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April 4, 2021

Americas Tax Policy: This Week in Tax Policy News for April 2

This week (April 5-9)

Congress: The House and Senate are out of session for a second week. The next Senate vote will occur at 5:30 pm on Monday, April 12.

Wyden plan: Senate Finance Committee Chairman Ron Wyden's (D-OR) "framework to overhaul international taxation," teed up by the March 25 Committee hearing, will be unveiled on Monday, April 5. He is joined in the effort by Senators Sherrod Brown (D-OH) and Mark Warner (D-VA). Politico reported Wyden as saying his plan would be "distinct" from the President's tax proposals but share the same goals.

This Week in Tax Policy News won't be published the week of April 5, but Tax Alerts will be released as events warrant.

Last week (March 29-April 2)

American Jobs Plan: In a speech in Pittsburgh March 31, President Biden rolled out his American Jobs Plan, outlining what is essentially $2 trillion-plus in infrastructure investment over eight years extending to the power grid, electric vehicles, and broadband, paid for with corporate tax increases focusing on increasing the corporate rate to 28%, imposing a new minimum tax on corporate book income, and changing the international provisions of the TCJA. The President then provided the inspirational context, saying the plan calls for "investing in American-based companies and American workers" to fix roads that businesses rely upon, providing safe drinking water and access to the Internet, and making the US competitive in markets like battery technology, biotechnology, computer chips, and clean energy. The President said the plan isn't one that "tinkers around the edges," and compared its magnitude to the space race and construction of the interstate highway system. The plan provides:

  • $621 billion in transportation infrastructure, including
    • $115 billion to modernize bridges, highways, roads
    • $85 billion to modernize existing public transit
    • $80 billion for rail
    • $174 billion investment to win the EV market
    • $25 billion for airports
    • $17 billion for inland waterways, coastal ports
    • $20 billion to address racial equity and environmental justice in transportation infrastructure
    • $25 billion to "accelerate transformative investments"
    • $50 billion in dedicated investments to improve infrastructure resilience
  • $111 billion to water infrastructure
  • $100 billion for broadband
  • $100 billion for power infrastructure, including
    • creation of a targeted investment tax credit that incentivizes the buildout of at least 20 gigawatts of high-voltage capacity power lines and mobilizes private capital
    • expanded direct-pay ITC and PTC for clean energy generation and storage
    • investment in decarbonized hydrogen demonstration projects plus a new PTC
    • reforming and expanding the IRC Section 45Q carbon capture tax credit
  • $213 billion for affordable and sustainable housing, including through tax credits
  • $100 billion to upgrade and build new public schools, $50 billion in grants, $50 billion through bonds
  • $12 billion for community colleges
  • $25 billion for childcare, including an expanded tax credit to encourage facilities at places of work
  • $18 billion for the modernization of Veterans Affairs hospitals and clinics
  • $400 billion toward access to care for aging relatives and people with disabilities
  • $180 billion for R&D
    • $50 billion for the National Science Foundation
    • $30 billion for R&D that spurs innovation and job creation including in rural areas
    • $40 billion for research infrastructure
    • $35 billion for technology to address the climate crisis
    • $25 billion towards eliminating racial and gender inequities in R&D
  • $300 billion to strengthen manufacturing supply chains, including extending the 48C tax credit
  • $100 billion in workforce development
  • $10 billion for enforcement of workplace safety and health rules

Made in America Tax Plan: In his speech, President Biden defended the tax increases proposed to pay for the plan, saying the corporate rate should have been lowered to 28% in the first place and arguing that TCJA created international tax rules that need to bolstered or replaced, but also said he is "open to other ideas so long as they do not impose any tax increase on people making less than $400,000." White House Press Secretary Jen Psaki made the case for the corporate rate increase in an April 1 briefing, saying, "The fact is, the corporate tax rate at 21% is lower than it has ever been in the past. What we're talking about is raising it to 28%, which is lower than it's been in the past several decades for most of that period of time." The President suggested the corporate rate increase would raise $1 trillion and leveling "the international playing field" through international tax changes would also raise $1 trillion, both over an unusual budget window of 15 years (rather than the normal 10 years). The fact sheet released by the White House included a long list of tax increases and why they are necessary, but not the details to understand fully how they will work. Those details will likely come in the President's FY2022 budget, possibly in May. "If passed alongside President Biden's Made in America corporate tax plan, it will be fully paid for within the next 15 years and reduce deficits in the years after," the fact sheet states. The tax plan, as outlined:

  • increases the corporate tax rate to 28%;
  • increases the global intangible low-taxed income (GILTI) rate to 21%, calculates it on a country-by-country basis, and eliminates the 10% return on tangible assets;
  • encourages other countries to adopt strong minimum taxes on corporations;
  • "denies deductions to foreign corporations on payments that could allow them to strip profits out of the United States if they are based in a country that does not adopt a strong minimum tax;"
  • "further replaces an ineffective provision in the 2017 tax law that tried to stop foreign corporations from stripping profits out of the United States" referring to the BEAT;
  • makes it "harder for U.S. corporations to invert;"
  • denies companies expense deductions for offshoring jobs and provides a credit for expenses for onshoring;
  • eliminates the foreign-derived intangible income (FDII) deduction;
  • imposes a 15% minimum tax on corporations based on "book income;"
  • eliminates tax preferences for fossil fuels; and
  • strengthens business tax enforcement.

International tax: The Biden plan has a nod to the OECD BEPS 2.0 project, calling for other countries to adopt strong minimum taxes. The Wall Street Journal (WSJ) editorial board noted "even the OECD has been discussing a global minimum tax of about 12%, while Mr. Biden wants 21%." A separate WSJ story on business tax aspects of the plan said of GILTI: "The 2017 law created a minimum tax on foreign profits of U.S. companies … Mr. Biden would also require companies to calculate that tax on a country-by-country basis. And it would change a provision that lets companies exclude 10% of their tangible foreign assets from the calculation of the base of the minimum tax. That provision, Democrats argue, provides an incentive to put factories abroad, but there is little evidence that companies have actually made decisions based on that provision." It also said: "The plan would alter or repeal the Base Erosion and Anti-Abuse Tax created in 2017. That tax was designed to prevent foreign companies from loading up their U.S. operations with deductions and pushing profits to their low-tax headquarters countries. The Biden plan would change that tax so that companies are limited from shifting income to a country that lacks a minimum tax. That mirrors an emerging — but still unsettled — international agreement."

Reaction from Republicans: President Biden said he would invite the input of Republicans, who aren't likely to support rolling back portions of their signature tax law, the TCJA, or the beyond-traditional infrastructure provisions. Senate Republican leader Mitch McConnell (R-KY) called the plan a "Trojan horse" for tax increases, and House Republican Whip Steve Scalise (R-LA) tweeted the plan is "the Green New Deal under a new name." Responding to Senator McConnell's vow to fight the proposed tax increases, Press Secretary Psaki said April 1, "I think there's some more questions to be asked. Does he disagree that our nation's infrastructure is outdated and needs repair? Does he disagree that we need to do more to put American workers back to work and to invest in industries that have growth potential over the long term? … There are a lot of areas where there is agreement across the political spectrum, from investment and infrastructure … and what we're really talking about here is how to pay for it … If you don't want to raise the corporate tax rate … if you don't want to put in place a global minimum tax, what are the alternatives? We're happy to hear those proposals."

Reaction from Democrats: It was widely observed that it will be some difficult months of trying to move the plan through Congress to meet the July 4 target set by House Speaker Nancy Pelosi (D-CA), though she reportedly acknowledged the timing could slip. (Note, government funding and highway authorization both expire September 30, and the Biden plan does not specifically address that expiration.) Without Republicans, Democrats may turn to budget reconciliation, and though there is difficulty fitting infrastructure within its rules, Senate Majority Leader Chuck Schumer (D-NY) is exploring using the process and potentially getting a second set of reconciliation bills from each budget resolution. President Biden and White House officials have said they are open to other ideas on the tax side, and Ways and Means Chairman Richard Neal (D-MA) said during a news conference in Massachusetts April 1 that he might have some. "The Congress will offer some suggestions — we will accept some of what he is proposing," Chairman Neal said, as reported by Politico. "If we can improve upon the president's proposal, we want to do that … I've got some ideas on that, by the way, that I won't be sharing with you either right now." There are political concerns. The Hill March 29 reported Senator Schumer as suggesting the White House was 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."

There are already differences among Democrats. Progressives want a larger bill but say infrastructure needn't be paid for. Congressional Progressive Caucus Chair Rep. Pramila Jayapal (D-WA), who previously said she doesn't think infrastructure needs to be paid for but she does want tax changes, was reported in the New York Times as suggesting the plan could be bigger, saying it's "imperative that we act on a once-in-a-generation opportunity to use our governing majorities," including on climate change. "We have a limited window to get this done," she said. A WSJ editorial said: "The tax increases are so extreme that they seem intended to give Democrats like Joe Manchin and Kyrsten Sinema room to demand changes and then claim victory before voting for increases that would still be enormous. Note that the White House increased the magnitude of the increases at the insistence of the Congressional left … " Senator Manchin has expressed support for a corporate tax rate increase to 25%.

SALT: The $10,000 TCJA state and local tax (SALT) deduction cap is featuring prominently in the outlook for the bill, with NY/NJ House members — including Reps. Tom Suozzi (D-NY) and Bill Pascrell (D-NJ), who are both on Ways & Means, plus Josh Gottheimer (D-NJ) — insisting it be repealed, and Democratic leaders supportive. "It's something that I think is very important, and I'm going to fight to make sure it gets done," Senator Schumer said of the SALT cap repeal March 31. Speaker Pelosi told reporters April 1, "I'm a big supporter of their position, as you probably know. It was devastating to the state of California for the Members, the Republican Members of California to vote against our state … So, I'm sympathetic to their position. I would say that I would withhold any comment about whether you're going to vote for a bill or not until you see what the bill is." The White House has a more neutral position. Press Secretary Psaki said April 1, "If Democrats want to propose a way to eliminate SALT — which is not a revenue raiser, as you know; it would cost more money — and they want to propose a way to pay for it, and they want to put that forward, we're happy to hear their ideas."

Families plan: The second part of the proposal, the American Families Plan that the President said he will talk about "in a few weeks," is expected to be paired with tax increases targeting individuals. Reports have speculated that these could include taxing capital gains as regular income for those above an income threshold, taxing unrealized capital gains at death, and returning the top individual rate for those making more than $400,000 to 39.6%. Biden said March 31 the benefits of the TCJA "went to the wealthiest Americans." Press Secretary Psaki said April 1 that the President will be speaking more in the coming weeks about what can be done to help caregivers, "help address the needs of childcare, help lower the cost of healthcare, and help do more to ensure we're easing the burden on families across the country. We don't know what the legislative functioning or process will look like at this point." She said the two-part approach was to enable President Biden to lay out what is necessary for the US to be competitive and invest in infrastructure, then, "separately, lay out in a couple of weeks what we need to do better as a country and as a government to help families, address the needs of childcare. And that's why he's splitting it up."

Stepped up basis: Senator Chris Van Hollen (D-MD) is 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.


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