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April 23, 2021

What to expect in Washington (April 23)

The New York Times April 22 reported that President Biden’s American Families Plan to be outlined April 28 or sooner will focus on “human infrastructure” with proposals on universal pre-kindergarten, free community college tuition for all, expanded subsidies for child care, and a national paid leave program for workers, plus extensions of the expanded Child Tax Credit and EITC. It will not take steps to expand health coverage or reduce prescription drug prices, with the Administration having “decided to instead pursue health care as a separate initiative,” the NYT said. Tax proposals that are included, according to the report:

  • raising the top marginal income tax rate to 39.6%;
  • raising the capital gains rate to 39.6% on people earning more than $1 million;
  • eliminating stepped up basis; and
  • increasing IRS enforcement.

Tax increases still being debated for the plan include capping itemized deductions for “wealthy taxpayers” and increasing the estate tax.

A Bloomberg report said Biden plans to propose “almost doubling the capital gains tax rate for wealthy individuals to 39.6%, which, coupled with an existing surtax on investment income, means that federal tax rates for investors could be as high as 43.4%, according to people familiar with the proposal.”

By comparison, the Obama administration FY2017 budget proposed to increase the highest long-term capital gains and qualified dividend tax rate from 20% to 24.2% with the 3.8% net investment income tax (NIT) continuing to apply, such that the maximum total capital gains and dividend tax rate including the NIIT would rise to 28%.

An editorial in today’s Wall Street Journal said of 43.4%, “that’s merely the federal rate. Add 13.3% in California and 11.85% in New York (plus 3.88% in New York City), which also tax capital gains as regular income, and you are heading toward the 60% rate range. Keep in mind this is on the sale of gains that are often inflated as assets are held for years without adjustment for inflation. Oh, and Mr. Biden also wants to eliminate the step-up in basis on capital gains that accrues at death. All of this would add up to the highest rate on capital income since before the Steiger capital-gains tax cut of 1978.”

Timing – On the rollout of the plan, White House Press Secretary Jen Psaki said April 22, “You can expect that he’ll outline the details of the American Families Plan in his joint session address to Congress next Wednesday, April 28.” The expectation was the plan would be detailed earlier, and it still may, but it’s not yet final. “We’re still finalizing what the pay-fors looks like…” Psaki said. “There are alternative views or there are proposals that don’t exist yet on how to pay for it. That will be a part of the discussion.”

On other timing, Punchbowl News reported the plan is still for the Jobs Plan to be marked up at the committee level in the House at the end of May or early June. House Budget Committee Chair John Yarmuth (D-KY) continues to say he’ll wait until the White House releases its full 2022 budget proposal before acting on a budget resolution, and he expects to see their proposal around Memorial Day (May 31). The President’s budget will have specific details on his tax proposals in a Treasury green book.

Health – House Speaker Nancy Pelosi (D-CA) pushed back against reports that the Families plan will omit health care issues. “Lowering health costs and prescription drug prices will be a top priority for House Democrats to be included in the American Families Plan,” she said in an April 22 statement. The vision for health care in the plan is dividing Democrats. Speaker Pelosi also said, “Families cannot afford to lose the enhanced ACA benefit passed in the American Rescue Plan, and we must make it permanent,” and the New Democrats group of House centrists likewise called for “permanent expansions of the premium tax credit and other enhancements.”

The WSJ reported that, rather than the ACA focus, “progressive Democrats, including Senate Budget Committee Chairman Bernie Sanders (I., Vt.) and Congressional Progressive Caucus Chairwoman Pramila Jayapal (D., Wash.) are pushing to make sure that a big chunk of the savings is plowed back into Medicare. They want to use at least some of the savings to expand Medicare benefits to include vision, dental and hearing costs, and to lower its eligibility age below 65.”

Infrastructure – Senate Environment & Public Works Ranking Member Shelley Moore Capito (R-WV) along with other ranking members on committees of jurisdiction over infrastructure – Roger Wicker (R-MS) of Commerce, Science, & Transportation, Pat Toomey (R-PA) of Banking, Mike Crapo (R-ID) of Finance, John Barrasso (R-WY) of ENR – April 22 proposed, as an alternative to President Biden’s $2 trillion-plus American Jobs Plan, a $568 billion infrastructure proposal, with $299 billion for roads and bridges and billions more for areas like public transit, airports, and broadband. Members said tax increases wouldn’t be part of the plan but didn’t prescribe pay-fors, though Capito mentioned a vehicle-miles-traveled tax.

Senate Finance Committee Chairman Ron Wyden (D-OR) said of the plan, “Republicans’ package is far too small to fund the investments the American people need and strongly support. It’s just a quarter of what President Biden has proposed, and it’s not a serious effort to do anything at all about the climate crisis. Yesterday, I unveiled my Clean Energy for America Act, and today President Biden pledged that the United States would cut its emissions in half by 2030. Republicans respond with a plan that includes no investments in our clean-energy future.”

Chairman Wyden’s April 21 energy bill proposes to eliminate fossil fuel tax incentives and replace the dozens of energy tax incentives in the Code currently with a simpler set of provisions that encourage clean electricity & transportation and energy efficiency. The bill would provide an emissions-based, technology-neutral tax credit for clean electricity production, either as a production tax credit of up to 2.5 cents per kilowatt hour or an investment tax credit of up to 30%, with investments in grid improvements like stand-alone energy storage and high-capacity transmission lines qualifying for the full-value investment tax credit. The storage and grid improvement credit would offer the option to opt-out of normalization for regulated utilities. Clean fuels and zero and net-negative emission fuels qualify for a credit of up to $1.00 per gallon. The 200,000 unit per-manufacturer EV cap would be repealed, and the credit would be made refundable.

On April 21, Senator Bernie Sanders (I-VT) proposed the College for All Act – to guarantee tuition-free community college for all students and allow students under income thresholds to attend other institutions – and said it should be paid for by the Tax on Wall Street Speculation Act (S. 1283) that would impose a tax of 0.5% on stock trades, a 0.1% fee on bonds, and a 0.005% fee on derivatives, raising up to $2.4 trillion over the next decade. Rep, Barbara Lee (D-CA) introduced the bill in the House (H.R. 2735). Another financial transactions tax (FTT) proposal in the Senate would impose 0.1% on sales of stocks, bonds, and derivatives.

Congress – The House Sergeant at Arms April 21 announced that House Office Buildings will reopen for Official Business Visitors under various guidelines on Thursday, April 29.

Culture – Ernst & Young LLP and Carnegie Hall are pleased to present a special musical program in recognition of the longstanding EY support of Carnegie Hall. This program explores the enduring appeal of Beethoven with performance excerpts by The Philadelphia Orchestra. Our special virtual program, for EY professionals and clients, will be on Monday, May 10, at 5:30 p.m. Register 


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