Pardon Our Dust
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LEGISLATIVE LANDSCAPE
Senate, House Return to Washington. The Senate returned from its winter recess on Jan. 6 and made history with the confirmation of Janet Yellen to be the next chair of the Federal Reserve — the first woman ever to lead the central bank.
Yellen’s confirmation was expected to pass the Senate, but many were surprised by a subsequent vote on Jan. 7 to proceed to the consideration of a bill extending unemployment benefits. Six Republicans voted with the Democrats to break the filibuster. A vote on the actual bill is expected later in the week.
The House returned Jan. 7 with votes scheduled at the end of the week regarding issues of transparency and security of private information on the insurance exchanges established under the Affordable Care Act.
Senate Finance Shuffle. Many perceive the December nomination of Finance Committee chair Sen. Max Baucus (D-Mont.) to become the next ambassador to China as the end of any momentum for a comprehensive overhaul of the tax code.
Baucus now appears all-but-certain to abandon his persistent, yet slow-going, charge to the tax reform goal line ahead of his scheduled retirement at the end of 2014. With his departure now expected as early as February, what will become of the numerous tax reform white papers and recent discussion drafts that Baucus and his staff have hammered out?
All Eyes on Wyden. That will all depend on Sen. Ron Wyden (D-Ore.), Baucus’s likely successor at the helm of the Finance Committee. Wyden has been a vocal proponent of tax reform, and he introduced a bipartisan tax reform bill in 2010 with then-Senator Judd Gregg (R-NH) — a bill with some similarities to proposed reforms championed by current House Ways & Means chair Dave Camp (R-Mich.).
Wyden’s plan proposed three individual tax brackets, at 15 percent, 25 percent and 35 percent, with no alternative minimum tax. It also would nearly triple the standard deduction and create a 35 percent exclusion for long-term capital gains, resulting in a top rate of about 23 percent.
On the corporate front, Wyden proposed cutting the rate from 35 percent to 24 percent and ending the deferral of taxation on income earned abroad by U.S. multinationals.
Bottom line? The death knell has not rung for tax reform, but subbing in new players and plans at this stage in the game and the distraction of the 2014 elections will almost certainly delay any major action until 2015.
The Extenders Waiting Game. The delay in a comprehensive tax reform vehicle also casts greater uncertainty onto the nearly 60 tax provisions that expired at the end of 2013. But look for Wyden, who is a staunch supporter of several energy-related tax breaks among the expired provisions, to wield his rising influence in order to bring an extenders package to the committee early in the year.
REGULATORY WORLD
Koskinen Takes the Helm at IRS. John Koskinen, who was confirmed by the Senate just before the holiday recess, was sworn in and is now officially leading the troubled agency where his reputation as a crisis manager is expected to be put to the test.
Koskinen previously stepped in to lead Freddie Mac during the financial crisis and worked in the Office of Management and Budget during multiple Clinton-era government shutdowns.
COURTS AND LEISURE
Online Hotel-Booking Sites vs. Cities. The Florida Supreme Court set oral arguments for April 30 in one of many disputes across the country pitting local communities against online hotel-booking companies, like Expedia and Hotels.com.
The point of contention involves whether the local sales and bed taxes should apply to the wholesale rates online-travel companies negotiate with hotels, which is how the industry currently operates, or on the higher price the companies charge travelers, which is how localities say it should be done.
Do Rate Cuts Spur Growth? Maybe Not. That’s according to a new Congressional Research Service report released Jan. 3 that found reduced tax rates on individuals and businesses have a “limited” impact on economic growth. It also found capital gains taxes have had minimal impact on the cost of capital, and small business taxes appear to have only a “modest and uncertain effect on entrepreneurship.”
Other studies by private nonprofit groups have concluded that reductions in marginal tax rates would enhance long-term growth. A similar report from CRS in 2012 was heavily criticized by Republicans and was even briefly retracted.
LOOKING AHEAD
While comprehensive tax reform is not likely to gain traction this year, other tax initiatives may heat up, especially those concerning Internet sales taxes and efforts to bar multiple sales taxes on digital goods.
The latter is of particular interest to Wyden, the heir-apparent to lead the Finance Committee. Wyden introduced a bipartisan bill late last year aimed at preventing states and localities from levying duplicative taxes on digital purchases.
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