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Spotlight

Senate Budget Committee Democrats this week reached agreement on a top line $3.5 trillion budget resolution with instructions, paving the way for a "human infrastructure" bill that will center on health care, climate, and caregiving. Under the plan, the bill would pass under the reconciliation process and would require the votes of all 50 Democratic senators (plus the Vice-President), to take place sometime after Congress returns from the August recess in September.

Describing what was agreed, Senate Majority Leader Chuck Schumer said: "Every major program that President Biden has asked us for is funded in a robust way." The Senate Finance Committee reportedly has been drafting tax provisions that would be used to pay for the legislation. There are four major areas for potential tax revenue-raisers under consideration: a corporate income tax increase and minimum tax; major international tax changes; increasing taxes on capital income; and individual tax increases targeting the wealthy.

The bipartisan group of Senators who negotiated the high-level $1 trillion infrastructure deal with President Biden also met this week to try to nail down the details amid issues over the pay-fors for the plan, particularly the proposed $40 billion investment in the Internal Revenue Service to combat the tax gap. Senate Majority Leader Schumer on 15 July announced that the first vote on the bipartisan infrastructure package will take place on 21 July. The tight deadline, which Republicans described as strong-arming the process, is viewed as a strategy to force finalization of the bill. The Majority Leader also set a 21 July deadline for the Senate Democratic Caucus to agree on final numbers and a framework for the budget resolution.

Treasury Secretary Janet Yellen this week was quoted as saying that Treasury is pushing Congress to include a global minimum tax in a budget reconciliation bill. The Treasury Secretary's statement followed last week's support by G20 Finance Ministers of the Inclusive Framework on Base Erosion and Profit Shifting's (BEPS) high level agreement on a two-pillar solution to address the tax challenges arising from digitalization of the economy. The Biden Administration strongly supports a global minimum tax, which is the centerpiece of BEPS 2.0 Pillar Two.

Secretary Yellen said that Pillar One (addressing nexus and the allocation of profits) will be on a slightly slower track. She suggested that Pillar One may be "ready in the spring of 2022," adding "we will try to determine at that point what's necessary for implementation." Congressional action on Pillar One with regard to new taxing rights will likely require treaty ratification by a two-thirds vote in the Senate. Any deal would also likely require changes to the US effectively connected income rules.