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April 30, 2021

What to expect in Washington (April 30)

Following President Biden’s address to a joint session of Congress and details on the American Families Plan human infrastructure package, with tax proposals including increasing the top individual tax rate to 39.6% and the capital gains rate to 39.6% for those with $1 million-plus in income, there is plenty of speculation about which tax increases in that plan and the American Jobs Plan – the traditional infrastructure proposal paired with tax increases on corporations – may be enacted. While more details on the tax proposals will come in the Administration’s FY2022 budget and bills will need to be written in Congress, the long-awaited rollout of the two-part plan is done and the President has put his cards on the table on tax increases.

Uncertainty over the outlook for the plans makes it difficult to predict what tax proposals may become law. The $568 billion infrastructure plan proposed by Republican senators April 22, as an alternative to the $2 trillion-plus Jobs Plan, got positive mentions from the President (during the address) and Senator Joe Manchin (D-WV), a key moderate. The GOP group is likely headed to the White House next week but, in addition to the difference in the plans’ size, the senators don’t want tax increases like Biden proposed – a vehicle-miles-traveled tax has been mentioned – and Republicans in general don’t want big changes to the TCJA. If an infrastructure deal with Republicans emerges, tax increases will likely be out; if one doesn’t, budget reconciliation will be used and nearly all Democrats in Congress must agree to the same package. Either way, the Families Plan portion likely requires reconciliation as it is mostly Democratic priorities.

Already there are differences among Democrats: Manchin and others want a smaller corporate tax rate increase, to 25%, Democrats from high-tax states want repeal of the $10,000 SALT deduction cap, and members have various other priorities. The Washington Post April 29 reported Manchin as expressing skepticism over the capital gains increase. “That’s a heavy lift,” Manchin said. “We just can’t make ourselves noncompetitive. We have an economy that’s ready to take off and boom. We can’t put the brakes on it.”

An April 29 New York Times analysis said, “Now it is up to Senator Chuck Schumer to make” President Biden’s vision for a post-pandemic America “a reality.” With the Senate GOP plan only a fraction of what the Administration proposed to spend on infrastructure, “the gulf between the two parties could not be larger. Yet a handful of Democrats who could be crucial swing votes believe it is misguided and politically dangerous to pass legislation this big without buy-in from the other party.” With Schumer facing pressure to act “before the political warfare of the midterm elections drown out any chance of making a law,” there’s a short window to test the waters of bipartisanship. While there was bipartisanship on “modest measures” like a water infrastructure bill, “on crucial components of Mr. Biden’s plan — like the tax increases on high-earners and corporations to pay for it — there is no such middle ground to be found,” the analysis said.

The White House is taking the sales pitch on the road, with President Biden visiting Georgia April 29 and VP Harris speaking in Baltimore. “This plan that will establish universal pre-K and lower the cost of childcare, making childcare affordable and accessible, which has been a priority for so many of us,” she said.

On another of the Families Plan proposed tax increases, in addition to the individual and capital gains rate hikes, the Wall Street Journal reported, “Currently, there is a 3.8% tax on investment income and an equivalent set of taxes on wages and self-employment income. The administration, citing holes in the law, says it would apply those taxes consistently to income over $400,000. That could mean applying a 3.8% tax to the active income earned in businesses such as S corporations and partnerships.”

Health – In addition to tax, another area of intraparty tension is health care. The Families Plan includes permanency for Affordable Care Act premium tax credits but not prescription drug negotiation or a Medicare expansion. The Post reported April 29, “Congressional Democrats are planning to pursue a massive expansion of Medicare as part of President Biden’s new $1.8 trillion economic relief package, defying the White House after it opted against including a major health overhaul as part of its plan.” Some want to “lower the eligibility age for Medicare to either 55 or 60, expand the range of health services the entitlement covers and grant the government new powers to negotiate prescription drug prices.” Senate Budget Chairman Sanders will pursue a Medicare expansion though Senator Manchin is opposed, and Finance Chairman Wyden wants to “look at every possible vehicle” to lower drug costs, the story said.

Budget – Ten years on from the Supercommittee and advent of the Budget Control Act, MarketWatch reported that this year Democrats want to avoid a repeat of Republicans using the debt limit increase as leverage to force spending cuts, and may use reconciliation to do so, but Senator Manchin has expressed debt concerns. The limit is suspended through July but won’t need to be addressed until late summer or the fall. Spending, revenue, or the debt limit may be addressed under reconciliation together or separately, and a parliamentarian ruling on revision may allow more reconciliation legislation under the FY2021 budget resolution. In February, it was reported Democrats were considering another avenue, a House rule that treats a vote to adopt a budget resolution as a vote to suspend the debt ceiling for the entire fiscal year.

Congress – The Senate is out next week, returning May 10, and the House is in the middle of two Committee Work Weeks, meaning there are hearings and other committee business but no floor votes. Prior to leaving Washington, the Senate approved a drinking water infrastructure bill (S. 914) on a bipartisan basis and, by unanimous consent, the nomination of former Senator Bill Nelson to be NASA administrator.

Pensions – In an op-ed for CNN Business, Roger Ferguson, president and CEO of the Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA) says that now is the time for Reps. Neal and Brady to reintroduce legislation “to help Americans get back on track with their retirement plans.”

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

Today, 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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