March 28, 2021
Americas Tax Policy: This Week in Tax Policy News for March 26
This Week (March 29 - April 2)
Congress: The House and Senate are out of session for two weeks. The next Senate vote will occur at 5:30 pm on Monday, April 12.
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 additional details on tax proposals are expected, even beyond what is intended for the Build Back Better plan, and detailed in a Treasury green book.
Last Week (March 22 - 26)
Build Back Better: President Biden is set to detail his Build Back Better plan in a speech in Pittsburgh on Wednesday, March 31, Punchbowl News reported, adding that the plan will be as described in press stories: broken into two separate bills, an infrastructure bill that could appeal to Republicans then another package with individual-focused proposals. The report said the pay-for to be proposed with the $2 trillion infrastructure bill is an increase in the corporate tax rate. The $1 trillion people-focused, "human infrastructure" bill — with items like free community college, universal preschool, national paid leave, long-term care, and a prescription drug overhaul — will be proposed to be paid for by increasing the top individual tax rate and ending the lower rate on carried interest. Biden has said a corporate tax rate increase to 28% would raise $800 billion and a top individual rate of 39.6% would raise $230 billion, so more tax increases would be required if the bills are to be completely paid for. The Washington Post reported, "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."
A March 24 New York Times analysis said, "Biden faces a strategic dilemma: how to pass as much of his potentially transformative agenda, as quickly as possible, through the narrow window afforded him by Democrats' thin margins in the House and Senate." The Times previously reported, "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 analysis included speculation that, given that many Democrats see "little chance, if any, of a large bipartisan bill taking shape," the elements in the forthcoming two separate bills could ultimately be "rolled into an epic, single bill, perhaps costing $3 trillion and offset in part by tax increases on corporations and the rich, which would pass with only Democratic votes." The Hill newspaper reported March 24 that Senator Chris Coons (D-DE), a Biden ally, and White House advisers want Congress to first move "a smaller infrastructure bill in hopes of securing a bipartisan win before trying to address more ambitious goals on climate change and health care in a subsequent measure. They are aiming to secure at least one big bipartisan accomplishment before" battling over more partisan issues, but it's unclear if Republicans will give Biden a bipartisan victory knowing what's ahead.
GOP reaction: 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 resolution 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."
International tax hearing: During the March 25 Senate Finance Committee international tax hearing, Treasury Deputy Assistant Secretary Kim Clausing (Tax Analysis) and witness Chye-Ching Huang of NYU repeatedly made the case for changing TCJA international tax provisions to remove incentives for offshoring, and for corporate tax increases generally to pay for infrastructure investments, saying companies benefit from those investments. The hearing framed the debate between the Administration/congressional Democrats vs. Republicans/the business community over dramatically changing TCJA international provisions, including raising revenue from changes to the global intangible low-taxed income (GILTI) provisions, the base erosion and anti-abuse tax (BEAT), and the foreign derived intangible income (FDII) rules. Clausing and Huang particularly focused on the GILTI 10% return on tangible assets, 50% deduction, and aggregate versus jurisdictional nature of the calculation, which Clausing said allows companies to "like a master distiller" combine high-tax and low-tax income and get to an outcome that is better than operating in the US. Other witnesses and Republican committee members suggested there's no need to change the provisions and that increasing US taxes would reignite interest in inversions.
Chairman Ron Wyden (D-OR) said he will in coming days, joined by Senators Sherrod Brown (D-OH) and Mark Warner (D-VA), release a framework for international taxation that reverses TCJA provisions for US-based multinationals who "must pay a fair share," rewards companies that invest and create good-paying jobs in the US, and stops rewarding companies that ship jobs and factories overseas. The hearing highlighted a fundamental disagreement over US international tax policy, as Chairman Wyden made clear in his closing remarks: he noted that he has always supported tax reform that would tax the foreign earnings of US companies at the full US rate, while the TCJA represents an effort to move to a more territorial system in which the US largely does not tax the active foreign earnings of US global companies. The hearing also focused on whether FDII is indeed an effective export incentive, and whether the BEAT is doing enough to prevent erosion of the US tax base.
Sanders bills: Senate Budget Committee Chairman Bernie Sanders (I-VT) March 25 introduced an estate tax bill (S. 994) to "demand that the families of the billionaire class … start paying their fair share of taxes" through a progressive rate and other changes. Under the bill, the estate tax would be:
Sanders also introduced the Corporate Offshore Tax Dodging Prevention Act (S. 991) to prevent corporations from shifting profits offshore and to restore the corporate tax rate to 35%.
Ways & Means members' day: The House Ways and Means Committee March 23 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. 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."
Yellen views: 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%. 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 March 25 confirmed by voice vote the nomination of Adewale Adeyemo to be Deputy Secretary of the Treasury.
Filibuster: During a March 25 press conference, President Biden continued to express an inclination toward the "talking filibuster" in the Senate, to require opposing members to stay on the floor, rather than the current version that allows other Senate business while bills are being held up. "I strongly support moving in that direction," he said, and expressed openness to more: "if we have to, if there's complete lockdown and chaos as a consequence of the filibuster, then we'll have to go beyond what I'm talking about."