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May 3, 2021

What to expect in Washington (May 3)

Following positive signals from President Biden and Senate Environment & Public Works Ranking Member Shelley Moore Capito (R-WV) over bipartisan talks on a $568 billion alternative infrastructure plan proposed by Republican senators, there was more reporting over the weekend about Democrats’ openness to cultivate bipartisanship on the issue and possibly break the $2 trillion-plus Biden plan into smaller pieces. The Sunday Washington Post said, “It reflects Biden’s strong desire to head into the 2022 midterms with at least one bipartisan achievement, as well as the anxiety of some centrist Democrats about Biden’s sweeping plans. ‘We have a little more time for the consideration of this, and the percolation of these proposals, to have broader consultation and dialogue,’ said Steve Ricchetti, a top White House aide.”

White House Chief of Staff Ron Klain said on CBS News on Sunday, “The president had a great conversation with Senator Capito this week. We've invited her and a group of Republican senators to the White House in the next few days, hopefully. We're going to work with Republicans. We're going to find common ground. You know, the Senate last week passed by an overwhelming margin a part of a water infrastructure bill that’s related to our jobs plan. So, I think you're starting to see some progress here.”

On CNN Sunday, it was noted that Senator Susan Collins (R-ME), a moderate, has said that “a modest increase in the corporate tax rate would be OK with you to help pay for infrastructure” and she was asked, “Would you be willing to meet in the middle at 25% or so?” Senator Collins replied, “Well, let me tell you what I won't support. I won't support American businesses paying the highest corporate tax rate among developed countries in the world once again. And, unfortunately, that's what 28% would be. And that means that jobs would once again go overseas. So, I think we need to look at a wide variety of pay-fors. But, first, we need to determine the scope of the bill and we need to determine what the top line is going to be.”

Tax – A bipartisan deal would probably mean tax increase proposals could be set aside at least for traditional infrastructure – the Biden plan’s pay-fors include an increase in the corporate tax rate and international tax changes – and, even among Democrats, there are suggestions that tax proposals be softened or left out. The Saturday Wall Street Journal (WSJ) reported, “During a Monday meeting with National Economic Council Director Brian Deese, Rep. Richard Neal (D., Mass.), the Ways and Means Committee chairman, pushed back on the need to raise taxes to cover the cost of the plan...” Senator Joe Manchin (D-WV) continues to express reluctance over the level of funding the Biden agenda would require, saying in the report, “That makes you very uncomfortable, you want to find how you’re going to pay for it. Are we going to be able to be competitive and pay for what we need in the country? And we got to figure out what our needs are and maybe make some adjustments, who knows.”

Chairman Neal released a statement April 28 in support of the American Families Plan that didn’t specifically address President Biden’s proposed tax increases, only referencing “fixing our broken tax code” and saying the expansions of the CTC and other credits can be done “while still responsibly investing in other top priorities.” On CNBC April 27, Chairman Neal said of his own plan for permanency of the CTC etc., “We wanted to develop a design and then we will address the issue of revenue… But treat this as an economic investment. This is about increasing productivity. This is about increasing stability in our homes.” As Politico reported April 30, “While Senate Finance Committee Chairman Ron Wyden (D-Ore.) and his fellow tax writers have rolled out a plan to hike taxes on multinational corporations’ foreign earnings, going deep in the weeds of arcane issues like a tax called GILTI, Neal has been mum on the topic.”

A weekend WSJ editorial, “Biden’s Move-Research-Abroad Tax,” took issue with the proposal to eliminate the deduction for foreign-derived intangible income (FDII), saying, “Gilti and FDII combined make the U.S. a more competitive home for intellectual property by lowering the domestic tax rate on those profits relative to the headline corporate rate (FDII) while imposing an equal effective tax rate on profits earned in foreign subsidiaries.” It said the “2017 approach is flawed, but the Biden plan to make Gilti more onerous while scrapping FDII entirely is the wrong solution. To start, this Biden one-two punch risks reviving incentives for corporate inversions while making it harder for American companies to expand overseas.”

Both Klain and Cecilia Rouse, Council of Economic Advisers Chair, on Sunday made the case that a corporate tax increase to 28% would still be far below the 2017 rate. “What we’re talking about is just rolling some of that tax cut back, OK? So, we're talking about putting the rate back up to 28%. It was 35 before that tax cut came,” Klain said.

Asked on Fox Sunday about a combined US corporate tax rate that is the highest in the industrial world at 32.3%, Rouse said, “we all need to pay our fair share. And what we've seen over the past several decades is that the wealthiest Americans, the big corporations, are getting wealthier and they are contributing less in terms of federal revenue.” She said, “the corporate tax rate is really being proposed to not even go back to where it was in 2017” and, after the TCJA, “we have not seen a similar increase in investment and corporate competitiveness.” Rouse said, “internationally, we don’t want to be disadvantaged. So, [Biden] is also working with other countries so that we have a minimum tax internationally” and “to button up some of the loopholes which have meant that corporations were actually putting more money offshore…”

A WSJ story on the deficit impact of Biden’s plans said, “Mr. Biden’s ability to spend what he proposed without adding debt depends on a range of political and economic variables, some beyond his control. Among them: Whether moderate Democrats will go along with his proposed tax increases, and whether those increases will stay in place long enough to cover all of the extra costs … With Republicans opposed to new large spending programs and tax increases, the president will need the support of nearly every Democrat. Some moderate Democrats, including Sen. Joe Manchin of West Virginia, have expressed reservations about his tax increases. If Democrats don’t get behind all of his tax proposals, Mr. Biden may be forced to accept some deficit increases or scale back his spending plans, a move that would draw objections from progressives.”

Congress – The Senate is out this 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.

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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