As Treasury Secretary Janet Yellen prepares to defend President Joe Biden’s tax proposals in back-to-back hearings Wednesday and Thursday, she will face lawmakers with competing — and in some cases conflicting — agendas.
Lawmakers negotiating a bipartisan infrastructure bill are not discussing the corporate tax increases Biden proposed to offset such spending because Republicans are universally opposed.
The bipartisan negotiators appear to be entertaining Biden’s call to step up tax enforcement to collect revenue owed but not paid. But the minimal interest Republicans had in providing the IRS more funding or financial information to conduct enforcement is waning after a trove of billionaires' tax returns were leaked to ProPublica.
Most Democrats acknowledge they’ll have to pass Biden’s tax proposals on their own, using the budget reconciliation process to get around a GOP filibuster. But moderate Democrats have suggested scaling back some of Biden’s plans, such as raising the corporate tax rate by 7 percentage points and taxing unrealized gains at death.
Congress will also need to consider whether to pass Biden’s international tax proposals, including a 21 percent minimum tax on U.S. multinationals’ foreign earnings, amid efforts from Organization for Economic Cooperation and Development countries to strike a global accord that could result in a lower floor.
With those competing dynamics, Yellen’s pitch for Biden’s tax proposals in appearances before the Senate Finance Committee on Wednesday and House Ways and Means Committee on Thursday could prove a tough sell.
The Treasury secretary is set to defend Biden’s fiscal 2022 budget request, which would increase net revenues over the coming decade by $3.6 trillion, or about 1.3 percent of projected gross domestic product. She’ll be under pressure, mostly from Republicans, to explain why Congress should enact what would amount to the largest tax increase as a share of the U.S. economy in more than half a century.
Probing ProPublica leak
Republicans could easily spend an entire hearing hammering Yellen on the wisdom of raising taxes while the economy is still recovering from the COVID-19 pandemic and inflation is high. They may also question the impact Biden's proposals would have on small businesses and working families, despite being targeted at corporations, millionaires and billionaires.
But the unauthorized disclosure of tax returns to ProPublica will undoubtedly distract from that line of questioning as Republicans hunt for the source. Intentionally leaking confidential taxpayer information is a felony.
House Ways and Means ranking member Kevin Brady told reporters Friday he planned to raise the leak with Yellen. “It appears to be politically motivated. This is an astonishing breach of trust that should make taxpayers very concerned,” the Texas Republican said.
Brady and Senate Finance ranking member Michael D. Crapo, R-Idaho, said in a letter to IRS Commissioner Charles Rettig last week the data ProPublica reported, if accurate, suggests the billionaires’ tax returns were leaked intentionally by an IRS employee or the agency's taxpayer databases were hacked.
ProPublica said it received the tax returns anonymously through an encrypted tip line.
Rettig briefed Brady on Monday, reiterating that the IRS referred the matter to the Treasury inspector general for tax administration, the FBI and the U.S. attorney for the District of Columbia for investigation. Crapo’s office confirmed he also talked to Rettig but declined to detail the conversation.
"At this time it’s unclear if TIGTA has requested the stolen data from ProPublica which will reveal the extent, means, and potential source of the criminal leak," Brady said in a statement Tuesday — offering a clue to what he may ask Yellen.
Brady and other Republicans have speculated, without evidence, that someone at the IRS intentionally leaked the tax returns to further Biden’s tax agenda.
"My guess is somebody at the IRS leaked it in order to affect the tax debate and remind people that there are some wealthy Americans,” Senate Minority Leader Mitch McConnell, R-Ky., told conservative radio host Hugh Hewitt on Monday. "Whoever did this ought to be hunted down and thrown into jail."
McConnell, Crapo and Senate Judiciary ranking member Charles E. Grassley, R-Iowa, as well as the top Republicans on the House Oversight, Judiciary and Administration committees, in separate letters (see here and here) have asked Attorney General Merrick Garland to find the source and pursue criminal charges.
In floor remarks Tuesday, McConnell said public trust in the U.S. tax system has eroded as prior leaks of confidential tax information have gone unprosecuted. “And that fraying trust may eventually be irreparable,” he said.
Brady went further in his remarks to reporters Friday, saying the ProPublica leak follows a pattern of IRS leaks and controversies during the Obama-Biden administration years that fits Democrats’ “overall political agenda.”
"This seems to be happening every time Joe Biden is in the White House," he said. "I don't know anyone who thinks this is a coincidence."
The ProPublica leak “has close to dealt a deathblow” to the administrations’ tax enforcement plans, Brady said. He specifically dismissed Biden’s proposal to require financial institutions to report gross inflows and outflows of taxpayers’ accounts to the IRS as a problematic entrée for the agency to become “more invasive and intrusive into Americans lives.”
House Ways and Means Chairman Richard E. Neal, D-Mass., and Senate Finance Chair Ron Wyden, D-Ore., renewed their commitment to passing tax enforcement measures in separate statements, respectively criticizing Brady’s comments as “dangerous” and “baseless” speculation.
“This fits a pattern of trying to stoke distrust of the IRS and limit its ability to fully and fairly administer the tax laws,” Neal said.
“Brady is peddling these falsehoods to undermine the IRS just as steps are being taken to collect the billions, if not trillions, in taxes avoided by the wealthy,” Wyden added.
Two senators to watch as the Finance Committee questions Yellen on Wednesday are Virginia Democrat Mark Warner and Ohio Republican Rob Portman. They are two of 10 senators who negotiated a $1.2 trillion infrastructure framework that would be paid for without increasing taxes.
As the bipartisan group seeks to build more support for its plan, Warner and Portman could question Yellen about some of their ideas on how to pay for it. Such a move could backfire if Yellen were to dismiss any of the ideas, but if she embraces some or leaves room to negotiate, that would be helpful to the bipartisan group’s cause in winning over skeptics like Wyden.
Wyden said on MSNBC on Thursday that the bipartisan negotiations are a “non-starter” if large corporations “wouldn't pay a single penny to use the roads and bridges and ports they depend on.”
Crapo, however, told reporters he was “intrigued” by details GOP members of the bipartisan group shared during their conference lunch Tuesday. “I'm going to give it a very hard look,” he said.
Wyden has predicted Democrats will need to pass Biden’s tax increases through budget reconciliation. Warner acknowledged in a Washington Post Live event Monday that reconciliation is the best vehicle for a tax overhaul, but he’s hoping that can be done in addition to a bipartisan infrastructure bill.
Warner and Wyden have teamed up on an international tax proposal, but Warner is not on board with all of Biden’s corporate tax increases. “I'm not suggesting something as aggressive as President Biden laid out,” he said.
Global minimum tax
One thing about which both parties may question Yellen is the agreement G-7 countries reached this month to pursue a global minimum tax of at least 15 percent, which still needs buy-in, followed by implementing laws and treaties, from more than 100 other jurisdictions involved in the OECD-led negotiations.
Some U.S. lawmakers believe Congress should not change its international tax laws before there’s a broader global agreement.
Wyden said in the MSNBC interview that the G-7 agreement on a global minimum tax “is very useful” but reiterated the bipartisan interest in ensuring that European countries drop their “discriminatory” digital services taxes targeting American technology giants.
The G-7 agreement called for removal of digital service taxes in exchange for countries being allowed to tax at least 20 percent of large multinational companies' profits earned in their jurisdiction that exceed a 10 percent margin.
“This agreement is designed to ban that,” Wyden said. “There are some questions about timing, and I'm working with the Biden administration on that.”