July 14, 2021
What to expect in Washington (July 14)
Senate Budget Committee Democrats and Majority Leader Chuck Schumer (D-NY) last night said the forthcoming FY2022 budget resolution will provide for a $3.5 trillion health care, climate, and caregiving bill, which could pass under the reconciliation process with the votes of all 50 Democratic senators (plus the VP) sometime after Congress returns in September from the August recess. “The budget resolution with instructions will be $3.5 trillion,” Sen. Schumer said. “Every major program that President Biden has asked us for is funded in a robust way. And we are making some additions … a robust expansion of Medicare, including money for dental, vision and hearing.” The President visits the Capitol today to discuss the plan.
Senator Mark Warner (D-VA) said during a news conference that the $3.5 trillion plan will be “fully paid for.” Senator Joe Manchin (D-WV), a key moderate whose tolerance for spending and tax increases will shape the Democrat-only reconciliation bill, said it must. “We need to pay for it,” Manchin said in Politico. “I’d like to pay for all of it. I don’t think we need more debt.” Senators Manchin and Warner have signaled they may agree to a corporate tax rate increase only to 25% and capital gains rate only to 28%, and Warner is seen possibly blocking the Administration’s plan to end stepped-up basis. The combination of tax increases that will be proposed to fund such a plan, with an eye toward what moderates can support, has not been announced and may remain in flux until later in the summer or fall.
Discussions of how to raise that money are expected to continue in the coming days, the New York Times reported. “The Senate Finance Committee had been drafting tax provisions to help pay for the spending. They include a restructuring [of] the international business tax code to tax overseas profits more heavily in an effort to discourage U.S. corporations from moving profits abroad...” the report said. “Finance Committee Democrats will now turn their attention to the individual side of the tax code, where they want to raise taxes on large inheritances and raise capital gains tax rates on the richest Americans.”
Politico reported Sen. Chris Van Hollen (D-MD) as saying, in light of Manchin’s financing demand, that moderates should help come up with offsets. “There are many ways to get there … Certainly, it’s important that everyone who says it needs to be paid for also identifies ways to pay for what needs to be done.”
There is plenty of interplay between the Democrat-only reconciliation package and bipartisan infrastructure bill, with progressives wanting assurances that moderates will back the larger package of priorities before signing on to the more modest infrastructure bill. Senate Republican Whip John Thune (R-SD) suggested some Republicans could more easily support the infrastructure bill if moderates like Senators Manchin and Kyrsten Sinema (D-AZ) set a “ceiling” on what they would support in reconciliation, Bloomberg reported.
Infrastructure – The bipartisan group of Senators who have a high-level infrastructure deal with President Biden met into the evening to try to nail down the details amid snags over the pay-fors over the plan, particularly the proposed $40 billion investment in the IRS to combat the tax gap, and doubts that bill text can come together this week and be on the floor next week. The Washington Post reported Senator Susan Collins (R-ME) as saying the group set a loose Thursday deadline to resolve differences and draft a bill.
Punchbowl News reported Senator Thune as saying of GOP skepticism over the pay-fors, “I think that’s going to be a message, you’ll hear pretty consistently from Republicans who are looking at it and hoping that some of these pay fors are real, and that they’re credible, and that this isn't all just additional debt...” Also: “Thune said the most controversial pay-for for Republicans is adding additional IRS agents, and how much money that would raise.” Working out the pay-fors and drafting a bill is “going to take a while,” he said. Senator Shelley Moore Capito (R-WV) said, “The pay-fors are way up in the air.”
The Wall Street Journal reported, “Republicans have also raised concerns that the revenue measures, which also include public-private partnerships, may not ultimately cover the cost of the plan.” The report cited Senator Rob Portman (R-OH) as saying “CBO may not give us full credit … There are some members who are looking for a CBO score,” perhaps referring to the fact that projected revenue from IRS enforcement can’t be counted for budget purposes.
Senate Republican leader Mitch McConnell (R-KY) withheld judgment on the emerging tax gap proposal, which some other members of his party have expressed reservations about. “That’s a part of the ongoing bipartisan discussion over the possibility of moving separately a bipartisan infrastructure package. I’m among those who are observing what's going on, hoping that somehow we may find a way forward. And so at this point, I don’t think I want to comment on any of the particular provisions of it,” Senator McConnell said following the regular Tuesday policy lunches. “Those in our conference who are working on it are trying to get it in a forum that's scored and that we can all take a look at.”
Global tax – Following support for a global tax agreement from most countries in the Inclusive Framework on BEPS and G20 finance ministers, there is increased attention on the holdouts, details, and process. Treasury Secretary Janet Yellen said yesterday:
A WSJ story “Buy, Borrow, Die: How Rich Americans Live Off Their Paper Wealth,” said the Biden proposals to raise top capital-gains tax rates to 43.4% from 23.8% and end stepped-up basis (with a $1 million per-person exclusion) “would make borrowing less attractive but wouldn’t remove all of the benefits of deferring taxes by taking loans against wealth.” It also said, “Borrowing has gotten less policy attention than capital gains at death. Limits on tax-free borrowing or shifting to taxes on consumption could yield government revenue from wealthy Americans faster than taxation at death.”
Two simultaneous hearings in tax-writing committee subpanels at 2 p.m. today:
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