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May 21, 2021

What to expect in Washington (May 21)

The Treasury Department May 20 announced that they proposed to the Steering Group of the Inclusive Framework on BEPS, as part of meetings the previous two days regarding the OECD/G20 international tax negotiations, “that the global minimum tax rate should be at least 15%. Treasury underscored that 15% is a floor and that discussions should continue to be ambitious and push that rate higher. Treasury was heartened by the positive reception to its proposals and the unprecedented progress being made towards establishing a global corporate minimum tax.”

The Wall Street Journal (WSJ) reported, “The move could make it easier to reach the multilateral agreement that Treasury Secretary Janet Yellen has been seeking.” Reuters reported, “A U.S. Treasury official said the Biden administration will continue to advocate for the highest rate possible above 15%, adding that the offer does not alter the 21% proposed U.S. minimum tax.”

An editorial in the May 20 WSJ said the OECD talks “seem most likely to settle near 12%-13%.” President Biden’s Made in America Tax Plan – released alongside the American Jobs Plan infrastructure proposal – proposes to increase the GILTI rate to 21% and end the exemption for the first 10% of profits earned overseas from tangible investments. “The OECD is moving in the opposite direction, insisting on exemptions that are more generous than current U.S. law,” the WSJ editorial said, and may “exempt some portion of profits arising from tangible investments.” It said Congress should know the OECD may not back the Biden plan “as lawmakers decide if they want to impose a tax increase that will hamstring American companies in the global marketplace.”

Budget – More details on President Biden’s international tax and other proposals are expected in the FY2022 budget, which is now set for release on May 28 (rather than May 27, as previously announced).

Infrastructure – The outlook for how President Biden’s infrastructure proposal may move in Congress, with Republican support or Democrat-only, and what proposals are included, waits on two things: (1) the release of the FY2022 budget, which will be accompanied by additional Treasury details, for Democrats to factor into whether they support the proposed tax changes, and estimates of their revenue impact; and (2) talks between the White House and Republican senators led by Senate Environment & Public Works Ranking Member Shelley Moore Capito (R-WV). Things are in a holding pattern, but there are side conversations about what can pass.

A May 19 Bloomberg story on Democratic headwinds for President Biden’s plan to end stepped-up basis – which is included in the separate American Families Plan “human infrastructure” proposal – and the potential for the proposal to be softened, included a statement from House Ways & Means Committee Chairman Richard Neal (D-MA) saying, “When Treasury releases its Green Book in the coming weeks, I look forward to reviewing the administration’s various revenue proposals and working with other Ways and Means members to chart a path forward.”

The White House may as soon as today provide a counteroffer to an updated infrastructure plan the Capito-led GOP group presented during a May 18 meeting, Punchbowl reported. The White House has signaled they are willing to test the waters of bipartisanship on infrastructure for a few more weeks, until around Memorial Day. On Bloomberg TV, Senator Capito put the odds of an eventual deal at better than 50%, and said the “next two weeks will probably be the critical time spot,” while expressing pessimism at the July 4 target for congressional passage set by House Speaker Nancy Pelosi (D-CA). Senate EPW Chairman Tom Carper (D-DE) said he’s negotiating with Capito on a possible bipartisan infrastructure markup. The House Transportation & Infrastructure surface transportation markup has slipped until after Memorial Day. Congress faces a September 30 expiration of the highway authorization.

It is worth noting that some long-time legislators who have been part of previous infrastructure negotiations are also expressing optimism about the Biden-Capito talks. Senator Chuck Grassley (R-IA), a former chairman, said as much during a Senate Finance Committee (SFC) hearing this week, and Banking Committee Ranking Member Pat Toomey (R-PA), who is also on Finance, said during a Banking hearing May 20, “In my view, it’s possible for us to enact a bipartisan bill that responsibly boosts federal support for real physical infrastructure. If all sides are willing to negotiate in good faith, an agreement can be struck.”

The WSJ reported Senator Roy Blunt (R-MO) as saying attendees at the May 18 White House infrastructure meeting discussed public-private partnerships and possible fees on electric vehicles, while Senator Roger Wicker (R-MI) said he discussed a proposal to create a new class of municipal bonds for infrastructure.

Those topics featured prominently during a broad-ranging May 19 House Ways & Means hearing on “Leveraging the Tax Code for Infrastructure Investment,” during which members discussed tax credits for housing and renewable energy and bonds for infrastructure projects. Chairman Neal applauded President Biden “for his initiative and leadership in putting forward the American Jobs Plan” but didn’t directly address tax increase proposals. He called for the permanent revival of Build America Bonds, which he has long supported, along with reinstatement of advance refundings, and an expansion of private activity bonds.

Reflecting a dynamic present in other congressional hearings, some Democrats defended tax increases proposed to pay for infrastructure and educational investment, while Republicans like Rep. David Schweikert (R-AZ) suggested it is ironic that Democrats propose to increase taxes on the wealthy but provide tax credits for EVs and solar panels that benefit people with higher incomes. Members discussed numerous bills they sponsor addressing infrastructure topics, including Rep. Terri Sewell’s (D-AL) bill (H.R. 3357) to provide for New Markets Tax Credit investments in the Rural Jobs Zone. Senators Wicker, Capito, Ben Cardin (D-MD), and Kyrsten Sinema (D-AZ) sponsor the Senate version (S. 1671).

Tax gap – The Treasury Department May 20 released a report with additional information on the Biden administration proposal to narrow the tax gap with increased IRS enforcement resources, more information reporting, and an overhaul of “outdated technology to help the IRS identify tax evasion.” The report said, “The new reporting regime would build from the framework of the Form 1099-INT reports that taxpayers already receive from financial institutions when they earn more than $10 in interest from a bank, brokerage, or other financial institution. Financial institutions would simply report additional data on the financial accounts of these existing information returns. Specifically, the annual return would report gross inflows and outflows on all business and personal accounts from financial institutions, including bank, loan, and investment accounts but carve out exceptions for accounts below a low de minimis gross flow threshold. Other accounts that are similarly situated to financial institution accounts would also be covered under this new reporting regime— for example, payment settlement entities would also be required to report gross receipts and gross purchases. The reporting regime would also cover foreign financial institutions and crypto asset exchanges and custodians.”

Congress – After today, the House won’t vote until the week of June 14, with a Committee Work Week next week, a one-week recess for Memorial Day, and a Committee Work Week starting June 7. The Senate will conduct floor business next week ahead of a one-week recess for Memorial Day. SFC Chairman Ron Wyden (D-OR) said the Committee would later this month mark up a clean energy package including his bill to consolidate incentives, add new ones, and end fossil fuels provisions, but a markup hasn’t been set. 


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