To:             ABC Members and Friends

From:         John Endean

Date:          March 25, 2024

Re:             Report for March 2024

Taxes Earlier this month, I sent a memorandum to you outlining the tax proposals in President Biden’s budget for FY 2025. As I noted, those proposals are going nowhere this year. However, assuming Mr. Biden’s reelection, they will form key elements of what he asks for next year as Congress addresses, as it must, what to do about the expiring provisions of the Tax Cuts and Jobs Act of 2017.

I have also written about HR 7024 the “Tax Relief for American Families and Workers Act of 2024. Negotiated by Democratic Senator Ron Wyden and Republican Ways and Means Committee Chairman Jason Smith, this bill was considered by the House under suspension of the rules, which meant a 2/3 vote in favor was required for passage. HR 7024 easily surmounted that hurdle, 357-70. A rare feat of bipartisanship, the bill would expand for three years the Child Tax Credit while extending certain business tax provisions:

• It would allow businesses to delay the date on which they must begin deducting their domestic research or experimental research costs over a five-year period until Businesses would therefore expense such costs incurred between 2022-2026.
• It would extend the allowance for depreciation, amortization, or depletion in determining the limitation of the business interest deduction. The bill would also extend 100% bonus depreciation and increase the limitations on expensing of depreciable business

HR 7024 was placed on the Senate calendar on March 21, but that is a procedural matter and does not carry with it any guarantee of a vote. Some Republican Senators, let by Idaho’s Mike Crapo, who is ranking on Finance, object to aspects of the Child Tax Credit expansion and think they can get a bill more to their liking next year, when, they hope, Republicans will control the Senate. Other Senate Republicans want a vote this year. For now, the bill is in limbo.

On March 7, the House Ways and Means Tax Subcommittee held a hearing entitled “OECD Pillar 1: Ensuring the Biden Administration Puts Americans First.” Those of you who worry about international tax issues already are aware that the OECD (Organization for Economic Cooperation and Development) has been working since 2021, at the direction of the G-20, to produce a multilateral tax convention among its 38 members, including the US. The aim is to address base erosion and profit-shifting concerns as they pertain to the international digital economy. Provisionally, the OECD has come up with “blueprints” for two “pillars” as a solution. Why “pillars?” I am not sure but would remind everyone that the lingua franca of the OECD is French, not English.

Pillar 1, which was the subject of the Tax Subcommittee’s hearing, is predicated on the idea of a swap. Signatories would rescind existing, and forego future, digital sales taxes (DST) and other unilateral measures in return for a multilateral consensus regarding the allocation of taxing rights with respect to certain profits of the largest multinational enterprises (MNEs)¹

Obviously most of the MNEs affected by such a change would be American firms. Realistically, absent US concurrence, which would take a 2/3 vote of the Senate, Pillar 1 (and Pillar 2 which entails a global minimum tax) would be dead letters.

I am not competent to judge the OECD’s work. I have read just enough to agree with Ways and Means Chairman Jason Smith when he said recently, “The OECD ‘two-pillar solution’ is probably the largest and most complicated tax project ever undertaken.”

What I do know is that the United States is not currently in the mood to embrace multilateral cooperation – hence the collapse of multilateral trade initiatives such as the Trans-Pacific Partnership Agreement. On top of that, Republicans on the Hill are skeptical of any agreement negotiated by the Biden Administration. Said Tax Subcommittee Chairman Mike Kelly (R, PA), “The Biden Administration leapfrogged Congress and put the interests of foreign governments ahead of the concerns of the men and women elected to represent American taxpayers. We will do our due diligence to protect American companies and consumers and ensure they get a good deal.” In any event, added Kelly, it is hard to believe that 2/3 of the Senate would agree on the naming of a post office “let alone on an international tax treaty.”²

Secretary of the Treasury Yellen is due to appear before Ways and Means in early April and it will be interesting to see how much time she devotes to the OECD initiative. In the meantime, Canada released last August a draft of its own DST, promising to scrap it if the US agrees to the OECD convention. This attempt at friendly persuasion backfired. The Biden Administration informed our northern friends that Canada would be hit with serious retaliatory measures if it puts a DST into place.

Political Scene Congress late last week completed funding the government for FY 2024 by approving a second, $1.2 trillion “minibus” spending bill covering Defense, Homeland Security, Education, Health & Human Services (HHS), and the legislative branch.

The House passed the minibus by a vote of 286 – 134. More House Republicans voted against the bill than for it (112 – 106). For his efforts to keep the government open, House Speaker Johnson was rewarded with a motion to vacate the Speakership filed by Georgia’s Marjorie Taylor Greene.

She called her Republican colleague a liar who used “every single disgusting dirty trick in the swamp to do the bidding of the Democrats.”

In the Senate, which voted in the wee hours of Saturday morning (technically after the deadline for a shutdown had passed), the vote was 74-24. Twenty- two of the Senators voting against the bill were Republican along with two Democrats, Bernie Sanders (technically an Independent) and Michael Bennett. The Republican leadership was split, never a good sign. Minority leader McConnell and Minority Whip John Thune voted in favor and Republican Conference Chair John Barrasso and National Republican Senatorial Committee Chair Steve Daines voting against. (Another Senator running to replace McConnell, John Cornyn, voted for the bill.)

The main political benefit of all of this is that Congress and the President somehow managed to keep the government open until September 30. Since it is unlikely that the road to funding FY 2025 will be any less bumpy, I think that after September 30 Congress will resort to more continuing resolutions. In the meantime, we still face a fight over additional aid to Ukraine and Israel.

In terms of national politics, President Biden’s reelection prospects are bleak. Anything can happen between now and November, of course. It is also true, as Charlie Cook has pointed out, that normal Americans do not begin focusing on an election until summer.

Nevertheless, on the big issues, polling suggests deep problems for the President. RealClearPolitics.com averages the Presidential job approval results from major polling sources. In every case, the President’s job approval ranking is under water:

Issue                   Approval/Disapproval

Economy	-16.5%
Foreign Policy	-22.5%
Immigration	-30.8%
Inflation	-26.2%
Crime	-18.5%

 

Thus, as more Americans begin to focus on the election, they will bring to that task a low view of the President’s job performance. These numbers, while they may be unfair to the President, are likely to be “sticky” and not amenable to significant improvement.

For at least fifteen years, Americans have consistently believed that the nation is heading in the wrong direction. One reason for electing Mr. Biden in 2020, it was said, was that he would somehow correct that optimism deficit with calm, effective, consensus-driven leadership. He hasn’t, as this chart from RealClearPolitics.com demonstrates:

As is obvious to everyone, Mr. Biden must make Donald Trump the issue. I think it may be getting a bit more difficult to do that this time around. The two men are by no means the same. But there are similarities. Both are too old for the job, both lack command over the English language, both have troubles in regard to the improper retention of government documents and other ethical issues, and both have, at times, only a nodding acquaintance with the truth.

Given the weaknesses of the two candidates, money probably matters more than ever, because creating the illusion of competence is expensive. Although Biden’s State of the Union address did not move the public opinion needle, it did bring in a cool $10 million in new campaign donations the following day. Said Biden campaign manager Julie Chavez Rodriguez: “Ten million dollars in 24 hours. To quote the boss, that’s a BFD.” Ms. Rodriguez then sent her condolences “to the other guy and his flailing, poor campaign. Turns out attacking women’s rights, cutting taxes for the rich, and attacking American democracy isn’t exactly a winning message.”

Trump’s money problems are well reported. It is not so clear how he will fix them. Now that he has full control over the Republican National Committee, he has been able to negotiate a “joint fundraising agreement” to assist in the payment of his legal bills. His campaign will take off the top a piece of the donations to the RNC, and then his Save America political action committee will grab a share. Only then will the residual end up at the RNC to finance the campaign of down ballot candidates. The Save America PAC pays a portion of Mr. Trump’s legal bills – so far in 2024 it has spent $8.5 million on them.

Trump’s larger challenge will be coming up with the hundreds of millions of dollars he will eventually have to pay to satisfy the various legal judgments against him. I note that some believe he will earn a multi-billion-dollar windfall when his social media company, Truth Social, goes public. Others are dubious that he will realize that much. In any case, an interesting footnote to the deal is that the biggest institutional investor in the SPAC that’s merging with Truth Social is Susquehanna International Group LLC, which was co- founded by a big Republican donor, Jeffrey Yass of Philadelphia.

Coincidentally, Yass’s firm owns 15% of TikTok.³. TikTok is Chinese-controlled and is deemed by the intelligence community as a serious threat to national security (you will hear more about this at our meeting). Yass has donated millions to the Club for Growth to oppose a Congressional bill that would ban TikTok from doing business in the US unless it is acquired by a non-Chinese entity. He recently had dinner with Trump and shortly thereafter, Mr. Trump announced his own opposition to the bill, although his Administration was the first to warn about TikTok. Mr. Yass has done nothing wrong here but his dinner with Donald does underscore yet again the latter’s transactional personality as he seeks new flows of cash. Worth watching.

What about third party Presidential challenges? Hard to say. Regarding No Labels, the latest information I have is that it has ballot access in sixteen states and aims to obtain access in thirty states within two months. No Labels hopes to identify what it calls a “Unity Ticket” consisting of two centrists, a Republican and a Democrat presumably, to run for President and Vice President. Once candidates are identified, they will be offered the No Labels ballot space. I have no information about likely candidates, now that Governor Larry Hogan and Senator Joe Manchin have opted out (Hogan is running for Senator in Maryland).

Robert F. Kennedy is on the ballot in Nevada, Utah, Hawaii, and New Hampshire. His campaign claims that by November he will be on the ballot in all fifty states, which entails a dauntingly expensive grassroots effort, with each state having its own petition signature requirement, petitioning start date, and filing deadline. Twelve states, Maine for example, require that a candidate have a running mate before being granted a space on the ballot.⁴

After floating various names –Aaron Rodgers, Jesse Ventura, self-help guru Tony Robbins, and Tulsi Gabbard — Kennedy now seems to be leaning toward Nicole Shanahan as a running mate on the “We the People” ticket. Nicole Shanahan is a Silicon Valley attorney, entrepreneur, Global Joy Officer at the Sloomoo Institute, and, perhaps most important, the ex-wife of Google co- founder Sergey Brin.⁵ She paid $4 million to fund RFK Jr.’s Super Bowl ad and is probably good for a lot more if she is on the ticket.

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1 Background and Analysis of the Taxation of Multinational Enterprises and the Potential Reallocation of Taxing Rights Under the OEC’s Pillar One,” Staff Report, Joint Committee on Taxation, US Congress, March 5, 2024, p.19.

2 Parenthetically, it did not help matters when Congress’s Joint Committee on Taxation released just before the hearing a revenue estimate for Pillar 1 that showed that had it been in place in 2021 it would have cost the US $1.4 billion, Ibid.

3 Pa. billionaire Jeffrey Yass’ firm has a large holding in company that merged with Trump’s Truth Social,The Philadelphia Inquirer, March 22, 2024.

4 No Labels, because it is attempting “to secure nationwide ballot access to enable the potential nomination” of a unity ticket, avoids this issue. In other words, it is trying to get ballot space without a candidate.

5 The Sloomoo Institute is a slime-themed attraction and online store.