What to do with the IRS?

THAT BUST UP ON SCHEDULE? It might seem to be odd timing — revamping how the tax collector operates right after overhauling how the tax code works.

And yet, House Republicans say they have no interest in backing off their plans to “bust up” the IRS, as Ways and Means Chairman Kevin Brady (R-Texas) is fond of putting it. The issue might be, as Pro Tax’s Aaron Lorenzo reports, that the details are all a little hazy after that.

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Rep. Vern Buchanan (R-Fla.), the chairman of the Ways and Means oversight subcommittee, has said he wants an IRS restructuring bill released in the first part of the year, but Brady wouldn’t commit to that sort of timetable with reporters on Monday. At the same time, even former GOP lawmakers and onetime Republican appointees to the IRS are cautioning Congress to perhaps increase the agency’s funding as it tries to implement the new tax law and to tiptoe carefully into any major reorganizations. Former Rep. Charles Boustany (R-La.), who almost five years ago helped uncover the IRS tea party controversy that still has many Republicans peeved at the agency, said it “could be a problem to institute massive reforms right now.”

Speaking of the IRS: Sen. Ron Wyden of Oregon and Rep. Richard Neal of Massachusetts, the top Democrats on the congressional tax-writing committees, questioned Monday whether there would be improper political influence as the IRS hammers out new withholding tables to correspond with the new tax parameters. The concern, Wyden and Neal said, is that a senior Treasury tax official, David Kautter, is pulling double duty atop the IRS right now – which could lead the department to “unduly influence” the new tables and give a “phantom windfall” to taxpayers this election year, as Pro Tax’s Toby Eckert reports.

The Democrats’ letter left Brady — one of the more strident critics of the IRS in recent years, and of former Commissioner John Koskinen — in the somewhat strange position of defending the agency. “There’s never been any question about the IRS’s timely, accurate withholding tables, nor should there be today,” Brady said, adding that Democrats were so mad about the GOP tax bill that “they’ll do and say just about anything to cast doubt on it.”

THANKS FOR COMING BACK for more Morning Tax, where your author’s neighbors from Alabama sure seemed to be having a good time around 12:15 a.m. — not that the football game didn’t have some controversies along the way. (More random sports point of the day: We have to think the news will start getting better for fans of the U.S. men’s national soccer team at some point, right?)

It’s now been 225 years since Jean-Pierre Blanchard became the first person to fly in a balloon in the Americas, some nine years after his first launch in his native France. Then-President George Washington was among the witnesses for Blanchard’s American liftoff, which started in the yard of a Philadelphia prison and ended across the Delaware River in Gloucester County, N.J.

Got any fun tax news? Let us know.

Email:bbecker@politico.com, teckert@politico.com, bfaler@politico.com, cwilhelm@politico.com, alorenzo@politico.com. Twitter: @berniebecker3, @tobyeckert, @brian_faler, @colinwilhelm, @AaronELorenzo, @POLITICOPro and @Morning_Tax.

THE POLITICS OF SALT: If you haven’t heard Gov. Andrew Cuomo of New York railing against the “economic civil war” wrought by the GOP tax law, then you’ve probably been trying hard to avoid it. And there’s good reason for that kind of talk, POLITICO's Jimmy Vielkind, Ryan Hutchins and David Siders report — it’s good politics for Cuomo and other blue state governors to be seen as the hero swooping in to save suburban voters from potentially higher taxes, due largely to the GOP law’s capping of the state and local deduction.

It’s not exactly clear how the IRS or Republicans on the Hill would react if states like California, Connecticut, New Jersey or New York move ahead with schemes to effectively bypass the state and local cap, by either effectively treating certain taxes as deductible charitable contributions or leaning more heavily on payroll taxes paid by employers. Some groups have said those ideas are basically unworkable, but eight law professors released a new paper Monday asserting that there’s no reason that a donation that also helped a state government would reduce the value of a taxpayer’s federal tax deduction for charitable giving. “Under current law, expressed through both court opinions and rulings from the Internal Revenue Service, the amount of the donor’s charitable contribution deduction is not reduced by the value of state tax benefits,” the professors wrote.

One other issue at play: Democratic office holders might see the issue as a political winner. But quite a few progressive wonks have expressed concern that working around the cap on the state and local deduction will basically tilt tax systems even more toward the wealthy, because they are the only taxpayers who would benefit from the schemes.

EXTENDERS ANYONE? Now that the GOP tax bill is done, is it time for Republicans to move to renew that string of expired tax provisions known as extenders?

Senate Finance Chairman Orrin Hatch (R-Utah) released a tax extenders measure late last year, and told Morning Tax on Monday that he expected to hold a markup for that measure – though when that might be is another question. (People close to the situation add that it’s possible an extenders bill could go directly to the Senate floor.)

Senators from both parties are feeling the pressure to restore incentives, including energy preferences with bipartisan support, that lapsed at the end of 2016 and have now been expired for more than a year. But never forget that there’s a bit more skepticism about tax extenders from certain pockets of House Republicans. Brady said Monday that no decisions had been made on how to proceed on extenders, though there’s still some chatter about those provisions being in the mix in spending talks.

$5.5 TRILLION? President Donald Trump is generally seen as having signed a $1.5 trillion tax cut last month. But Trump himself doesn’t seem to see it that way, as The New York Times reported Monday. The president told an American Farm Bureau Federation gathering in Nashville on Monday that Republicans had really cut taxes by $5.5 trillion. How so? “Mr. Trump apparently chose to highlight just one side of the ledger — the total amount of tax reductions in the bill that he signed in December — without counting the amount of taxes that were increased in the same legislation to help pay for the bill. White House officials declined to respond to questions about the president’s $5.5 trillion figure,” Michael D. Shear and Jim Tankersley wrote, later calling Trump’s comments an “inaccurate boast.”

WERE PEOPLE PAYING ATTENTION? Corporate tax receipts dropped 13.5 percent during the first quarter of fiscal 2018, the Congressional Budget Office reported Monday. So what might account for that decline, from $76 billion during the first three months of fiscal 2017 to this year’s $66 billion? CBO sure seems to think people might have been waiting for lower tax rates this year. “Payments of both individual and corporate income taxes in 2017 may have been affected by the anticipation of or by responses to the tax legislation that was enacted in December.”

INTERNATIONAL UPDATE

COME TALK TO US: The Danish parliament is hauling in the country’s tax chief over questions about whether Copenhagen has pension funds invested in countries on Europe’s tax haven list, Bloomberg Tax reports. There are 17 countries in all on the European Union blacklist, and Danish lawmakers have said they’re not interested in offering those nations any financial support.

STATE NEWS

NOT JUST ANDREW CUOMO! Rick Snyder, Michigan’s Republican governor, is also showing some concern that the new tax law could have adverse effects on his constituents. Snyder’s administration is pushing legislation to restore personal exemptions in Michigan, after they were scrapped from the federal code, the Detroit News reports. “Snyder has said the federal tax change will cause Michigan residents’ state income taxes to rise if no action is taken by the Legislature. The proposal would ensure the state doesn’t raise any more revenue off of the federal shift.” But unlike what states like New York and California are dealing with on the state and local deduction, the governor’s team also said that rolling back the personal exemptions makes up 98 percent of the new tax law’s impact on Michigan.

WE HEART YOU, AMAZON: Chris Christie, serving out his final days as New Jersey governor, is still working hard to get Amazon to build its second headquarters in Newark, NJ.com reports. New Jersey’s legislature backed Christie’s idea of offering the online shopping giant $100,000 per new job. “New Jersey's offer, which could total $5 billion in tax breaks, rivals some of the largest incentive packages hatched by states looking to land big businesses, and would set a record within the state.”

QUICK LINKS

Los Angeles Times: Pfizer to get big tax cut out of new GOP law, but rolling back research on Alzheimer’s and Parkinson’s.

The NYT raises some questions about the tax law’s international provisions.

DID YOU KNOW?

The Tennessee flag has been pictured upside down on a stamp released by the Postal Service and flown upside down at the state Capitol in Nashville.