The Role of Taxes in the Debt Ceiling Debate

The debt ceiling dominated the news cycle this week, and one needn’t look far to find the tax angle—the Republicans want to limit federal spending of tax revenue and have appeared unwilling to approve any tax increases. For their part, the Democrats have floated tax loophole-closing initiatives to offset expenditures and save myriad so-called green tax credits.

Think of the government as a household and tax revenue as household income. The bills that are due represent debts. One party, the Republicans, has disputed those bills—threatening not to write the check unless we promise to spend less next time. They argue that we’re going into too much debt for the income we bring in, but they also won’t increase household earning capacity by raising taxes.

The other party, the Democrats, have contended that these bills have already been incurred and must be paid. They argue that increased debt is fine; the household will just earn more through higher taxes.

Viewed through this metaphor, the debate can largely be reduced to one question: Does the current tax regime fairly apportion the burdens and benefits of society? If so, then taxes needn’t be raised, and we have fundamentally reached the limit of what government can provide us. If not, then something must be changed, whether it’s cutting spending on programs or raising more revenue to fund additional programs. There isn’t a clear answer without more detail and context.

Here at Bloomberg Tax, detail and context are what we’re all about. Our insightful analysis and commentary will help place you in the broader conversation and provide you with the necessary background knowledge to navigate not only the current tax landscape, but the political one as well.

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State Insights

As part of a series of views on Tyler v. Hennepin County, Herman Katz’s David Wilkes says the US Supreme Court’s ruling is a boon for homeowners and property advocates, and Dorsey & Whitney’s Steven Wells and Nick Bullard share how the Supreme Court’s unanimous decision challenges at least 13 states’ forfeiture laws but also leaves unanswered questions.

Greenberg Traurig’s Shail P. Shah and DeAndré R. Morrow discuss the fallout from Maryland’s recent court ruling on the state’s unique digital advertising tax, including what businesses must do to comply with or oppose the tax.

Federal Insights

Los Angeles attorney Bruce Givner explains the requirements, tax benefits, and disadvantages of placing money into a charitable lead annuity trust.

The IRS’s test of a direct online tax-filing tool may be a better option for taxpayers with straightforward returns, but it’s not a magic bullet to improve the taxpayer experience, says Miri Forster of EisnerAmper.

Eide Bailly’s Jaime Garcia de Paredes describes changes to tax credits for energy projects under tax code Section 48C and manufacturing production credits under the newly created Section 45X.

Global Insights

Nicola McKinney of Quillon Law explains that it’s becoming increasingly easy for victims of crypto fraud and liquidators to obtain asset freezing and disclosure orders, as courts become more familiar with the crypto sector.

Kevin Flynn of EY Americas discusses how businesses can position themselves to comply with the second phase of base erosion and profit shifting project, particularly its 15% global minimum tax.

Jenny Tragner of ForrestBrown assesses the impact of the changes to research and development tax relief in the UK’s Spring Budget and looks at future developments for innovative businesses.

Commentary

Imposing a tax on crypto trading would help raise revenue, reduce waste in the economy, and crack down on crime, says economist Dean Baker.

Tax Journals

Oliver Hoor of ATOZ Tax Advisers (Taxand Luxembourg) analyzes how debt investments may be efficiently made via Luxembourg investment vehicles or a combination of Luxembourg (and potentially foreign) investment vehicles.

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Columnists

The Biden administration plans to introduce a 30% excise tax on the electricity used by devices mining cryptocurrencies. Andrew Leahey explains why the tax is impractical and a bad use of political will, and why any excise tax on electricity should be targeted more broadly.

Vodafone Group Plc began volunteering public country-by-country reporting of its tax data in 2012 following its multibillion-dollar tax abuse scandal. Using Vodafone as an example, Don Griswold shares how large companies that pay their corporate income taxes can pave the way for public good.

Career Moves

Craig Ashford has joined Miller Nash in Portland, Oregon as a partner with the tax team.

David Hudson has joined RSM US as a senior director with its credits, incentives, and methods team in the Washington national tax practice.

Lena Smith has joined Debevoise & Plimpton as a partner in the tax group in New York.

Marc Weintraub and Stephen Putnoki-Higgins have joined Stinson as partners in the firm’s new Tampa, Florida, office.

Berry Bloomberg has joined Withers as a partner in Geneva.

Joanna Johnston has joined Frazier & Deeter as a tax principal in Las Vegas.

If you are changing jobs or being promoted, let us know. You can email your submission to [email protected] for consideration.

Spotlight

This week’s Spotlight is on Kathleen “Kat” Gregor, a tax controversy attorney and litigator at Skadden, Arps, Slate, Meagher & Flom in Boston. Gregor advises clients disputing their taxes in administrative proceedings, federal and state courts, and international arbitration.

News Roundup

It’s been another busy week in tax news from state capitals to Washington. Here are some stories you might have missed from our Bloomberg Tax news team.
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• The runup to House Republicans’ opening bid on a tax package shows some cracks among the caucus and insight into the new Ways and Means Committee chairman’s policy approach as lawmakers jockey for their priorities.
• House Republicans introduced legislation Thursday that would raise US taxes on foreign individuals and companies when their home countries apply taxes the US sees as extraterritorial or discriminatory.
• Local governments that keep surplus proceeds when a homeowner’s property is seized, then sold to settle tax debts commit unconstitutional takings, the US Supreme Court ruled Thursday.
• As PricewaterhouseCoopers’ Australia tax scandal moves into a new phase, the ramifications are likely to stretch far beyond Australia’s borders.

Our Wish List

For June, we’d welcome thoughtful pieces on graduates, including what tax advisers are telling their clients who are just starting out in the workplace and tax-favored strategies related to paying for higher education. We’re also looking for tax pieces focused on travel and tourism. Specifically, we’d love to see how advisers and planners suggest taxpayers maximize tax benefits for vacation and rental homes.

If you have an interesting, never-published article for publication, you can contact our Insights team by email at [email protected].

Our Team

We talk about tax a lot. But there’s much more that you might hear us talking about if you popped into one of our Teams meetings. Here’s a quick look at what some of us are watching, reading, and listening to this week.

Watching
Daniel Xu (Content Editor): I wanted to watch a cheesy ‘80s action movie this week and decided on “Commando.” It certainly fit the bill—I didn’t know that much violence and that many one-liners could be crammed into an hour and a half.

Reading
Andrew Leahey (Columnist): A family friend released her first novel. Adorah Nworah’s “House Woman” is a psychological thriller about an arranged marriage between Nigerian immigrants that has had me fully invested and on edge from the first page.

Listening
Melanie Cohen (Content Editor): Fuel for the Sole, a sports nutrition podcast—it’s a new favorite!

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