Will the R&D tax break return next week? US companies are urging lawmakers to restore full first-year deductions for research and development expenses as soon as possible. Their preference: The omnibus appropriations package that must be approved by March 11. The 2017 tax law temporarily allowed full expensing but the provision expired this year. Senate Finance Committee Chair Ron Wyden said the issue is “right at the top of the list” to boost the US’s global competitiveness.
Manchin’s latest. The West Virginia Democrat told reporters yesterday that he’d back a social spending, climate, and tax bill that includes prescription drug savings and unspecified tax hikes. Revenues would be divided between new climate and social programs and deficit reduction. “The revenue producing [measures] would be taxes and drugs. The spending is going to be climate," Manchin said. In a State of the Union nod to Manchin, who has been blocking a bill for months, President Biden explicitly mentioned using some tax increases to lower the deficit. Manchin said while he has had no recent “formal” talks with the White House, there has been “informal back-and-forth.”
Wyden would lift most favored trade status with Russia. In response to Russia’s invasion of Ukraine, the Senate Finance Committee chair introduced a bill to repeal Russia’s “permanent normal trade relations” status. The measure would allow the US to impose new tariffs on Russian goods. A similar bill has been introduced in the House. Wyden also said he wants to boost funding for the IRS’s criminal investigations unit and said his panel is probing whether Rusian oligarchs are using the Revenue Code to avoid taxes on assets they have hidden in the US.
Gov. Kim Reynolds signs Iowa flat tax into law. She signed legislation that phases in a 3.9 percent flat tax over four years. The law also eliminates taxes on retirement income and lowers taxes for corporations. The nonpartisan Legislative Services Agency estimates that the new law will reduce state revenue by over $236 million in fiscal year 2023. Losses will grow to nearly $1.9 billion by fiscal year 2028.
Overturned: Washington State’s new capital gains tax. Douglas County Superior Court Judge Brian Huber overturned the state’s capital gains tax on stocks, bonds, and other assets. The legislature approved the 7 percent tax last year, but the judge ruled the tax violated the state’s constitutional ban on income taxes. He said because the tax is levied annually, relies on reporting on federal income tax returns, and is based on an annual aggregate calculation of capital gains, it is an income, not excise, tax. Attorney General Bob Ferguson plans to appeal to the state Supreme Court.
Michigan House advances $2.5 billion tax cut plan. The Republican-led chamber passed a reduction in the state’s individual income tax from 4.25 percent to 3.9 percent, a $20,000 income tax exemption for those age 62 and older, and new tax credits for qualified dependents. Another $1.5 billion would be used for a one-time reduction in pension debt for local governments, road commissions, and Michigan State Police. The Michigan Senate recently approved its own cut in both the individual and corporate income tax rates to 3.9 percent.
Sales tax carveouts: Increasingly popular, but bad for the tax base. Most debates about sales taxes focus on rates, but it's just as important to consider what's taxable and what's exempt. TPC’s Tax Hound examines the latest state efforts to exempt locally-purchased goods or American-made products from their sales taxes.
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