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April 28, 2021

What to expect in Washington (April 28)

President Biden will address a joint session of Congress tonight and provide details on the American Families Plan on “human infrastructure” and make the case for the American Jobs Plan on traditional infrastructure plus education, housing, and care for the elderly and disabled. The $1.8 trillion cost of the Families Plan is proposed to be completely paid for, and tax proposals include increasing the top individual tax rate to 39.6% and the capital gains rate for those with $1 million-plus in income to 39.6%.

A fact sheet posted this morning says the plan’s tax provisions would:

  • increase the top tax rate on the wealthiest Americans to 39.6%;
  • for households making over $1 million, make the capital gains rate 39.6%;
  • “eliminate the loophole that allows the wealthiest Americans to entirely escape tax on their wealth by passing it down to heirs” (stepped up basis);
  • “close the carried interest loophole so that hedge fund partners will pay ordinary income rates on their income;”
  • end Section 1031 like-kind exchanges for gains greater than $500,000;
  • make permanent the TCJA’s 461(l) disallowance of excess business loss;
  • make permanent the full refundability of the Child Tax Credit, while extending the other expansions to the CTC through 2025;
  • make permanent the temporary Child and Dependent Care Tax Credit (CDCTC) expansion;
  • make permanent the EITC expansion;
  • give IRS the authority to regulate paid tax preparers;
  • require financial institutions to report information on account flows so that earnings from investments and business activity are subject to additional reporting and increase investment in the IRS; and
  • with regard to the 3.8% Medicare tax on earnings, “apply the taxes consistently to those making over $400,000, ensuring that all high-income Americans pay the same Medicare taxes.”

“Part victory lap and part sales job, the speech will let Mr. Biden mark the nearly 100 days he has spent in the Oval Office by describing his efforts to vaccinate Americans and revive the economy, aides said,” the New York Times (NYT) reported. “But he also plans to seize the moment to pitch a broader agenda, laying out his proposals to upgrade the nation’s infrastructure and expand public benefits.”

Regarding the American Jobs Plan, Axios reported that the White House has been talking to Republican senators who put forward a $568 billion alternative infrastructure plan last week. “GOP senators say they’re optimistic the Biden administration is open to concessions and can reach a compromise,” heartened by talks with Administration officials, and the idea remains to reach a bipartisan deal on the roads & bridges basics of the infrastructure plan and leave more expansive elements of the agenda to budget reconciliation. White House Press Secretary Jen Psaki said on CBS this morning that the group who offered the alternative would probably be invited to meet with the President next week.

Finance hearings – The Senate Finance Committee (SFC) held a hearing April 27 on clean energy that focused on the type of tax incentives Chairman Ron Wyden (D-OR) proposed to consolidate and refine in the Clean Energy for America Act, and an SFC subpanel held a separate tax fairness hearing that focused on a wealth tax, minimum tax based on corporate book income, and the tax gap, which has taken on a new allure given IRS Commissioner Rettig’s estimate that it may be $1 trillion per year in the age of cryptocurrency.

One thread between both hearings: in the context of proposals by President Biden and Senator Elizabeth Warren (D-MA) for a corporate minimum tax based on book income, Republicans criticized Democrats for taking exception to companies reducing taxable income with deductions while at the same time proposing more deductions for clean energy, etc. During the climate change hearing, Senator Chuck Grassley (R-IA) said the reason companies pay zero taxes is they are eligible for provisions like green energy incentives, and he asked whether making such incentives refundable, through a direct pay option, could result in negative tax liability, which is receiving a refund in excess of taxes paid. During the fairness hearing, Senator Bill Cassidy (R-LA) similarly suggested it is hypocritical for Democrats to advocate tax credits for renewable energy but criticize their use to reduce tax liability.

Witness Alex Brill of AEI, a former Ways & Means Republican staffer, said it is normal and natural for firms not to pay corporate income tax even while showing book income as a result of a sound system of NOL carryforwards and carrybacks and is not necessarily something policymakers should be concerned with. Proposals to create minimum taxes based on book income amount to bringing back the AMT in another form, something that is not good, he said. Brill advocated for a price on carbon, and noted that the business community – BRT, Chamber of Commerce, API and others – have joined in that view.

During the subcommittee hearing on tax fairness, Chairman Warren advocated a wealth tax that would impose an annual 2-cent tax over $50 million, and the Real Corporate Profits Tax, under which corporations that report profits to their shareholders and the public of more than $100 million would pay 7% of those reported profits. Witnesses had arguments for and against such proposals: that the wealth tax would get at income that escapes taxation in the current system, but it has been tried and abandoned in Europe (though one witness said it’s now harder to hide wealth abroad because of FATCA) and has administrability issues; and a minimum tax based on book income would keep corporate taxpayers from trying to inflate reported earnings but would also introduce significant complexity into the corporate tax code.

Neal plan – House Ways and Means Committee Chairman Richard Neal (D-MA) April 27 unveiled a plan to reshape the American economy through universal paid family and medical leave, guaranteed access to child care, and permanently extending worker and family-related refundable tax credits from the American Rescue Plan. The plan, which doesn’t identify tax increases, would permanently extend the Rescue Plan’s expansion of the CTC, CDCC, and EITC.

Global tax – The finance ministers of France and Germany support the U.S. government’s idea of a global minimum corporate tax rate of 21%, they said in a joint interview in Zeit Online, Reuters reported.

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

On Friday, April 30 (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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