Looking for more clues

May 31, 2022

GOING DARK: Both the House and the Senate are out of town this week, so it'll be understandable if all the talk surrounding the bill once known as Build Back Better gets a little quieter.

As Weekly Tax has noted for awhile now, there's definitely more optimism in certain Democratic quarters that Sen. Joe Manchin (D-W.Va.) will get behind a slimmed-down version of the party's fiscal agenda.

And as Weekly Tax has also noted, you'd be excused for doubting whether the Democrats will get a knock-off BBB done, given all the problems they've had ever since Manchin pulled the plug on the original version back in December.

MORE ON EVERYTHING IN A BIT, but first welcome to the "I'd prefer not to know much more about hot dogs" version of Weekly Tax.

Nothing better than an arena hot dog, right? Today marks 143 years since the first building known as Madison Square Garden received its name. (That building, built by P.T. Barnum, was actually on Madison Square, as was the next MSG. The next two Madison Square Gardens have been on different sites.)

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MOVING FORWARD: You can see why confidence is creeping up among Democrats. Manchin told Axios that his talks with Senate Majority Leader Chuck Schumer about passing something through budget reconciliation were serious — and perhaps most importantly for our favorite topic, suggested that he'd defer to Sen. Kyrsten Sinema (D-Ariz.) on what makes the cut on the revenue-raising side.

That could mean tax hikes like a minimum tax on big corporations' book income, instead of a straight increase in the 21 percent corporate rate — though it's also worth noting that it's not clear just how much in revenues Democrats would end up raising in this potential new measure.

On top of that, Reuters reported that Manchin supports putting some key climate provisions in whatever measure Democrats could come up with, after he told Axios that Republicans might believe that the reconciliation talks give Manchin leverage in the bipartisan climate discussions currently happening in the Senate.

A presidential interlude: By all accounts, President Joe Biden and his team haven't played much of a role in these negotiations between Manchin and Schumer.

But Biden did write an opinion piece for The Wall Street Journal that plugged some of the key tax increases from the BBB, which he's now calling a key part of his plan to battle inflation — which remains a particular political trouble spot for Democrats heading into the midterms.

Biden will be meeting with Jay Powell, the chair of the Federal Reserve, to discuss inflation on Tuesday, with Treasury Secretary Janet Yellen also expected to join.

Long story short: On some level, it shouldn't be a surprise if this last gasp to salvage something out of BBB succeeds or fails, as several people watching the situation closely told Morning Tax.

Would it be that wild if Democrats figure out how to clinch a deal that's always seemed like it should be highly attainable? Probably not. But could you really be shocked if Democrats fall short, after close to half a year of flailing and with the midterms only drawing closer? Also probably not.

CUTTING AGAINST THE GRAIN: One of the big themes during this year's state legislative sessions has been how much lawmakers and governors, finding themselves with frequently record surpluses, have been in to tax cuts — even in the bluest states like New York.

But here's one very large tax cut — an incentive that has helped rev up New York City's rental construction market — that looks quite likely to expire in about two weeks' time.

Interestingly enough, both Mayor Eric Adams and Gov. Kathy Hochul, both Democrats, support the tax break, which was long known as 421-a. But Adams has prioritized other issues in his discussions with state lawmakers, as our Sally Goldenberg and Joe Anuta reported.

Meanwhile, the tax break didn't make it into New York's budget some weeks back, which has eaten away at Hochul's leverage. And the real estate industry has seen some of its power eroding in Albany, as increasingly progressive Democrats gain more influence in the legislature.

Combine that all together, and you get a recipe for a $1.8 billion tax break going off the books.

NOT EXACTLY A WINDFALL: Windfall taxes have gotten a lot of attention in Europe these days, as policymakers try to find ways to pay for relief measures for consumers struggling with rising inflation and energy prices.

Perhaps nowhere was that debate more center stage than in the U.K., where Prime Minister Boris Johnson's government announced a new tax on oil-and-gas profits.

But as The Wall Street Journal notes, it's probably not quite right to call that new policy a windfall tax — a term which suggests a one-time levy. In fact, the new tax in Great Britain looks like it will last multiple years, perhaps until the end of 2025.

Britain's oil-and-gas giants were also surprised by that fact, as The Guardian reported, with Shell saying that the tax could end up hurting oil-and-gas investment. Shell also complained that new government measures aimed at increasing energy investment didn't rope in renewables.

More on this topic: Prime Minister Viktor Orban's economic chief in Hungary "Defends Windfall Tax After Market Rout," as Bloomberg noted.

Around the World

STREAMING IN THOSE REVENUES: The Philippines is thinking about levying a new tax on digital transactions — as well as Netflix and other streaming services, as Bloomberg reported via GMA News. Benjamin Diokno, the government's incoming finance secretary, has said that he's concerned that it's easier to dodge taxes on digital sales, including video and audio streaming services, than it is on other purchases. "Who can afford Netflix? Not the poor," Diokno said.

Ferdinand Marcos Jr., the president-elect of the Philippines, will be under some pressure to find new revenues and cut deficits. Key lawmakers are pressing the incoming administration to back a plan that would make it easier for Filipinos to pay taxes, something that key business groups also support.

Around the Nation

EXPANDED CTC, STATE VERSION: Gov. Phil Scott of Vermont has signed a child allowance based on the broader child tax credit that Democrats temporarily enacted last year, VTDigger reports. Under the Vermont plan, households making up to $125,000 a year would get a $1,000 for each child 5 years old and under. The expanded credit will start phasing out north of that income level, with each extra $1,000 in income leading to $20 in reduced child payments. Both Vermont's Republican governor and the Democratic-run legislature backed the idea of enacting a child tax credit, though the state House and Senate haggled over the details. The final tax cut package in Vermont adds up to $32 million and also offers assistance to lower-income workers, retirees, military pension recipients, caregivers and those paying off student loan debts. The Senate had pushed for a slimmer tax cut package and more modest child credit, but eventually backed off a proposal to only put key tax cuts into place for three years.

Quick Links

The Daily Beast: "They Lost Major Coin—and Now the Tax Bill Is Due."

WaPo: "Christian leaders press lawmakers to extend child tax credit."

Delaware Public Radio: "State revenue surplus stirs tax credit proposals."

Did You Know?

The New York Americans were the first hockey team to call Madison Square Garden home, starting in 1925 — a year before the New York Rangers started playing there.

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