July 2, 2021
What to expect in Washington (July 2)
Most of the countries that make up the OECD's 139-member Inclusive Framework July 1 endorsed a high-level agreement that addresses how the largest and most profitable multinational enterprises (MNEs) should allocate their taxable profits to customer jurisdictions under Pillar One of the OECD's project and a global minimum tax model ensuring that MNEs pay a minimum level of tax, no lower than 15%, in all the jurisdictions in which they operate, under Pillar Two.
The endorsement of Pillar Two is a big win for the Biden administration, which has been pushing for a global agreement in part to buttress support in Congress for its proposals to toughen global intangible low-taxed income (GILTI) rules. "Today's agreement by 130 countries representing more than 90% of global GDP is a clear sign: the race to the bottom is one step closer to coming to an end," Secretary Yellen said.
House Ways and Means Committee Ranking Member Rep. Kevin Brady (R-TX) released a statement saying, "the Biden Administration has already given up significant U.S. ground by opening the door to not grandfathering GILTI and agreeing to a global minimum tax structure that favors foreign-headquartered companies and workers over American ones."
Infrastructure — A leader of the bipartisan group that struck a $1 trillion infrastructure deal with President Biden said work on the details is ongoing during the Senate recess this week and next, including through working groups, and there may be legislative language later this month. "It's going to take a while because we've got to flesh out a lot of very complicated areas, but my hope is that over this two-week period, including this week right now, that we can make some progress," said Senator Rob Portman (R-OH) in a Cleveland.com report. "We've got separate working groups in every major area, and my hope that is sometime in July we're able to provide more specific language."
He provided perspective on some of the proposed pay-fors, namely that customs user fees are appropriate because the legislation will fund ports, and fees charged to chemical companies help clean up chemical waste sites. "Many of those chemicals do end up in a Superfund site, so the notion is to have a user fee, in essence, to help pay for the cleanups that are funded in this proposal," Portman said.
Tax gap — One of the pay-fors highlighted by the Biden administration, a $40 billion investment in the IRS to help recoup over $100 billion in unpaid taxes, is facing resistance from some Republicans, Axios reported:
Transportation bill — The House July 1 passed 221-201 largely along party lines (with 2 Republicans in favor) the INVEST in America Act (H.R. 3684), "a $715 billion surface transportation reauthorization and water infrastructure bill, with more than $44 billion added during the amendment process to make even greater investments in infrastructure, including EV charging and passenger rail grant programs, among other additions." That and a $305 billion Senate Environment & Public Works bill are bedrock measures that could support a broader infrastructure package, and House Transportation & Infrastructure Chairman Peter DeFazio (D-OR) said has noted similar funding levels between the House bill and the Biden-Senate group infrastructure deal.
The House bill revives earmarks, which provide funds for projects in members' districts, for the first time in years. Punchbowl News reported, "There aren't earmarks in the bipartisan Senate bill — it's only a shell right now — but they could be added to the legislation during House-Senate negotiations. And that revised bill could then be adopted by both chambers, signed into law by Biden, and bingo, earmarks for everyone."
Republicans opposed the House bill in part for its climate change components, which include electric vehicle charging and alternative fueling infrastructure, and are associating it with the separate and much broader Green New Deal progressive climate change proposal. "The bloated, big-government approach implements more Green New Deal mandates than actual provisions to support roads and bridges," Rep. Steve Womack (R-AR) said on Twitter. The states of Defazio and another top T&I member, Rep. Rick Larsen (D-WA), in the Pacific Northwest are in the midst of record-breaking, and deadly, high temperatures. DeFazio said, "That was not a normal heat wave."
The House bill passed without a revenue title, which Chairman DeFazio said will come later. Citing a meeting last week between House Ways & Means Committee Chairman Richard Neal (D-MA), Treasury Secretary Janet Yellen, National Economic Council Director Brian Deese, and Senate Finance Chairman Ron Wyden (D-OR) to discuss pay-fors for infrastructure, he said, Chairman "Neal is fully ready to sit down … They're ready to move when they're ready to negotiate."
Budget — House Budget Committee Democrats "have decided to forgo their own fiscal 2022 budget resolution and wait to see what Senate Democrats can muscle through their 50-50 chamber," Roll Call reported. "There was an overwhelming consensus for waiting on the Senate," Chairman John Yarmuth (D-KY) said.
Bloomberg reported Chairman Yarmuth as saying Democrats are talking about voting to suspend the debt ceiling to October 1, 2022 as part of a budget resolution. There has also been discussion of raising or suspending the debt limit as part of a broader reconciliation bill or separately under the reconciliation process. Those plans are complicated by questions of how fast a reconciliation bill can come together, as Sec. Yellen has urged Congress to address the debt limit soon after it is reinstated August 1 after a two-year suspension.
The July 1 CBO update of 10-year budget numbers said the federal deficit will total $3.0 trillion and federal debt will reach 103% of GDP in fiscal year 2021. Baseline deficits under current law are significantly smaller after 2021, dropping to $1.15 trillion in 2022 and averaging $1.2 trillion until 2031. The American Rescue Plan Act of 2021 increased the projected deficit by $1.1 trillion. The unemployment rate declines through 2022 and remains near or below 4% for several years, and inflation rises sharply in 2021 and then moderates, the report said.
Publication note: What to Expect in Washington won't be published next week during the congressional recess, but WCEY Alerts will be issued as events warrant.