No surprises at Senate Budget Committee hearing on tax code and

No surprises at Senate Budget Committee hearing on tax code and corporate

offshoring

Democrats and Republicans on the Senate Budget Committee stuck to largely familiar policy positions on

issues such as the Tax Cuts and Jobs Act (TCJA, P.L. 115-97) and the Pillar Two global corporate minimum tax

during a January 17 hearing on how the current tax rules affect the level of offshore activity among large

multinational corporations.

URL: https://www.congress.gov/115/plaws/publ97/PLAW-115publ97.pdf

Tax Cuts and Jobs Act

Budget Committee Chairman Sheldon Whitehouse, D-R.I., who also sits on the Senate Finance Committee,

contended in his opening statement that while the Trump administration and congressional Republicans

claimed that the reduced corporate tax rate and other provisions in the Tax Cuts and Jobs Act—such as the

global intangible low-taxed income (GILTI) rules, the foreign-derived intangible income (FDII) rules, and the

base erosion and anti-abuse tax (BEAT) regime—would encourage US-based multinationals to bring money

and jobs back to the US, the practical effect of the law has been to create new incentives for offshoring,

including in low-tax jurisdictions.

“The [TCJA] supercharged the offshoring incentive, claiming to set guardrails that many pointed out were

doomed from the start,” Whitehouse said. “[W]ith the offshore tax breaks baked into law, . . . US

multinationals reported nearly 60 percent of their foreign profits in 15 tax havens in 2020, dwarfing what they

reported in countries where they did real business,” he added.

Whitehouse touted his No Tax Breaks for Outsourcing Act, a proposal he introduced last year with Democratic

House taxwriter Lloyd Doggett of Texas that would, among other things, tighten certain GILTI and FDII rules

and treat foreign corporations that are managed and controlled in the US as domestic corporations for tax

purposes.

URL:

https://www.whitehouse.senate.gov/imo/media/doc/No%20Tax%20Breaks%20for%20Outsourcing%20Act%20118th2.p

For his part, Budget Committee ranking member Charles Grassley, R-Iowa, who was in the hospital and did not

attend the hearing, defended the TCJA in a prepared opening statement that was read into the record by

committee member Ron Johnson, R-Wis.

Grassley contended that the TCJA modernized US international tax rules and aligned US corporate tax rates

with those of our major trading partners. Moreover, he noted, the law “reversed a decades-long trend of a

shrinking corporate tax base,” adding that its enactment has had a chilling effect on corporate “inversion”

transactions (in which a US entity merges with or is acquired by a foreign entity).

Tax News & Views

Capitol Hill briefing.

January 19

, 2024

According to Grassley, the Biden administration’s plans to undo major TCJA provisions and increase taxes on

large US corporations, along with its support for a global corporate minimum tax, would mean a return “to an

international tax system that puts US companies at a disadvantage in overseas markets while also surrendering

our sovereignty and tax base to foreign nations.”

Others on the panel addressed the impact of the TCJA more broadly. Budget Committee member Tim Kaine, D-

Va., contended that benefits of the 2017 law accrued primarily to corporate shareholders while the major bills

enacted in the Biden administration—notably, the Infrastructure Investments and Jobs Act (P.L. 117-58) and

the Inflation Reduction Act (P.L. 117-169)—are having a greater economic impact through direct investments

in infrastructure and domestic manufacturing.

URL: https://www.congress.gov/117/plaws/publ58/PLAW-117publ58.pdf

URL: https://www.congress.gov/117/plaws/publ169/PLAW-117publ169.pdf

Budget Committee member Chris Van Hollen, D-Md., asked the witnesses who appeared at the hearing if the

TCJA bore out claims by the Trump administration and congressional Republicans that the tax cuts would “pay

for themselves” through increased economic growth.

Four of the witnesses—Kimberly Clausing (a former Treasury Department official in the Biden administration

and now with the UCLA School of Law), Roy Houseman (of United Steelworkers), John Arensmeyer (of the

Small Business Majority), and James R. Hines, Jr. (of the University of Michigan School of Law), agreed that the

2017 tax cuts did not generate sufficient economic growth to be revenue neutral. One witness—Mindy

Herzfeld of the University of Florida Levin College of Law—stated that she was not qualified to offer an

opinion. (Clausing, Houseman, and Arensmeyer were invited by the panel’s Democrats. Hines and Herzfeld

were invited by the panel’s Republicans.)

Pillar Two

Chairman Whitehouse endorsed the Pillar Two 15 percent global corporate minimum tax being advanced

through the OECD, arguing, among other things, that current US tax rules place large multinational

corporations at a competitive advantage over domestic entities since multinationals have the flexibility to

locate factories and jobs in low-tax jurisdictions.

Kimberly Clausing commented in an exchange with Whitehouse that Pillar Two addresses issues of corporate

competition on two fronts: first, it sets a minimum tax rate of 15 percent globally, thus putting US

multinationals on a level playing field with foreign competitors; second, it alleviates potential tax disparities

between US multinationals and domestic corporations and makes the US a more attractive place to invest.

Upcoming fiscal cliff

Budget Committee member Ron Wyden, D-Ore., who also chairs the Senate Finance Committee, asked

Clausing to identify the key priorities Congress should pursue as the nation approaches 2025, when a host of

temporary tax provisions—including many of the TCJA’s tax breaks for individuals and passthrough entities—

are scheduled to expire. (See separate coverage in this issue for details on the recently released report from

the Joint Committee on Taxation staff listing all the tax code provisions that are due to lapse between 2024

and 2034.)

URL: https://www.jct.gov/publications/2024/jcx-1-24/

Clausing replied that Congress should focus on making the tax code more progressive—for example, by

enhancing the child tax credit and earned income tax credit as well as enacting provisions to ensure top-tier

taxpayers are paying an appropriate level of tax on all of their income. She also recommended that the US

work with its global partners to address international tax competition as well as climate change.

Clausing also agreed with Wyden on the merits of his proposal to impose an annual mark-to-market regime on

high-wealth taxpayers to curb the so-called “buy, borrow, die” strategy employed by some ultrawealthy

taxpayers to avoid taxes on appreciating assets. (“Buy, borrow, die” was the centerpiece of a Finance

Committee hearing last November that examined how the tax code allows the most affluent individuals to

minimize their tax bills. For prior coverage, see Tax News & Views, Vol. 24, No. 38, Nov. 10, 2023. For details on

the mark-to-market proposal Wyden released shortly after that hearing, see Tax News & Views, Vol. 24, No.

40, Dec. 1, 2023.)

URL: https://dhub.deloitte.com/Newsletters/Tax/2023/TNV/231110_2.html

URL: https://dhub.deloitte.com/Newsletters/Tax/2023/TNV/231201_5.html

Tax, spending, and federal deficits

Budget Committee member Mike Braun, R-Ind., asked the witnesses to opine on whether changes to tax policy

or spending policy would have a greater impact on bringing the deficit under control.

Clausing, Houseman, and Arensmeyer all agreed that tax policy plays a significant role in deficit reduction,

although they noted that spending issues cannot be ignored. Hines and Herzfeld placed greater weight on the

role of spending policy in addressing the deficit.

—

Michael DeHoff

Tax Policy Group

Deloitte Tax LLP

This communication contains general information only, and none of Deloitte Touche

Tohmatsu Limited (“DTTL”), its global network of member firms or their related entities

(collectively, the “Deloitte organization”) is, by means of this communication, rendering

professional advice or services. Before making any decision or taking any action that may

affect your finances or your business, you should consult a qualified professional adviser.

No representations, warranties or undertakings (express or implied) are given as to the

accuracy or completeness of the information in this communication, and none of DTTL,

its member firms, related entities, employees or agents shall be liable or responsible for

any loss or damage whatsoever arising directly or indirectly in connection with any

person relying on this communication. DTTL and each of its member firms, and their

related entities, are legally separate and independent entities.

About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global

network of member firms, and their related entities (collectively, the “Deloitte

organization”). DTTL (also referred to as “Deloitte Global”) and each of its member firms

and related entities are legally separate and independent entities, which cannot obligate

or bind each other in respect of third parties. DTTL and each DTTL member firm and

related entity is liable only for its own acts and omissions, and not those of each other.

DTTL does not provide services to clients. Please see www.deloitte.com/about to learn

more.

Deloitte provides industry-leading audit and assurance, tax and legal, consulting,

financial advisory, and risk advisory services to nearly 90% of the Fortune Global 500®

and thousands of private companies. Our professionals deliver measurable and lasting

results that help reinforce public trust in capital markets, enable clients to transform and

thrive, and lead the way toward a stronger economy, a more equitable society and a

sustainable world. Building on its 175-plus year history, Deloitte spans more than 150

countries and territories. Learn how Deloitte’s approximately 415,000 people worldwide

make an impact that matters at www.deloitte.com.