A controversial provision of Republicans’ One Big Beautiful Bill Act (OBBBA) that would increase tax rates on certain individuals associated with countries that levy so-called unfair taxes against U.S. companies – one flagged by the Senate referee – will not be included in the final package.
Section 899.
Proposed new Tax Code Section 899, featured in both the House and Senate Finance Committee versions, was branded as a “revenge tax” for foreign countries that impose discriminatory or extraterritorial taxes. Examples are digital services taxes (DSTs) and the Organization for Economic Development (OECD) “Pillar Two” global minimum tax undertaxed profits rule, or UTPR.
The two budget reconciliation bills differed in terms of some of the statutory language on proposed Section 899. For instance, the Senate version included more details on certain definitions like prohibited foreign entities. But critics said either chamber’s Section 899 text would be difficult for the IRS to implement at the administrative level, and for taxpayers to comply with.
Senate referee.
Because of the complex nature of the federal budget reconciliation process, a neutral, third-party arbiter known as the Senate parliamentarian combs through a bill’s provisions to check if any violate the “Byrd Rule” and therefore would be subject to a 60-vote threshold. Under the rule, all budget reconciliation items must have a direct fiscal impact on revenues.
Current Parliamentarian Elizabeth MacDonough has served in the role since her appointment in 2012. Section 899 is one of several tax provisions MacDonough said run afoul of the Byrd Rule, much to the chagrin of congressional Republicans.
Reuters reported Thursday that Senators Tommy Tuberville (R-AL) Roger Marshall (R-KS) have called for MacDonough to be fired for her overall marks on the OBBBA, particularly on flagged Medicaid cuts and limits on Obamacare credits. They joined a host of House Republicans who have lambasted MacDonough and challenged her credibility.
The parliamentarian by design is a nonpartisan position, and MacDonough has previously found that Democratic proposals violate the Byrd Rule as well. Senate Majority Leader John Thune (R-SD), speaking in the minority, said the Senate should follow suit with MacDonough’s rulings.
New Pillar Two agreement.
Although the parliamentarian ruled against Section 899, the proposal has been pulled out of the tax framework for unrelated reasons, according to Treasury Secretary Scott Bessent.
Treasury announced last week that in exchange for dropping Section 899 from OBBBA, U.S. companies will not face Pillar Two treatment from Canada, France, Germany, Italy, Japan, and the UK. In response, Senate Finance Committee Chair Mike Crapo (R-ID) and House Ways and Means Committee Chair Jason Smith (R-MO) issued a joint statement Thursday.
“At the request of Secretary Bessent and in light of this joint understanding to preserve U.S. tax sovereignty and allow U.S. tax laws to co-exist with the Pillar 2 regime, we will remove proposed tax code Section 899 from the One, Big, Beautiful Bill Act, and we look forward to active engagement with Treasury on these important issues,” it read.
On social media platform X, Bessent posted: “After months of productive dialogue with other countries on the OECD Global Tax Deal, we will announce a joint understanding among G7 countries that defends American interests.”
Other Byrd droppings.
Meanwhile, Democrats celebrated other tax items marked for a 60-vote threshold. Senate Finance Committee Ranking Member Ron Wyden (D-OR) said that the parliamentarian ruled against proposed mandatory pre-certification requirements for the Earned Income Tax Credit, which would burden claimants with “red tape and delays.”
“The ruling against that provision is a big deal, and we’re going to stay ready to fight it if Republicans try to find a way to revive it,” Wyden continued. Also violating the Byrd Rule are two “special carveouts exempting certain religious institutions from the tax on college and university endowments,” he added.
Senate Budget Committee Ranking Member Jeff Merkley noted the inclusion of higher penalties for unlawful disclosure of taxpayer information. OBBBA would increase the maximum fine from $5,000 to $250,000 and increase the maximum prison sentence from 5 to 10 years.
“We have been successful in removing parts of this bill that hurt families and workers, but the process is not over, and Democrats are continuing to make the case against every provision in this Big, Beautiful Betrayal of a bill that violates Senate rules,” said Merkley.
Further, the “proposal to use a current policy baseline to enforce the Byrd Rule is an unprecedented abuse of section 312 of the Congressional Budget Act and has not been resolved by the Parliamentarian,” he said.
The parliamentarian also not yet ruled as of Friday on a permanent Opportunity Zone program or foreign entity requirements for Inflation Reduction Act clean energy tax credits.
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