: A judge in Arizona has officially found that a tax on high earners in the state is null and void , The Associated Press reports. The ruling from Judge John Hannah of the Maricopa County Superior Court wasn't unexpected – the state Supreme Court had paved the way for the finding last summer. Arizona voters approved Proposition 208, which would have used the extra revenue collected from top earners to fund education initiatives, in 2020 — over the opposition of the state's Republican governor and GOP-led legislatures. But Arizona's Supreme Court ruled in August that the tax ran afoul of the state constitution if it allowed education spending to top a legal spending cap, something both supporters and opponents believed would happen. Education advocates said they would look for ways to challenge the ruling, but they don't seem to have many promising options. The tax approved by voters added an extra 3.5 percent surcharge on individual income above $250,000 and $500,000 for married couples. Republican officials have sought ways to undercut the tax since it was approved.   DON'T MISS POLITICO'S INAUGURAL HEALTH CARE SUMMIT ON 3/31: Join POLITICO for a discussion with health care providers, policymakers, federal regulators, patient representatives, and industry leaders to better understand the latest policy and industry solutions in place as we enter year three of the pandemic. Panelists will discuss the latest proposals to overcome long-standing health care challenges in the U.S., such as expanding access to care, affordability, and prescription drug prices. REGISTER HERE.     Quick Links A BBB update: "'You will see the wrath' — Progressives warn Biden against cutting down agenda." The Hill: "Democrats divided over proposal to suspend federal gas tax."   WSJ: " Courts Threaten to Undercut IRS Efforts to Go After Tax Shelters." Also WSJ: "New Tax Rules Force Faster Payouts for Some IRA Holders." Minneapolis Star-Tribune: "Businesses brace for tax hike as unemployment debate drags at Capitol." Did you know? At 36, President Gabriel Boric of Chile is the second-youngest state leader in the world — behind Giacomo Simoncini, the 27-year old captain regent of San Marino.   Follow us on Twitter Toby Eckert @tobyeckert Bernie Becker @berniebecker3 Brian Faler @brian_faler Aaron Lorenzo @aaronelorenzo   Follow us

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