May 14, 2021
What to expect in Washington (May 14)
Republican leaders May 12 punctuated 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. The party had already set these parameters but formalized them in the first Biden sit-down with the top four congressional leaders.
House Speaker Nancy Pelosi (D-CA) said following the 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. Richie Neal has ideas about Build American Bonds and issues like that. But does it seem right to you that as we build the infrastructure of America, where the commerce of America is promoted, where success is … garnered by big corporations in America, and 50 of them didn't pay any taxes last year?”
In a May 12 MSNBC interview, President Biden said, “I think we can have a deal,” and, like Pelosi, brought up the tax gap: “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.” (Note: Under Congress’ budget scorekeeping guidelines, projected revenue from enforcement can’t be counted for budget purposes, but information reporting proposals, like the 2010 FATCA requirements, do score.)
On May 13, the President hosted Republican 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.”
White house Press Secretary Jen Psaki, who previously said the Administration wants “progress by Memorial Day,” said May 13, “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.
Also, in a couple weeks is the release of the Biden administration FY2022 budget plus Treasury Green Book, with details and revenue estimates on the president’s tax proposals, which an OMB spokesman said 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. (A President is generally required to submit the budget to Congress no later than the first Monday in February, though compliance with that deadline has increasingly slipped. About half of the budgets since 2000 have met the deadline, and most of those lined up as the day after the Super Bowl.)
Energy – Additionally, sometime later this month the Senate Finance Committee (SFC) 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.
Infrastructure - It will be infrastructure week (again), at least in the tax-writing committees. On Wednesday, May 19 (10 a.m.), the House Ways & Means Committee holds a hearing on “Leveraging the Tax Code for Infrastructure Investment.” The SFC holds an infrastructure hearing on Tuesday, May 18 (10 a.m.).
Tax – A May 13 Wall Street Journal story, “Business Leaders Push for Infrastructure Deal, Minus the Corporate Tax Hikes,” said:
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.
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.
Trade – During the May 13 House Ways & Means Committee hearing on the Biden administration’s trade agenda with U.S. Trade Representative Katherine Tai, members asked about the Administration’s support for waiving intellectual property protections for COVID-19 vaccines, enforcing labor and environmental standards in trade agreements, renewing Trade Promotion Authority (TPA), and prospects for trade agreements with the UK and EU, and in Asia.
The EY Office of Public Policy has published President Biden’s first 100 days: 8 key public policy issues and what’s ahead.
Today, May 14 (12:00 p.m. ET), 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.