After the election, swapping spending cuts for a debt ceiling increase? Republicans want to use a House vote on raising the debt ceiling, necessary to prevent government default, to win concessions on spending cuts. The federal government is expected to reach its $31.4 trillion debt limit sometime in 2023 but some Democrats would like to extend it while they still control the House this year. Some Republicans vowed to block any debt ceiling increase next year if they win control of the House in November.
Who will be the next Prime Minister of the United Kingdom? Following Liz Truss’s resignation after only 44 days in office, the Tories are scrambling for a replacement. The leading candidate appears to be Rishi Sunak, who served as Boris Johnson’s Chancellor of the Exchequer. Truss defeated Sunak in the party race to replace Johnson by touting big tax cuts and energy subsidies. After the collapse of her fiscal plan, Truss then adopted something close to Sunak’s tighter fiscal policy. Sunak gets the job if 100 Tory MPs back him in a vote likely to take place today. If not, chaos will ensue.
Maryland court strikes down state’s tax on digital advertising services. A local Maryland judge stuck down the levy, ruling it violates the federal Internet Tax Freedom Act (ITFA), the commerce clause of the US Constitution and the First Amendment. She said the tax would be discriminatory under the ITFA and that since the tax rate is calculated on worldwide income on all sales, not just advertising, it violates the commerce clause. The state is likely to appeal.
Maag and Matheson compare costs of tax breaks for children versus businesses. Restoring a fully refundable child tax credit (CTC) would cost about $16 billion in 2022, assuming the current $2,000 CTC maximum is retained. The move would benefit low-income families. Restoring first-year expensing for research costs, another provision that expired this year, would reduce federal revenues by about $22 billion in the first year and by an annual average of $6 billion to $7 billion after five years. TPC’s Elaine Maag and Thornton Matheson conclude, “for less money in 2022, legislators could pick children over businesses. Or… everyone could go home a little happier by picking both.”
What does the IRS inflation adjustment really mean? TPC’s Robert McClelland explains the more than 7 percent increase for tax year 2023 “is widely misunderstood: It isn’t a cause for joy, and it isn’t a tax cut… The inflation adjustment isn’t putting extra money in people’s pockets. It’s just keeping them from facing higher taxes if their inflation-adjusted incomes rise by 7 percent. But average real incomes aren’t rising; they’re falling.”
Could a data tax partially replace the corporate income tax? TPC’s Howard Gleckman reviews the idea. UC-Irvine tax law professor Omri Marian and a handful of others suggest taxing the volume of data, rather than trying to figure how much income it produces and the source of that income. Only heavy data users would pay the tax directly. You can watch Marian and Gleckman discuss the issue here.
Trump Organization tax fraud trial begins today. Former company CFO Allen Weisselberg, who has pleaded guilty to his role in the criminal fraud, will be a key government witness. The former president was not charged.
Next Monday at TPC: What the Inflation Reduction Act means for business taxes. Join TPC for a virtual event next Monday at 2:00 PM. Assistant Treasury Secretary for Tax Policy Lily Batchelder will be the keynote speaker, followed by two expert panels. The first will be on the new corporate tax provisions, and the second on the IRA’s green-energy incentives. Learn more and register here.
Proposals due Dec. 1 for papers for the next IRS-TPC Joint Research Conference on Tax Administration. The conference will take place at the Urban Institute on June 22. Possible paper topics include measuring and influencing taxpayer compliance, estimating compliance costs, complexity, administration, and taxpayer behavior. E-mail proposals to: [email protected] with “proposed paper” in the subject line. Completed papers will be due May 22, 2023.
Congress is not in session, so the Daily Deduction will post Mondays until Congress returns.
For the latest tax news, subscribe to the Tax Policy Center’s Daily Deduction. Sign up here to have it delivered to your inbox weekdays at 8:00 am (Mondays only when Congress is in recess). We welcome tips on new research or other news. Email Renu Zaretsky at [email protected].