Agenda - Council Work Session - 03/08/2022

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Federal Register/Vol. 87, No. 18/Thursday, January 27, 2022/Rules and Regulations 4407 growth is accounted for in the As is the case with tax cuts, discussed adopted between the beginning of the counterfactual growth assumptions. above,tax increases that must be public health emergency and the Recipients that choose to calculate the reflected in the calculation of revenue adoption of the final rule. Treasury actual effect of a tax change on revenue include final legislative or regulatory intends to revise its reporting must similarly base their calculations on action or a new or changed requirements to permit recipients to reasonable estimates that do not use administrative interpretation that amend their previously reported dynamic methodologies. Recipients increases any tax and that the recipient calculation periods to reflect such should apply this adjustment in assesses has had the effect of increasing changes. determining their actual revenue totals tax revenue relative to current law. In Determination of the Base Year at Step 3 in the revenue loss calculation assessing whether a tax change has had described above. the effect of increasing tax revenue, Under the ARPA and interim final recipients may either calculate the rule, SLFRF funds may be used"for the Revisions to Presumption To Address actual effect on revenue or rely on provision of government services to the Tax Increases estimates prepared at the time the tax extent of the reduction in revenue . . As noted above,the calculation change was adopted.Recipients may relative to revenues collected in the methodology in the interim final rule rely on information typically prepared most recent full fiscal year" of the recipient. Therefore,the base year for implicitly assumed that recipients did in the course of developing the budget not experience a reduction in revenue (e.g., expected revenues) and/or the revenue loss calculation is the most due to the public health emergency if considering tax changes (e.g.,budget recent full fiscal year prior to the they did not experience a reduction in scores,revenue notes)to determine the COVID-19 public health emergency. aggregate revenue relative to the amount of revenue that was collected as Public Comment:Treasury received multiple comments asking for flexibility counterfactual estimate. Treasury a result of the tax increase as long as recognizes that some recipients may those estimates are based on reasonable in determining base year revenues. For have experienced a reduction in assumptions and do not use dynamic instance, some commenters asked to use revenue due to the public health methodologies that incorporate the a different base year than the most recent full fiscal year emergency that was offset by other projected effects of macroeconomic prior to the revenue,particularly in the case of growth,given that macroeconomic pandemic for calculating revenue loss; increases to tax revenue resulting from growth is accounted for in the others asked to be able to average prior years. Commenters stated that, for a tax increase. The final rule requires counterfactual growth assumptions. recipients that increased taxes to deduct Recipients that choose to calculate the various reasons,revenue was artificially the amount of increases to revenue actual effect of a tax change on revenue low In the last full fiscal year prior to the public health emergency,and, attributable to such tax increase. This must similarly base their calculations on change is also consistent with the reasonable estimates that do not use therefore,using revenue in that year as the base year did not accurately reflect incorporation in the interim final rule dynamic methodologies.Recipients expected revenue in a normal year. For and final rule of a counterfactual growth should apply this adjustment in example, several Tribes stated that rate,which effectively permits determining their actual revenue totals unforeseeable weather events resulted recipients to count revenue losses due at Step 3 in the revenue loss calculation in forced closure of casinos which, in to the public health emergency that are described above. turn,artificially deflated revenues in the offset by increased tax revenue resulting Previously Adopted Tax Changes base year. Other commenters indicated from organic growth. that one-time anomalies in the timing of For these reasons,Treasury is As discussed above,the final rule will providing in the final rule that not require recipients to reflect the tax collection in that year artificially recipients must subtract from their revenue effects of tax increases or pushed revenue into the following fiscal Year. Similarly,a few commenters noted calculation of actual revenue the effect decreases adopted prior to the adoption of tax increases adopted after the date of of the final rule.Recipients that adopted that tax changes that took effect in the adoption of this final rule (January 6, a tax change in a previous period will middle of the base year may artificially 2022)for purposes of calculation dates not be required to recalculate the expskew the size of the revenue loss that occur on or after April 1, 2022. This amount of revenue loss as of prior governmentenced. by the recipient change and the change to the final rule calculation dates or to reflect the fiscal government. Treasury Response:Treasury described above treat tax changes in a impacts of such tax changes in understands that recipients may have consistent manner.In the case of calculation dates after the effective date experienced events in the base year that reduction in revenue resulting from a of the final rule.However,the final rule led to lower or higher revenues than tax cut, a recipient must add the amount will permit recipients to elect to reflect what they otherwise would have of that reduction to its calculation of the revenue effects of their tax changes collected. The ARPA provides that actual revenue, and in the case of an adopted between the beginning of the revenue loss is to be determined with increase in revenue resulting from a tax public health emergency and the respect to revenue in the most recent increase, a recipient must subtract the adoption of the final rule.299 If a full fiscal year prior to the pandemic, amount of additional revenue collected recipient elects to do so,it must do so and therefore the final rule maintains its as a result of the tax increase from its with respect to all of its tax changes incorporation of the statutory definition. calculation of actual revenue.298 In calculating revenue loss,recipients would outweigh the benefit of having a somewhat may use data on a cash, accrual, Or 298 The final rule does not permit recipients to larger amount of funds available for government reflect the effects of other changes in policy,such services. modified accrual basis,provided that as increases in fees adopted after adoption of the 299 The final rule also addresses the possibility recipients are consistent in their choice final rule.Treasury understands that the main that some recipients may have fiscal years ending of methodology throughout the covered beneficiaries of such a change would be those during the period between January 6,2022 and period,which might help recipients recipients that will benefit from the standard April 1,2022;such recipients'election to reflect tax adjust to certain delays in revenue allowance provided for in the final rule and that for changes from prior periods would also apply to other recipients the administrative burden on changes during this period with respect to the receipt. Both the standard allowance recipients needed to calculate these adjustments calculation date in this period. and elements of the formula(e.g.,