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President Biden will detail the infrastructure part of his Build Back Better plan in Pittsburgh March 31. White House Press Secretary Jen Psaki said on Fox Sunday the President will lay out “the first step of his plan towards recovery which will include an investment in infrastructure,” then “he's going to have more to say later in April about the second part of his recovery plan, which will include … health care, child care, addressing that. It’s a crisis right now. The number of women who have left the workforce, he wants to help to address that.” Biden said Sunday he has decided on a legislative strategy but wouldn’t divulge.

During Monday’s briefing, Press Secretary Psaki said President Biden will “talk this week about investments we need to make in domestic manufacturing, R&D, the caregiving economy, and infrastructure.” She said of the infrastructure portion of the plan, the President “has a plan to pay for it, which he will propose;” that he is open to discussing that plan with Congress and “happy to look at their proposals;” and “if they don’t want to pay for it, I guess they can propose that too.” Asked about suggestions during the campaign that infrastructure investment didn’t have to be paid for because of its job creation potential, Psaki said, “I think we’ll have more to say about it once we actually roll out the package.”

The Administration’s suggestion that the plan could be proposed to be completely paid for, as opposed to previous signals that the plan could be partly or mostly deficit financed, reflects concerns over avoiding major deficits and possibly using tax policy to narrow income inequality, press reports suggest.

“The two-pronged package Biden will begin unveiling this week includes higher amounts of federal spending but also significantly more in new tax revenue — with possibly as much as $4 trillion in new spending and more than $3 trillion in tax increases,” the Washington Post reported March 29, adding that there is intraparty tension between the amount that should be dedicated to traditional infrastructure versus social spending. The report said, “Mark Mazur, a former Obama administration official tapped to deal with tax policy at the Treasury Department, took the lead in drafting a menu of tax increases that were then submitted to the White House for review. Kimberly Clausing, who was an international tax and trade expert at UCLA, helped draft the provisions aimed at taxing multinational profits abroad.”

Axios this morning reported that the President will propose many tax increases on Wednesday, but the priority items are:

• raise the corporate rate from 21% to 28%
• “impose a global minimum tax on profits from foreign subsidiaries”
• “tax capital gains as regular income for the wealthy and tax unrealized capital gains at death”
• return the top individual rate for those making more than $400,000 to 39.6%

The Administration proposing a full battery of tax increases with an openness to Congress changing them or partially deficit financing the package means there will likely be significant debate before such a package can move, either on a bipartisan basis or Democrats-only, through budget reconciliation. Once proposed, members of Congress will have plenty of their own ideas for policy and process regarding the massive proposal. Input from the Hill is already brewing.

The Hill Newspaper reported Senate Majority Leader Chuck Schumer (D-NY) as suggesting the White House is still working out its strategy on “whether to seek a standalone infrastructure bill or pair it with a broad tax reform package to offset the cost… A significant number of Senate Democrats want to pay for at least part of the infrastructure package but tying it to tax reform will slow the entire process and make 2022 Democratic candidates vulnerable to charges that they are raising taxes during a pandemic.”

Senate Finance Committee Chairman Ron Wyden (D-OR) is set to propose, likely next week, a corporate and international reform framework that seeks to prevent offshoring, after demonstrating he is on essentially the same page as Clausing during last week’s international tax hearing. The New York Times reported that Senator Wyden is drafting a series of bills to raise taxes, many of them overlapping with Biden campaign proposals. “I’ll be ready to raise what the Democratic caucus decides is required to move forward,” he said. The Times also reported that some House Democrats representing New York and New Jersey have vowed to not support the next bill unless it includes repeal of the TCJA $10,000 state and local tax deduction cap.

Senator Chris Van Hollen (D-MD) is also putting some ideas espoused by the White House into legislative form through a March 29 discussion draft on stepped up basis, to require a realization of gains at the time of gift or death, with a $1 million per-person exemption.         

Budget – On process, Senator Schumer is examining the use of Section 304 of the Congressional Budget Act of 1974 on “permissible revisions of budget resolutions” to allow an additional set of reconciliation bills – which can pass the Senate with 51 votes, meaning all Democrats plus VP Harris, rather than the 60-vote filibuster threshold – under the already passed FY 2021 budget resolution that included reconciliation instructions for the American Rescue Plan Act. A Senate parliamentarian ruling will be required to allow the move, which could also allow two sets of reconciliation bills under the forthcoming FY 2022 resolution. 

The Biden administration is sending its FY2022 spending request to Congress this week to get the budget and appropriations process started, but the submission won’t include the Administration’s tax plans, which will be outlined in a Treasury green book with the full budget proposal later this spring.

Friday, April 2 (12:00 p.m.), is the EY Webcast, “Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments.” COVID-19 and the resulting economic crisis have made reacting to tax developments more complicated than ever. Join us for the next webcast in our series as we discuss how businesses can navigate the tax policy environment and continue to effectively operate their tax function in this time of crisis and change. Panelists will provide updates on: (i) the US economy and tax policy; (ii) breaking developments; and (iii) what’s happening at the IRS. Register.

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