With help from Aaron Lorenzo and Doug Palmer
Editor’s Note: Weekly Tax is a weekly version of POLITICO Pro’s daily Tax policy newsletter, Morning Tax. POLITICO Pro is a policy intelligence platform that combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro.
HAPPY NEW YEAR! People have been circling Jan. 6 on their calendar for some big reasons in Washington these last few weeks. But here’s by far the biggest one from our perspective — Wednesday is when the Trump administration is expected to follow through on new tariffs on the French.
There is no indication from the U.S. trade representative that the administration will be backing down on the tariffs, which follow the French government’s commencement of its digital services tax at the end of last year.
But then what? That’s one of the big questions hanging over the entire global effort to revamp how countries tax corporations, being run through the Organization for Economic Cooperation and Development.
2021 has been shaping up for awhile to be the key year in those negotiations, but the truth is that the process has in many ways been frozen in place as the U.S. transitions from President Donald Trump to President-elect Joe Biden.
The talks might not heat up all that immediately either, given all that Biden will have on his plate come Jan. 20. Still, trade tensions could escalate in the interim. In all, the new 25 percent tariffs will hit some $1.3 billion worth of French cosmetics, handbags and soap, and could invite more retaliation from Brussels.
There are other dates to watch, too: The OECD’s next meetings on what to do about digital taxes are scheduled for Jan. 14 and 15. Spain is scheduled to put its digital services tax into effect the day after those OECD meetings.
And remember the 10 investigations that USTR had launched on various unilateral digital taxes put into place by the EU, Italy, Spain and the U.K., among others? The trade representative could release the findings of those inquiries any time now.
WELCOME TO THE 2021 SEASON of Weekly Tax, where apparently 2020 ended with the disclosure of the discovery of an Ice Age-era woolly rhino.
That long ago, huh? Today marks 85 years since Billboard published its first ever popular music charts. The No. 1 song in the land that day was “Stop, Look and Listen” by the jazz violinist Joe Venuti. (Also, around longer than we thought: Billboard itself has been around since the 19th century.)
Send us your greatest hits.
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You can also reach us on Twitter at @berniebecker3 , @aaronelorenzo, @tobyeckert, @Brian_Faler, @POLITICOPro and @Morning_Tax.
Sen. Kelly Loeffler (R-GA) speaks to a crowd during a campaign rally at The Park at City Center on Dec. 29, 2020 in Woodstock, Georgia. | Jessica McGowan/Getty Images
ALSO THIS WEEK! Georgia will choose its two senators on Tuesday — and as Morning Tax has noted previously, the voters’ decisions there could have a big impact on the tax bills for rich people and corporations.
If at least one of the two Republican incumbents — Sens. Kelly Loeffler and David Perdue — is re-elected, then don’t expect Majority Leader Mitch McConnell to be entertaining any tax increases. But if both of the Democratic candidates, Jon Ossoff and Raphael Warnock, are victorious, then all bets are off and plenty of experts expect some kind of tax hikes over the next two years — even with a 50-50 Senate, and a narrow Democratic majority in the House.
One question that Democrats might face, if they do win those two seats, is whether to try to hike the corporate rate or to squeeze more revenues out of those businesses in other manners. (Or both!)
Democrats have had no issue putting a target on the corporate rate, after pushing to drop it from 35 percent to 28 percent during the Obama administration. It could be a step too far to hike the rate seven points now that it’s down to 21 percent, but Democrats could very well push it back to, say, 25 percent.
But would that be a good idea? Progressives have argued that the corporate tax cut in the 2017 tax law hasn’t been much of a boon to workers, though it’s perhaps not surprising that the right-leaning Tax Foundation counters that higher corporate rates undercut business investment.
And here’s another take, from Marty Sullivan at Tax Notes: Biden would be advised to find other ways to hike taxes on the corporations, as part of a piece that argues that the former vice president’s overall tax proposals are better suited for campaigning than governing.
“A high corporate rate encourages profit shifting, excessive leverage, and other unproductive tax avoidance activity,” Sullivan writes. “There are better ways to raise taxes on corporations,” he added when discussing Biden’s full range of proposals. “There are better ways to make investment in the United States more attractive vis-à-vis foreign locations.”
TALKING BIG MONEY: The IRS is charging that the late pop superstar Prince’s executors have undercut the worth of his estate by some $80 million, The Associated Press reports.
The IRS has valued Prince’s estate at around $163 million, or about twice as much as the $82 million figure reached by the executors, Comerica Bank & Trust. Because of that, the IRS is also seeking another $32 million in taxes from Prince’s estate, also about double the amount charged based on Comerica’s figures.
Prince’s estate is certainly an unusual case for the IRS — he died without a will, and the differences between the tax collector and the executor stem from publishing and recording interests.
But the case also underscores how dragged out issues between taxpayers and the IRS can get. Prince died close to five years ago, and Comerica just last summer sued the IRS in Tax Court.
COMINGS AND GOINGS: Michael Zona, the communications director for Senate Finance Chair Chuck Grassley (R-Iowa), is leaving the Hill to become a vice president at the public affairs firm Bullpen Strategy Group. Zona was also a top spokesperson for Grassley when the senator was Judiciary chair during a couple high-profile Supreme Court nominations, and worked for Sen. Marco Rubio’s presidential campaign.
A BREXIT BONUS? The U.K. is scrapping its so-called “tampon tax” now that it’s out of the EU, The New York Times reports. Rishi Sunak, the chancellor of the exchequer, announced on Friday that the U.K. would no longer impose its value-added tax on sanitary products, a move cheered by women’s rights advocates in the country. EU law classifies those items as nonessential, meaning they must face at least a 5 percent VAT rate. Brussels has floated the idea of giving members the option of scrapping any taxes on tampons, but has never implemented such a plan. Germany reduced its tax on tampons last year, and Australia, Canada and India are among the countries to exempt those products from taxes altogether. (Ten states in the U.S., including California, Florida and New York, have done the same.)
NOT GOING TO BE EASY: Gov. Tate Reeves of Mississippi might be pushing to eliminate the state’s income tax, but there are plenty of reasons to think that might not happen quickly, The Associated Press reports. For starters, another top Republican official in Mississippi, Lt. Gov. Delbert Hosemann, said just last week that lawmakers should wait to see how the state’s economy bounces back from the coronavirus this year before taking any drastic steps on the income tax. Hosemann noted that getting rid of the state’s full income tax would cost up to $2 billion that would have to be made up elsewhere in the budget, and “even if you phase that out over an eight-year period, it’s still hundreds of millions of dollars a year.” Still, top GOP lawmakers have said they’re open to scrapping the income tax. Mississippi is in the process of phasing out a 3 percent income tax bracket, but will then still have 4 percent and 5 percent brackets remaining on the books.
Prime Minister Boris Johnson says that, following Brexit, the U.K. can now use its tax system to drive more business investment.
Congress overrode Trump’s veto of the defense authorization measure, which means that the ban on shell companies has now become law.
WSJ: “These Tiny Last-Minute Tax Changes Could Be a Big Deal in 2021.”
Prince ended up with 40 songs on Billboard’s Hot 100 songs chart, including five that hit No. 1.