May 16, 2021
Americas Tax Policy: This Week in Tax Policy News for May 14
This week (May 17-21)
Congress: The House and Senate are in session.
Infrastructure: It will be infrastructure week (again), at least in the tax-writing committees.
On Tuesday, May 18 (10 a.m.), the Senate Finance Committee holds a hearing on "Funding and Financing Options to Bolster American Infrastructure." Witnesses:
- Joseph Kile, Ph.D., Director of Microeconomic Analysis, Congressional Budget Office
- Victoria Sheehan, President, American Association of State Highway and Transportation Officials
- Heather Buch, Subcommittee Chair, Transportation Steering Committee, National Association of Counties
- Shirley Bloomfield, Chief Executive Officer, NTCA — The Rural Broadband Association
On Wednesday, May 19 (10 a.m.), the House Ways & Means Committee holds a hearing on "Leveraging the Tax Code for Infrastructure Investment."
Last week (May 10-14)
Infrastructure negotiations: In the first Biden sit-down with the top four congressional leaders May 12, Republicans emphasized their unwillingness to entertain TCJA rollbacks to pay for infrastructure legislation and made clear that their definition of infrastructure does not include caregiving provisions but is limited to traditional roads and bridges, plus broadband. "Senate Republicans are not interested in revisiting the 2017 tax bill," leader Mitch McConnell (R-KY) said. He later said, "If our Democratic friends are finally ready to reach across the aisle and work together to locate common ground, I'm hopeful that we can do a lot of good for the country." McConnell, who has repeatedly expressed doubt that Democrats can hold together their members to act via budget reconciliation, left an opening for a deal on a more traditional infrastructure package, and suggested he'd delegate and leave it to other senators to test the waters of bipartisanship. "My preference is to include the committees there, where the experts are. … I don't favor having a top-down dictation as to what this package looks like, but rather, a consultative process in which everybody in my conference is involved in it."
On May 13, the President hosted Republican committee leaders and other senators led by Senate Environment & Public Works Ranking Member Shelley Moore Capito (R-WV), who have a $568 billion infrastructure plan without TCJA rollbacks. The Wall Street Journal reported Senator Capito as saying the President "asked us to come back and rework an offer so he can then react to that and re-offer to us. So we're very encouraged." Third-ranking Senate Republican John Barrasso (R-WY) "said Mr. Biden acknowledged the difficulty of passing both his $2.3 trillion plan on infrastructure and a separate $1.8 trillion proposal on child care and education. Democrats narrowly control the House and the 50-50 Senate. He said Mr. Biden mentioned Sen. Joe Manchin (D., W.Va.), who has expressed concern about the size of the White House's spending proposals." Similar to Capito's comment, President Biden said May 13, "my colleagues in the Senate came back to me and said they'll come back with a counteroffer of what they are prepared to do, and how to fund it, and then we'll talk again next week," CNBC reported. White house Press Secretary Jen Psaki this week said, "We're in the early sausage-making stage of the discussion with members of both parties," and, after previously saying the Administration wants "progress by Memorial Day," said, "we will have an assessment, after a couple of weeks, about how things look and whether it looks like there's a path forward" for a bipartisan bill.
The beginnings of bipartisan negotiations relating to infrastructure legislation combined with indications by the chairs of the House and Senate committees with primary jurisdiction over reauthorization of the Surface Transportation Act, which expires September 30, that they will begin markup in the coming weeks raises the possibility of a two-tiered approach to the President's priorities. The first tier maybe a bipartisan bill reauthorizing traditional infrastructure spending programs along with an increase in spending for those programs. The second tier could then see Democrats working on a budget reconciliation bill later this year that includes elements of the President's proposals that are not included in the more traditional infrastructure bill. This second tier presumably would include tax increases that Republicans will not support.
A WCEY Alert on the Biden tax proposals is available here.
Tax gap: Republicans refusing to entertain TCJA rollbacks or other tax increases raises the question of how a potential $800 billion bipartisan infrastructure bill could be paid for, if it is paid for. The American Families Plan "human infrastructure" proposal calls for additional information reporting about aggregate account outflows and inflows and more IRS enforcement, and Democrats have signaled that initiatives aimed at narrowing the tax gap could be an area of potential agreement. House Speaker Nancy Pelosi (D-CA) said following the White House meeting: "Some of the things that we did talk about were the fact that there are so many unpaid taxes in our country, probably the range is $1.2, $1.4, a trillion dollars, more than a trillion dollars that could pay for a big piece of this." Other ideas that could be included in an infrastructure bill were not expressly proposed by the Administration. Pelosi added: "Richie Neal has ideas about Build American Bonds and issues like that." In a May 12 MSNBC interview, President Biden said "I think we can have a deal," and, "There's a situation where there's an estimation of somewhere between $700 billion and [$1.3 trillion], if we hire up more IRS agents and we go after those folks who are avoiding taxes at the top end … So, let's say it's somewhere in between. That's a trillion dollars. I'm confident they would go for that." Speaker Pelosi said May 13, "Some other sources of funding include the people who are not paying taxes … part of the answer is to beef up the IRS so they could take in those taxes. And that's a big chunk. That would go a long way." Despite the Speaker's optimism over a bipartisan approach to close the tax gap, during a Senate Finance Committee subpanel hearing on the tax gap May 11, Republican senators expressed reluctance to move forward on these ideas. They expressed concerns about privacy, for example, and, as Senator John Thune (R-SD) said, that banks could be viewed as an extension of IRS tax enforcement efforts in order to implement the President's proposal to require bank reporting of inflows and outflows from financial accounts. Full Committee Ranking Member Mike Crapo (R-ID) told IRS Commissioner Rettig in a May 11 letter that "discussions of increased IRS monitoring, auditing and targeting of certain taxpayer classes and enforcement must be balanced against privacy concerns and taxpayer rights." The Administration plan calls for $80 billion in funding to gain $700 billion in revenue from narrowing the gap, and Republicans noted that those sums seem too large and that the varying estimates of the gap/necessary investment/revenue gain are confusing. Both Thune and subpanel Chairman Sheldon Whitehouse (D-RI) noted that budget rules don't allow projected revenue from increased enforcement to be counted for revenue scores, and Whitehouse said that rule should be changed. While projected enforcement revenue can't be counted, information reporting proposals, like the 2010 FATCA requirements for foreign assets held by US account holders, do score.
Tax increases: A May 11 Washington Post story on Democratic trepidation over Biden's proposals said:
- "Pockets of skepticism have emerged within Biden's party over White House plans to raise the corporate tax rate, revamp the international tax system and double tax rates on wealthy investors."
- "Rep. Sean Maloney (D-N.Y.), chair of the Democratic Congressional Campaign Committee responsible for party fundraising, has privately warned the tax plans could hurt vulnerable House Democrats up for reelection in 2022."
- "The White House's single largest tax proposal — an overhaul of taxing multinational corporations aimed at raising more than $1 trillion in revenue — also appears vulnerable. Rep. Richard E. Neal (D-Mass.), the powerful chairman of the House committee in charge of writing the nation's tax code, has been largely silent on whether he supports the sweeping changes."
A May 13 Wall Street Journal story, "Business Leaders Push for Infrastructure Deal, Minus the Corporate Tax Hikes," said:
- "Some executives and business groups have offered financing alternatives, including fees from users of new infrastructure, such as tolls, and creation of a federal infrastructure bank to boost projects through loans."
- "Some executives have said their companies can tolerate a tax rate above the current 21% but not necessarily the 28% Mr. Biden seeks … Several business leaders and Capitol Hill aides say they expect the tax-rate increase to be to 25%."
Tax fairness: During a May 12 House Ways & Means subpanel tax fairness hearing, Democratic members largely criticized the benefits to high-income individuals of the lower capital gains tax rate and stepped-up basis, while Republicans warned that increasing capital gains rates and corporate taxes will harm businesses, investment, and US competitiveness. Ranking Member Adrian Smith (R-NE) said, "There have been zero corporate inversions since we enacted TCJA. Zero. So why are we here?" Democrats and witnesses especially took aim at stepped-up basis, saying it allows tax-free transfers of wealth across generations of families, and said that tax increases on the wealthy can provide revenue to expand opportunities to less-fortunate Americans.
Energy: Sometime later this month the Senate Finance Committee will mark up Chairman Ron Wyden's (D-OR) clean energy bill, according to a May 12 announcement. The bill proposes to eliminate fossil fuel tax incentives and consolidate the current dozens of renewable energy tax incentives into a simpler system including a technology-neutral tax credit for clean electricity production, either production or investment, and a clean fuels credit, plus repeal the 200,000 unit per-manufacturer EV cap and add a commercial credit for EV purchases. Democrats have long wanted to bolster clean energy tax incentives as part of an infrastructure bill, though that's probably not in the cards if a bipartisan transportation bill emerges because most Republicans won't support it. It's noteworthy that while Wyden and Senate Democrats want a transformative approach, House Democrats' GREEN Act simply extends/expands provisions in the current system. "Following the clean-energy markup, the committee plans to consider additional key pieces of our jobs and infrastructure agenda," the announcement said.
Budget: An OMB spokesman announced that the Biden administration FY2022 budget plus Treasury Green Book, with details and revenue estimates on the president's tax proposals, will be released on Thursday, May 27. Presidents' budgets are delayed during transition years, but this one will be even later than the May 7, 2009 first Obama budget release.
Carried interest: On May 12, Senators Tammy Baldwin (D-WI), Joe Manchin (D-WV), and Sherrod Brown (D-OH) introduced the Carried Interest Fairness Act, to require carried interest income to be taxed at ordinary rates, purportedly raising $15 billion/10 years.
Financial services: The House Financial Services Committee May 12 reported out a bill that would require the SEC to promulgate regulations requiring larger corporations to disclose country-by-country financial information on each of their subsidiaries, including profits, taxes paid, employees and tangible assets. The committee approved H.R. 3007, sponsored by Cindy Axne (D-IA), by a vote of 28-23. The bill would require public companies with annual revenues of $850 million or more to disclose their total pre-tax profits, tangible assets and total amounts paid in state, federal and foreign taxes. The bill would also require companies to disclose a number of specific tax-related items for each of their subsidiaries, as well as on a consolidated basis, such as total accrued tax expenses, stated capital and total accumulated earnings.