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March 15, 2021

What to expect in Washington (March 15)

President Biden and congressional Democrats will spend some time explaining the American Rescue Plan Act to voters, and the timing of the President’s address to Congress and next legislative push now looks to be mid-April, after the two-week holiday recess beginning March 29. Democrats stayed together on the relief bill, despite some turbulence along the way, and future bills could more plainly expose intraparty differences as the Administration and congressional leaders try to move on their agenda and notch legislative victories before the 2022 midterms. While a Build Back Better infrastructure-plus bill earlier seemed an inevitable and swift follow-up to the relief bill, the White House, in conjunction with Democrats in Congress, is leaving some breathing room and taking a deliberative approach to laying out what follows.

“We haven’t made a final decision yet as to what the format, the size, what the next proposal will be. It’s not even something that has been brought to him for a decision quite yet,” White House Press Secretary Jen Psaki said last week, adding that while Biden laid out components of his Build Back Better agenda during the campaign, his proposal as president hasn’t yet taken shape. Unanswered questions include what the plan will include beyond traditional infrastructure items, whether and which tax increase proposals will be in, and the degree to which Democrats will seek Republican support and how long they will wait for it to materialize.

The Wall Street Journal described the situation: “Officials must decide how much of the bill to pay for with tax increases and which policies to finance with more borrowing. In a narrowly divided Congress, they must also craft a bill that can win support from nearly every Democrat. The decision will help determine how much of President Biden’s Build Back Better economic agenda he can advance in his first year in office.”

On ABC’s This Week, House Speaker Nancy Pelosi (D-CA) referenced her March 12 directive to “Chairs of the Committees of Jurisdiction to work with their Republican counterparts to craft a big, bold and transformational infrastructure package.” Asked whether she can “keep Democrats united behind a proposal like that and attract any Republican support,” the Speaker said, “building roads and bridges and water supply systems and the rest has always been bipartisan” and “this is about broadband, it’s about water systems, it’s about mass transit, it’s about good-paying jobs all over the country. It’s also about schools and housing and the rest.”

Tax – On the question of tax increases as part of the plan, Speaker Pelosi said, “Well, we’ll see. There are some fees that spring from certain harbor maintenance tax credits, this, that, we’ll see. I think that some of it needs to be – we’ll look at everything. We’ll look at the tax code. We’ll look at the appropriations process. We’ll look at bonding in terms of Build America Bonds … This is job creating which creates revenue that comes back to the Treasury, unlike what the Republicans did with their tax scam in 2017…”

Overnight, Bloomberg reported, citing unnamed sources, “The tax hikes included in any broader infrastructure and jobs package are likely to include repealing portions of President Donald Trump’s 2017 tax law that benefit corporations and wealthy individuals, as well as making other changes to make the tax code more progressive," said the people familiar with the plan. The following are among proposals currently planned or under consideration, according to the people, who asked not to be named as the discussions are private:

  • Raising the corporate tax rate to 28% from 21%
  • Paring back tax preferences for so-called pass-through businesses, such as limited-liability companies or partnerships
  • Raising the income tax rate on individuals earning more than $400,000
  • Expanding the estate tax’s reach
  • A higher capital-gains tax rate for individuals earning at least $1 million annually. (Biden on the campaign trail proposed applying income-tax rates, which would be higher)”

The Sunday March 14 Washington Post editorial page led off with, “The tax code needs an overhaul,” suggesting:

  • the goal should be to eliminate further loopholes that favor the wealthy
  • probably the highest priority would be to change or end lower rates for dividends and capital gains
  • stepped-up basis that enables heirs to avoid tax on unrealized capital gains should probably be part of those changes and
  • the TCJA 21% corporate tax rate was “probably overcorrecting,” could go up modestly and still remain near the 26.5% average of industrial nations (adjusted for GDP).

Wealth tax – Regarding a wealth tax, Treasury Secretary Janet Yellen said on ABC, “Well, President Biden has put forward a number of proposals. He hasn’t proposed a wealth tax, but he has proposed that corporations and wealthy individuals should pay more in order to meet the needs of the economy, the spending we need to do, and over time I expect that we will be putting forth proposals to get deficits under control.” Asked if that means no wealth tax, Sec. Yellen said, “Well, that’s something that we haven't decided yet, and can look at, but, you know, President Biden during the campaign proposed a higher tax rate on corporations, on individuals and on payments, capital gains and dividend payments that are received, and those are alternatives that address – that are similar in their impact to a wealth tax.”

Senator Elizabeth Warren (D-MA), now a member of the Finance Committee, tweeted March 13, “You’re right, @SenSanders – and I’m happy to partner with you on our #WealthTax bill to make billionaires pay their fair share. We’re going to do this together.” Sanders had tweeted, “In my view, we can no longer tolerate billionaires becoming obscenely rich at a time of unprecedented economic pain and suffering. The time has come to tax their wealth…” He linked to a Washington Post story on the issue.

Hearings - The Senate Finance Committee will hold a hearing, “Made in America: Effect of the U.S. Tax Code on Domestic Manufacturing,” on Tuesday, March 16 (10:00 a.m.) Witnesses represent corporations, the National Association of Manufacturers, and United Steelworkers, plus Michelle Hanlon of MIT.

JCT’s “Tax Incentives For Domestic Manufacturing” is available here.

The House Ways and Means Oversight Subcommittee will hold a 2021 Filing Season hearing with the IRS Commissioner on Thursday, March 18 (2:00 p.m.)

On Friday, March 19 (12:00 p.m.), is the EY Webcast, “Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments.” It’s been one year since we first launched this webcast series to discuss how businesses can navigate the tax policy environment in the time of COVID-19. Now that a year has passed, we will explore how everyone – from the IRS to tax departments to other countries – has been responding. Join our panelists for a conversation about how to continue effectively operating the tax function in this time of crisis and change. Panelists will provide updates on: (i) US economy and tax policy; (ii) Breaking developments; and (iii) What’s happening at the IRS. Register. 


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For additional information concerning this Alert, please contact:
Washington Council Ernst & Young
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