July 12, 2021
What to expect in Washington (July 12)
The Senate returns for a busy four-week work period previewed by Majority Leader Chuck Schumer (D-NY) in a July 9 letter to members, which said efforts to enact President Biden’s agenda remain on two tracks:
Leader Schumer continued, “My intention for this work period is for the Senate to consider both the bipartisan infrastructure legislation and a budget resolution with reconciliation instructions, which is the first step for passing legislation through the reconciliation process.” He reportedly wants an infrastructure bill on the floor as soon as the week of July 19. Following action on a budget resolution, a Democratic reconciliation bill could be developed over the summer recess and considered after the Senate returns in September, when a pile-up of deadlines includes expiration of government funding and the highway authorization. The debt limit must be addressed but a must-act date is unclear. Members should be ready for “long nights, weekends, and remaining in Washington into the previously-scheduled August” recess.
Decisions about the follow-on reconciliation bill need to be made soon, in conjunction with the FY2022 budget resolution, which will include instructions for Democrats to unilaterally pass a bill with a filibuster-proof 51 Senate votes (with the VP) under certain revenue parameters. (Recall, for example, that, ahead of the TCJA, the FY 2018 budget resolution provided reconciliation instructions for a net tax cut of $1.5 trillion/10 years.) The current, broad range for such a target, up for discussion this week: Senate Budget Committee Chairman Bernie Sanders (I-VT) has eyed $6 trillion in Democratic priorities and Senator Joe Manchin (D-WV) has suggested he would vote for as much as $2 trillion in additional investment.
The two tracks for legislating – infrastructure and a follow-on bill – are very much intertwined. An analysis in the Sunday Washington Post said, “Many Democrats will want to know what the reconciliation package contains before they commit to supporting the bipartisan infrastructure measure, and vice versa. And before they commit to supporting the reconciliation package, a lot of intraparty bargaining lies ahead for Democrats.” It also said Senate Minority Leader Mitch McConnell’s (R-KY) support for an infrastructure bill is uncertain, and some have questioned whether he wants Democratic senators up for re-election in 2022 “touting their role in reaching a bipartisan agreement on something as popular as infrastructure spending.”
Timing – Members of the group that struck an infrastructure deal with President Biden have said they hope to have legislative language when the Senate returns, after handling issues in working groups, though it’s unclear how soon that happens. On the follow-on bill, Senate Budget Democrats “are aiming to have both an overall spending number and the party’s priorities for that massive bill” laid out by early this week, Politico reported. On the Budget Committee, Chairman Sanders’ Democratic counterbalance is Senator Mark Warner (D-VA), who has expressed tax and spending views similar to Manchin (who is not on Budget).
Tax – A story in the Saturday Washington Post said, “Congressional aides view Sens. [Warner] and Maggie Hassan (N.H.) as the Democrats on the Senate Finance Committee most likely to oppose Biden’s plan” to end stepped-up basis.
On Wednesday, July 14 (2:00 p.m.) is the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth hearing, “Defending and Investing in U.S. Competitiveness.”
The House is in a Committee Work Week, meaning no floor votes. Also on July 14 at 2:00 p.m., the Ways & Means Oversight Subcommittee will hold a hearing on “Expanding Housing Access to all Americans.”
Global tax – A communique at the close of the G20 finance ministers meeting in Venice over the weekend said of a global tax agreement, “We endorse the key components of the two pillars on the reallocation of profits of multinational enterprises and an effective global minimum tax.”
A July 10 New York Times story said, “Among the biggest hurdles is an ongoing reluctance by low-tax jurisdictions like Ireland, Hungary and Estonia, which have refused to sign on to the pact, potentially dooming the type of overhaul that Ms. Yellen and others envision… Ireland, which has a tax rate of 12.5 percent, fears that it will upend its economic model, siphoning the foreign investment that has powered its economy.” Also in the story, which noted the Administration’s proposed tax increases on US corporations, including a GILTI rate of 21%: “’If a U.S. company is trying to compete globally with a significantly higher tax burden because of this significantly higher minimum tax on its operations, that’s a competitive issue for being able to be successful,’ said Barbara Angus, a global tax policy leader at Ernst & Young.”
A July 11 WSJ story said, “Observers and congressional aides say Pillar One will require a treaty and thus a two-thirds vote in the evenly divided Senate, requiring Republican support. Crucial details remain unresolved internationally as further talks continue through October… Senate GOP aides say they are waiting for information from the administration about how the deal affects U.S. companies and revenue. A senior Treasury official said the administration negotiated the deal with bipartisan support in mind, noting Republican backing for removing foreign countries’ digital taxes.”
Asked about the two-thirds Senate hurdle during a news conference, Secretary Yellen said, “The details of Pillar One remain to be negotiated. I would say that Pillar Two is further along than Pillar One. Pillar Two, we’re hoping to have incorporated in the coming budget resolution and reconciliation bill the changes that are necessary to put it into effect, but Pillar One will be on a slightly slower track. We will work with Congress. Maybe it will be ready in the Spring of 2022 and we will try to determine at that point what’s necessary for implementation.”
On Friday, July 16 (12:00 p.m.), is the EY Webcast, “Tax in the time of COVID-19: update on legislative, economic, regulatory and IRS developments. Register