April 14, 2021
What to expect in Washington (April 14)
President Biden will address a Joint Session of Congress on Wednesday, April 28, following the customary invitation by the Speaker of the House, Nancy Pelosi (D-CA), last night. (Note, a president’s first-year address is not referred to as a State of the Union speech.) Biden was previously set to unveil his infrastructure plan in the speech, and while that has already happened, it is expected he will make the case for Congress to act on the plan.
The President has begun outreach on the $2 trillion-plus American Jobs Plan infrastructure plan proposed alongside corporate tax increases like a 28% rate, a minimum tax based on book income, and changing TCJA international provisions. In a Monday meeting with eight members of both parties and from both the House and Senate, Republicans argued against raising corporate taxes and in favor of a narrower package, the Wall Street Journal reported, adding that the President “showed an openness to breaking his proposal into smaller parts and considering different ways to pay for it.”
While the small group consisted mostly of transportation committee members rather than tax-writers, Republicans made their tax stance known. “I view the 2017 tax bill as one of my signature achievements in my entire career,” Senator Roger Wicker (R-MS) said in a Washington Post report. “It would be an almost impossible sell for the president to come to a bipartisan agreement that included the undoing of that signature.” Addressing the other major GOP criticism of the package, that the scope is too broad, Rep. Don Young (R-AK) – the longest-serving House Republican, in his 25th term – said, “Roads, bridges, and ports are undoubtedly infrastructure, and I believe that energy grids, broadband, and clean water can fit the definition as well … But I have concern that moving too far beyond this could sink the bill.” Democrats are looking to revive transportation and appropriations earmarks, which provide funds for projects in members’ districts, and Rep. Young has been a proponent of those in the past.
A separate Post story, “Democrats Signal Limited Patience for GOP Opposition to Biden Infrastructure Package,” reported that bipartisan efforts and budget reconciliation were discussed during the first in-person Senate Democratic Tuesday policy lunch in some time (due to COVID). Senator Chris Coons (D-DE), a Biden ally, told reporters it is “likely we will end up” relying on reconciliation to pass much of the proposal, adding Democrats still should “first do everything we reasonably can to negotiate bipartisan bills.”
Senate Republican leader Mitch McConnell (R-KY) kicked off his post-policy lunch news conference April 13 speaking against the tax increases in the plan. “Infrastructure’s popular, we need to have an infrastructure bill as big as we’re willing to credibly pay for without going back and undoing the 2017 tax bill,” he said. “It took 30 years to get another comprehensive tax bill after 1986 and I don’t think there’s going to be much if any sentiment among Senate Republicans for undoing the 2017 tax bill.” He suggested some Democrats demanding SALT cap repeal shows that, even with budget reconciliation, “Just lining everybody up and getting all 50 in one place when you’re not talking about COVID relief may be a challenge for them.”
The list of high-tax state House Democrats demanding the $10,000 state and local tax (SALT) deduction cap be repealed in the bill is growing, with 17 of 19 NY delegation Democratic members April 13 telling leaders, “we will not hesitate to oppose any tax legislation that does not fully restore the SALT deduction.”
Addressing the tax gap issue that has vexed Senate Finance Committee (SFC) members past and present for at least 15 years, IRS Commissioner Charles Rettig said during an April 13 filing season hearing that while the last published estimate of the gap was $441 billion per year based on info for 2011 - 2013, at that time people were “generally unaware of the term cryptocurrency, bitcoin and all.” Rettig said, “I think it would not be outlandish to believe that the actual tax gap could approach and possibly exceed $1 trillion per year.”
On April 20 (10:00 a.m.), the SFC holds a hearing, “Combatting Inequality: The Tax Code and Racial, Ethnic, and Gender Disparities.” Witnesses include Harvard’s Mihir Desai, who has called for changes to the TCJA.
In bill introductions, fourth-ranking Senate Republican Roy Blunt (R-MO) April 12 introduced the Permanently Preserving America’s Investment in Manufacturing Act (S. 1077), to permanently extend the allowance for depreciation, amortization, or depletion for purposes of determining the income limitation on the deduction for business interest. The TCJA 163(j) EBIT v. EBITDA cliff at year’s end was a focus of a March 16 SFC manufacturing hearing along with the IRC Section 174 R&D amortization change, which is addressed in a House bill, the American Innovation and R&D Competitiveness Act of 2021 (H.R. 1304).
Friday, April 16 (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.