Daily Tax Update - May 18, 2011: Geithner: Administration To Push For Tax Reform Before 2012 Election

GEITHNER:  ADMINISTRATION TO PUSH FOR TAX REFORM BEFORE 2012 ELECTION:  Treasury Secretary Geithner, in a question and answer session following his speech to the Harvard Club of New York, discussed the outlook for corporate tax reform.  Geithner said that the "central rationale for corporate tax reform should be to lower the statutory rate to a level more in the range of our major trading partners and to make that possible by dialing back, reducing, the range of tax expenditures that now, I'll say, litter the corporate tax code.  And that's a sensible thing to try to do."  Geithner added, "It's a very hard thing to do because it will change the relative effective tax rates for different companies, different industries, but it's an essential thing to do.  Why should we want to live with a tax code where every year people don't know what is going to be the tax preference for a certain activity?  Why would we want to live with a tax code where ultimately it's the quality of your lobbyist that determines a key part of the economics of your business?  It makes no sense for the country.  This is worth trying to do.  It's going to be politically difficult to do, but I think it's a sensible thing to do."  Geithner also indicated that the debt limit issue would have priority before tackling corporate tax reform.  Geithner said, "I think we'd like to take a run at doing this ahead of the election, that means we have to start, but we also need to get this fiscal stuff in a better trajectory…I think realistically this fiscal debate we're having is going to dominate our preoccupation for the next couple of months.  But we've been doing a lot of work on how to figure out the sensible design of a better corporate tax system and we'd like to move forward on that when we can."  Geithner added that he hoped to do so before the Presidential election in the fall of 2012.

  • On the issue of raising the debt ceiling, Geithner said, "The House Republican budget has deep spending reductions but devotes a significant portion of those savings to keeping tax rates at current low levels for the wealthy, not just the middle class.  This approach will not pass the Congress, now or in the future.  Not just because any legislation today will require votes from Republicans and Democrats, but also because this alternative would require implausibly deep cuts in benefits for the elderly and the poor, and would reduce the rest of US government spending to what it was before the modern era, or to the level more typical of some countries in the developing world.  The fundamental reality of our fiscal situation is that we will need to generate more revenue, and we will need to reduce the rate of growth in spending on health care and retirement security.  Both are necessary.  Neither alone can carry the full burden.  The essential contribution of the House budget is to show that if you try to deliver fiscal sustainability with no contribution from tax reform, then you have to make drastic cuts to critical government functions."  Geithner added, "America can do better.  And if Republicans try to impose that plan on this country as a condition for raising the debt limit, then they will own the responsibility for the first default in our history, with devastating damage to the nation.  Yesterday, we reached the debt limit, and because Congress had not acted, we were forced to deploy a series of extraordinary measures to prevent default.  These measures will give us until August 2 before we will no longer be able to meet our obligations securely.  As I have said before, Congress must meet its responsibility to protect the Nation’s full faith and credit by increasing the debt limit."
  • Geithner also indicated that there was general agreement that the debt ceiling had to be raised and dismissed a question that might not occur saying: "This is the United States of America.  Give me a break."
  • Geithner’s remarks can be accessed here.

SENATE FAILS TO ADVANCE BILL ENDING OIL AND GAS TAX BREAKS:  The Senate failed to get sufficient votes to pass the "Close Big Oil Tax Loopholes Act," S. 940, which would have eliminated several tax breaks for the major oil and gas companies.  Sen. Robert Menendez’s bill failed (by a vote of 52 to 48) to obtain the 60 votes needed to advance in the Senate.  It is likely that Senate Democrats will try to attach a similar provision to a bill to raise the debt ceiling.  Sen. Charles Schumer said, "It's certainly my position.  And I believe that all of us in the leadership, and I think a pretty broad consensus in our caucus, [think] that this is a place to start."  Senate Majority Leader Harry Reid also said yesterday that he expects a final agreement on the debt ceiling to include the repeal of tax breaks for major oil companies.

SENATE DEMOCRATS MULL INCLUDING “MILLIONAIRE SURTAX” IN BUDGET PLAN:  Senate Democrats are considering including two proposals in the Senate budget resolution that would raise taxes on millionaires:  (i) ending the Bush-era tax cuts for families earning more than $1 million a year, or (ii) imposing a surtax of 3 percent or 5.4 percent.  Senate Budget Committee Chairman Kent Conrad included a 3-percent surtax on income over $1 million a year in a draft 2012 budget he outlined last week.  Conrad’s budget has not been formally introduced and it is unclear whether any surtax provision would be included in that version.

  • Even some Democrats have stated that a surtax on millionaires was unlikely to pass.  Sen. Claire McCaskill (D-MO) said, "I don’t think it’s realistic that would ever pass; I think we’re trying to find a negotiating point."  A Finance Committee Democrat, who remained unnamed, also said that it would be difficult to pass a surtax proposal, stating, "The Republicans will really fight this.  They believe in maintaining low rates for high-income people."  The Senator also said that Republicans are more likely to agree to ending corporate loopholes than allow a surtax on millionaires.

MISCELLANEOUS GUIDANCE RELEASED TODAY:
Notice 2011-42 provides interim guidance to third party settlement organizations (TPSO) (as defined under section 6050W of the Internal Revenue Code (Code) and its accompanying regulations) on backup withholding obligations under section 3406 of the Code and its accompanying regulations.
Notice 2011-42 will be published in Internal Revenue Bulletin 2011-23 on June 6, 2011.

TAX BILLS INTRODUCED MAY 17TH:
1. [112nd] S.1007: A bill to amend the Internal Revenue Code of 1986 to eliminate the taxable income limit on percentage depletion for oil and natural gas produced from marginal properties.
Sponsor: Sen Inhofe, James M. [OK] (introduced 5/17/2011)    Cosponsors (None)
Committees: Senate Finance
Latest Major Action: 5/17/2011 Referred to Senate committee. Status: Read twice and referred to the Committee on Finance.

2. [112nd] S.1008: A bill to amend the Internal Revenue Code of 1986 to permanently extend the depreciation rules for property used predominantly within an Indian reservation.
Sponsor: Sen Inhofe, James M. [OK] (introduced 5/17/2011)    Cosponsors (None)
Committees: Senate Finance
Latest Major Action: 5/17/2011 Referred to Senate committee. Status: Read twice and referred to the Committee on Finance.

3. [112nd] S.1012: A bill to amend the Internal Revenue Code of 1986 to repeal the excise tax on telephone and other communications services.
Sponsor: Sen Schumer, Charles E. [NY] (introduced 5/17/2011)    Cosponsors (1)
Committees: Senate Finance
Latest Major Action: 5/17/2011 Referred to Senate committee. Status: Read twice and referred to the Committee on Finance.

4. [112nd] S.1016: A bill to amend the Internal Revenue Code of 1986 to permanently modify the limitations on the deduction of interest by financial institutions which hold tax-exempt bonds, and for other purposes.
Sponsor: Sen Bingaman, Jeff [NM] (introduced 5/17/2011)    Cosponsors (5)
Committees: Senate Finance
Latest Major Action: 5/17/2011 Referred to Senate committee. Status: Read twice and referred to the Committee on Finance.

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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