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March 24, 2021

What to expect in Washington (March 24)

A clearer potential outlook for President Biden’s Build Back Better plan is emerging in press stories that suggest the plan will be broken into two separate bills: an infrastructure bill that could appeal to Republicans then another package that, as the New York Times reported, “would include more people-focused proposals, like free community college, universal prekindergarten and a national paid leave program.” The Washington Post reported the infrastructure bill would be proposed to be funded with business tax increases, and the people-focused bill with tax increases on high-income individuals.

The infrastructure portion of the plan is envisioned to dedicate $1 trillion toward traditional roads and bridges plus EV charging stations and improvements to the electric grid, and going beyond that to address clean energy, 5G telecommunications, rural broadband, worker training and affordable and energy-efficient housing. Republicans have been critical of massive clean energy investments tied to infrastructure and won’t support tax increases to pay for the plan, meaning they would need to be omitted for their support.

“Officials have discussed offsetting some or all of the infrastructure spending by raising taxes on corporations, including increasing the 21 percent corporate income tax rate and a variety of measures to force multinational corporations to pay more tax in the United States on income they earn abroad. That strategy is unlikely to garner Republican votes,” the report said.

The second portion of the plan would “spend heavily on education and programs meant to increase the participation of women in the labor force by helping them balance work and caregiving,” and extend ACA subsidies and the child tax credit expansion from the COVID relief bill. Potential pay-fors include allowing Medicare to negotiate prescription drug costs with pharmaceutical companies and raising the top marginal income tax rate to 39.6% from 37%, the Times reported.

The Washington Post reported March 23, “The infrastructure section of the legislation is expected to be funded primarily by taxes on businesses… The key measures under discussion include raising the corporate tax rate from 21 percent to 28 percent; increasing the global minimum tax paid from about 13 percent to 21 percent; ending federal subsidies for fossil fuel companies; and forcing multinational corporations to pay the U.S. tax rate rather than the lower rates paid by their foreign subsidiaries…”

The Post story further said, “The part of the legislation focused on other domestic priorities, by contrast, is expected to be funded by taxes on rich people and investors. Those measures, according to officials, include increasing the highest income tax rate from 37 percent to 39.6 percent; dramatically increasing taxes on wealthy investors; and limiting deductions that rich taxpayers can claim annually.”

Republicans are thus far signaling they are not going to cooperate on an infrastructure package only to have a second, purely Democratic package move by budget reconciliation, which will be possible after the President submits his FY2022 budget and congressional Democrats agree to a budget with reconciliation instructions. (Recall there are intraparty challenges because some Democrats want high defense spending, others are wary of large deficits, and while a bipartisan budget agreement set FY2020 & 21 discretionary funding limits, they will need to be revisited for purposes of a FY 2022 budget resolution.)

Second-ranking Senate Republican John Thune (R-SD) said March 23, according to Punchbowl, “It’s a pretty cynical ploy to try and appeal to Republicans to vote for all that stuff, and then do reconciliation to do all the other hard stuff… If they want to sit down with Republicans, which they should, the Republicans would work with them on an infrastructure package. We’ve made that abundantly clear. But if they decide to do that as a ploy to lure Republicans in to vote for the easy stuff and then do all that stuff, the controversial stuff through reconciliation, I don’t think our guys are going to take the bait on that.”

Politico reported that the Biden administration will release its discretionary funding request next week to allow the processing of annual spending bills to begin, but it is not calling the submission a “skinny” budget. It is with the more complete budget later this spring that tax proposals are expected, even beyond what is intended for the Build Back Better plan and detailed in a Treasury green book.

The House Ways and Means Committee yesterday held a members’ day hearing on tax, health, and trade, not solely on infrastructure. Only off-Committee Democrats testified, about half of them focused on or mentioned relief from the $10,000 TCJA state and local tax deduction cap, and there was no questioning of witnesses. Members also discussed the Delphi/PBGC pension issue (Rep. Ryan), and health bills including the Patient Protection Affordable Care Enhancement Act (Rep. Craig), the Medicare Enrollment Protection Act (Rep. Schrader), and the Health Care Affordability Act (Rep. Underwood).

Republican members declined to participate and said it was because it didn’t do justice to the infrastructure task before them, which they suspect will be partisan. “In our view today’s hearing is nothing more than another partisan exercise so Democrat House leadership can set up yet another multi-trillion-dollar one-sided spending bill…” Ranking Member Kevin Brady (R-TX) said. “Striving to produce legislation in Washington tax grabs will have enormous harmful consequences for working families and main street business. This pretend hearing features no expert witnesses, no opportunity for Committee members to respond to or engage with the ideas put forth during testimony.”

Rep. Brady announced that Rep. Jackie Walorski (R-IN), Republican Leader for the Worker and Family Support Subcommittee, will host a meeting entitled “Reopening America with Main Street Businesses” today (March 24) at 2:00 p.m.

Tax – During the House Financial Services Committee March 23 hearing on “Oversight of the Treasury Department’s and Federal Reserve’s Pandemic Response” with Secretary Yellen, Roger Williams (R-TX) warned against tax increases associated with the forthcoming infrastructure plan. Sec. Yellen said the administration is considering boosting the corporate tax rate from the current 21% to 28%: “We have had a global race to the bottom in corporate taxation and we hope to put an end to that.” But she said such changes would not be made until the pandemic is over: “A package that consists of investments in people, investments in infrastructure, will help to create good jobs in the American economy, and changes to the tax structure will help to pay for those programs.”

Yellen said she sees the SALT deduction cap as “a feature of TCJA that results in very disparate treatment. There are a lot of options that have been presented, and I would work with you to try to ensure that the inequities that this caused are remedied in a fair and responsible way… There's bipartisan proposal to repeal the cap. President Biden discussed a proposal that would cap itemized deductions at 28 percent. The caps could be increased. So, I think we need to study just what impact it’s had…”

She also said Treasury plans to issue guidance about which tax cuts are permissible if states accept funds under the American Rescue Plan Act, which prohibits offsetting a reduction in tax revenue due to a tax cut.

Nominations – The Senate yesterday approved Shalanda Young to be Deputy Director of the OMB and Vivek Murthy to be Surgeon General.


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