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Bipartisan infrastructure talks between President Biden and Senate Environment & Public Works (EPW) Ranking Member Shelley Moore Capito (R-WV) and other Republicans were declared dead June 8. White House Press Secretary Jen Psaki said the President cited his “disappointment that, while he was willing to reduce his plan by more than $1 trillion, the Republican group had increased their proposed new investments by only $150 billion.” Senator Capito cited the President’s insistence on tax increases. President Biden is headed to Europe today and the focus of the talks shifts to a separate bipartisan group that includes Senators Joe Manchin (D-WV), Mitt Romney (R-UT), Susan Collins (R-ME), Lisa Murkowski (R-AK), Rob Portman (R-OH), and Kyrsten Sinema (D-AZ). The group was reported to have met late into the evening and Senator Romney said they would try to gain support for a proposal from Senate centrists.

Secretary Psaki said June 8 President Biden “spoke with Senators Sinema, Cassidy, and Manchin today. He urged them to continue their work with other Democrats and Republicans to develop a bipartisan proposal that he hopes will be more responsive to the country’s pressing infrastructure needs. The President said that he would be in contact with members of the group by phone while in Europe…”

Some Democrats had been skeptical that Republicans would accede to an acceptable deal, and there are plans to move on a Democrat-only basis if the second group can’t secure an agreement with the President. “I do not see any indication that Republicans are prepared to support the kind of serious legislation this country needs,” Senate Budget Committee Chairman Bernie Sanders (I-VT) said June 8, Bloomberg reported, adding that he would soon begin work on a FY2022 budget resolution. The resolution will unlock budget reconciliation and allow Senate passage with 50 votes (and the VP’s tiebreaker).

Senate Majority Leader Chuck Schumer (D-NY) said June 8 that there could still be a bipartisan bill on issues the parties agree on, then a reconciliation bill with Democratic priorities. “We all know as a caucus we will not be able to do all the things that the country needs … in a bipartisan way… And it may well be that part of the bill that’ll pass will be bipartisan and part of it will be through reconciliation.”

A New York Times story on the challenges facing the party given the limitations of the filibuster in the 50-50 Senate and refusal of Senators Manchin and Sinema to entertain repealing it said, “Senate Democrats will have to use a budget rule called reconciliation to avoid a Republican filibuster of tax increases, infrastructure projects, measures to combat climate change and social welfare spending on health care, universal preschool and higher education.”

Tax - The Senate Finance Committee votes at 10 a.m. today on nominations including Lily Batchelder as Assistant Treasury Secretary for Tax Policy.

The June 8 SFC hearing on the IRS Budget with Commissioner Charles Rettig included discussion about efforts to narrow the tax gap, which have intensified since the Commissioner’s comments at an April 13 hearing that the difference between taxes owed and paid may have swelled to $1 trillion annually in the age of cryptocurrency. The Biden administration FY2022 budget proposed more funding for IRS enforcement and technology alongside a proposal to have financial institutions perform additional reporting on inflows to and outflows from financial accounts, and Republicans at the hearing expressed concerns over the privacy aspects of the proposal. Ranking Member Mike Crapo (R-ID) said, “I have long been critical of big data collection activities and oppose turning banks and brokers into government tax collectors. I also have strong concerns about the proposed IRS big data requirements.” Chairman Ron Wyden (D-OR) said his own tax gap proposal would be released soon and, in general, “We are going to move pretty quickly on these issues.”

Republican leaders in Congress continue to express concern over the support for a global tax agreement expressed at the G7 meeting in London over the weekend and related OECD BEPS 2.0 negotiations. Politico reported: “’We were relying on the administration to put up a fight here and prevent the singling out of the most successful American companies for this punishment, but apparently the administration was too determined to get the global tax increase and so they were willing to give up the fight,’ said Sen. Pat Toomey (R-Pa.), a key architect of the 2017 GOP tax law that overhauled the U.S. international system.”

A House Ways & Means Republican press release based on an interview by Ranking Member Kevin Brady (R-TX) said “President Biden’s Global Tax Hike Is a Surrender of American Jobs. The Biden Administration knows that $6 trillion in new tax hikes will send jobs fleeing overseas. To mitigate this self-inflicted sabotage of our economy, they’re asking foreign countries to raise their rates, too.”

On the Democratic side, Tax Notes reported: “Senate Finance Committee Chair Ron Wyden, D-Ore., expects heavy lifting domestically and internationally to implement a global minimum tax after an accord was struck by the G-7 countries.”

An EY Alert on the weekend’s announcement is available here.

Supply chains – The Senate June 8 approved 68-32 the United States Innovation and Competition Act of 2021 (S.1260). “The legislation is likely to face stiffer headwinds in the House, where top lawmakers have expressed skepticism about its focus on bolstering emerging technologies. That debate played out in the Senate, which ultimately watered down the original ambition of the bill to accommodate those objections,” the New York Times reported. “The measure, the core of which was a collaboration between Mr. Schumer and Senator Todd Young, Republican of Indiana, would prop up semiconductor makers by providing $52 billion in emergency subsidies with few restrictions. “

The White House June 8 released “Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth: 100-Day Reviews under Executive Order 14017.” Recommendations are divided into six categories: 1) Rebuilding our production and innovation capabilities; 2) supporting the development of markets with high road production models, labor standards, and product quality; 3) leveraging the government’s role as a market actor; 4) strengthening international trade rules, including trade enforcement mechanisms; 5) working with allies and partners to decrease vulnerabilities in the global supply chains; and 6) partnering with industry to take immediate action to address existing shortages.

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