January 8, 2021
What to expect in Washington (January 8)
What has happened thus far? President-elect Joe Biden's Electoral College victory has been certified by Congress, President Trump has provided assurance of an orderly transition of power on January 20, and the Senate ratio is set at 50 Democrats, 50 Republicans following the Georgia runoff elections. Democrats will control the chamber and committees, and Vice President-elect Kamala Harris will provide a tiebreaking 51st vote.
What has yet to happen? Senate Democratic leader Chuck Schumer (D-NY) and Republican leader Mitch McConnell (R-KY) haven't yet offered much information on how they will handle the 50-50 split, including the potential development of a power-sharing agreement of the type struck the last time the chamber was split evenly, following George W. Bush's election in 2000. President-elect Biden hasn't provided much new detail about his near-term legislative agenda, other than to say Congress needs to move swiftly on his plan to address COVID. Senator Schumer has said he wants the chamber to act fast to provide COVID direct payments of $2,000. Other cues about the agenda require a look back to Biden's campaign, with plans on health, climate change, etc., proposed to be paid for with tax increases like a corporate rate hike to 28%.
Democratic control of the Senate, along with the House and presidency, opens the door to the budget reconciliation process that allows legislation under certain parameters to pass the Senate with 51 votes rather than the 60 required to overcome a filibuster. Even with that procedural move available, the close party margins in Congress put a focus on centrist members and the potential for bipartisan compromise. In the Senate, all 50 Democrats (plus the VP) would need to support a reconciliation bill for it to advance.
Read the WCEY Alert on policy possibilities for tax, health, financial services and retirement issues.
A New York Times story on Biden's agenda said the $2,000 checks proposal is also intended to carry expanded unemployment benefits, aid to state and local governments and additional relief for small businesses. More generally, the article said that, given the narrowly divided Congress, Biden and aides are wary of acting too aggressively on major legislation that could sink with objections from moderates, even under budget reconciliation. On health care, "There is strong support among Democrats for increasing subsidies in the health insurance marketplaces and interest in expanding coverage to more low-income Americans in the states that have not expanded Medicaid. Larger structural change, however, will still face significant obstacles."
A January 7 Wall Street Journal (WSJ) story, "Biden Tax-Increase Agenda Revived as Democrats Win Senate," said, "Democrats will have to choose which tax policies to pursue first. They will grapple with the complicated design questions to put details to the campaign rhetoric. They will have to figure out when any new taxes should take effect — retroactively for this year or prospectively as the economy recovers."
The United States Trade Representative January 7 announced suspension of the 25% tariffs on French goods, intended to respond to France's Digital Services Tax (DST), that were scheduled to go into effect on January 6, saying the move is in the interest of promoting a coordinated response in all ongoing DST investigations. (Findings in Section 301 investigations of DSTs adopted by India, Italy and Turkey released January 6 concluded that each of the DSTs discriminates against US companies.) Top Senate Finance Committee Democrat Ron Wyden (D-OR), set to chair the Committee when Democrats take control of the chamber, was quoted in the WSJ as saying, "The Biden administration is being given the opportunity to implement their own strategy on discriminatory digital taxes."
The IRS issued final "carried interest" regulations (T.D. 9945) under IRC Section 1061, which, added under the Tax Cuts & Jobs Act (TCJA), recharacterizes certain net long-term capital gains of a partner holding one or more applicable partnership interests (APIs) as short-term capital gains.
The latest in the webcast series, "Tax in the time of COVID-19," is today, January 8, from 12:00-1:00 p.m. ET. The coronavirus (COVID-19) and the resulting economic crisis — all occurring in an election year — have made reacting to tax and trade developments more complicated and more difficult. Panelists will provide updates on: (i) elections, US economy and tax policy; (ii) what's happening at the IRS; and (iii) breaking developments. Register.