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This week (August 9 - 13)

Congress: The Senate will likely be in session to take up an FY2022 budget resolution and possibly to complete consideration of the infrastructure bill, if it is not finished before then.

Last week (August 2 - 7)

Infrastructure: On Saturday, August 7, the Senate voted 67-27 to end debate on the infrastructure bill substitute amendment put forward by a bipartisan group on Sunday, August 1. However, Senators were still discussing consideration of amendments into the evening, when Majority Leader Chuck Schumer (D-NY) said the Senate would be back in at noon on Sunday to try to reach agreement on which amendments will be brought to a vote. Earlier on Saturday, Leader Schumer said, "Democrats are very eager to start voting on further amendments, but we need consent from the chamber to schedule [them] … So, we can get this done the easy way or the hard way. In either case, the Senate will stay in session until we finish our work." The Senate was out Friday for the funeral in Wyoming of former Senator Mike Enzi, and freshman Senator Bill Hagerty (R-TN) was said to have objected to expediting consideration of the bill Thursday night. Hagerty said Saturday he is "not inclined to expedite this process whatsoever" and "there's a normal process, there's no purpose, in my view, to allow an acceleration of that," Politico reported. Absent a deal on amendments and an agreement to accelerate the process, consideration could continue into early in the week of August 9.

There are two competing amendments on cryptocurrency reporting provisions, and it hasn't been made clear whether either will be brought to a vote or folded into a manager's amendment. Senator John Cornyn (R-TX) said on the Senate floor August 6 that a surface transportation measure would typically go through committees first, and that having elements of the bill presented for the first time on the floor has required time to achieve consensus. He said he is working with members of both parties on additional pay-fors that could be offered as amendments. It was unclear whether Senator Cornyn was referring only to his amendment providing states more authority to use COVID funds for infrastructure, or to new starters. On Thursday, the CBO released an estimate forecasting that the Senate bill would increase the federal budget deficit by $256 billion over 10 years. Even with the bill headed toward passage in the Senate, it is unclear how soon the House will act given Speaker Nancy Pelosi's (D-CA) commitment to take up the infrastructure bill only after the Senate passes a reconciliation bill under the FY2022 budget resolution. "Let's see what happens … " Speaker Pelosi said August 6 when asked about the House being called back from the summer recess to vote on infrastructure. "But I did say that we're going to do this when we can do it all."

Cryptocurrency: Senate Finance Committee Chairman Ron Wyden (D-OR) said the cryptocurrency amendment he authored with Senator Pat Toomey (R-PA) "makes clear that reporting does not apply to individuals developing blockchain technology and wallets." The amendment would provide that there should be no inference that the section 6045(c)(1)(D) addition under the definition of broker for information return purposes includes anyone solely engaged in the business of: (A) validating distributed ledger transactions, (B) selling hardware or software for which the sole function is to permit a person to control private keys which are used for accessing digital assets on a distributed ledger, or (C) developing digital assets or their corresponding protocols for use by other persons, provided that such other persons are not customers of the person developing such assets or protocols. An amendment by Senators Rob Portman (R-OH), Mark Warner (D-VA), and Kyrsten Sinema (D-AZ) is similar but drops the "developing digital assets or their corresponding protocols for use by other persons, provided that such other persons are not customers of the person developing such assets or protocols" language of the Wyden amendment. The Wall Street Journal reported August 7: "Sen. Mark Warner (D., Va.) said he had made changes to the cryptocurrency amendment that he has proposed with Sens. Rob Portman (R., Ohio) and Kyrsten Sinema (D., Ariz.). Sen. Ron Wyden (D., Ore.), one of the authors of the other amendment, said talks were continuing on the issue." The Washington Post August 6 reported a White House spokesman as saying, "We believe that the alternative amendment put forward by Senators Warner, Portman, and Sinema strikes the right balance and makes an important step forward in promoting tax compliance." The story said of information reporting requirements that cryptocurrency industry groups alleged that the legislation as written would "give the Biden administration authority to require the same of bitcoin 'miners' who are crucial for validating transactions on the decentralized network, as well as software developers and others." Further, it said, "Industry groups have warned that software developers and miners do not have the capacity to send 1099s to the IRS, because intrinsic to cryptocurrencies' function is that these kinds of producers have no knowledge of who their users are."

Budget: Completion of the infrastructure bill will allow the Senate to move on to the FY2022 budget resolution with reconciliation instructions that will allow development of a trillions-of-dollars package of Democratic priorities that can pass with a simple majority vote in the Senate. ABC News reported that the FY2022 budget resolution is expected to be released shortly after the Senate completes consideration of the infrastructure bill. Congress is also under pressure to address the federal limit reinstated on August 1. "By early next week, with the bill likely passed, Democratic leaders will have to decide how to deal with a looming crisis: the approaching statutory limit on how much the Treasury can borrow to finance the government's debt," said an August 6 New York Times story. "They will also be pressing for Senate passage of a budget resolution intended to speed approval of $3.5 trillion in spending on health care, education, child care, immigration and other social policies, much of which would be paid for by tax increases on corporations and the wealthy."

Derivatives: Senate Finance Chairman Wyden August 5 introduced the Modernization of Derivatives Act. The bill would change the tax treatment of derivatives, generally requiring mark to market treatment of derivatives, and make changes to the straddle rules. The bill would also extend ordinary tax treatment to debt investments held by insurance companies. "While working folks pay tax with every paycheck, wealthy investors exploit gaping holes in the tax code to avoid paying tax on profits from their bets on financial markets. It's a double standard, and we're going to put an end to it," Wyden said. "Under my bill, wealthy investors would pay tax on their gains every year — just like working people do." Chairman Wyden previously released a discussion draft of the proposal in 2016, and a bill in 2017. In 2019, Wyden released a discussion paper proposing broader mark to market and ordinary tax treatment for most liquid investments held by wealthier taxpayers, but the legislation introduced this week is focused more narrowly on derivatives. Bloomberg reported: "Making the derivatives taxation rules less complex has been a goal of both political parties in recent years. Republicans in their 2017 tax bill considered streamlining the taxation of derivatives, but ultimately abandoned the idea after being unable to work out technical issues with various proposals. Wyden's legislation could be considered for inclusion in a Democrats-only social spending bill funded by tax increases later this year."

Carried interest: Also August 5, Chairman Wyden and Senator Sheldon Whitehouse (D-RI) introduced the Ending the Carried Interest Loophole Act, addressing both re-characterization of income from wage-like income to lower-taxed investment income and deferral of tax payments. "Previously introduced bills address half of the problem — re-characterization of income," a press release said. "The Joint Committee on Taxation (JCT) estimates that Wyden's bill would raise $63 billion over 10 years, whereas previously introduced bills that did not address deferral of tax payments would raise just $15.6 billion over 10 years." Under the bill:

• To prevent the re-characterization of income, fund managers would be required to recognize annual compensation that would be taxed at ordinary income rates and subject to self-employment taxes.
• To end deferral of tax payments, the bill treats transactions between fund managers and investors as occurring outside the partnership.
• To account for the re-characterization to wage-like income and avoid double taxation, the fund manager would also realize a long-term capital loss equivalent to the annual compensation, which could offset the fund manager's future long-term capital gain from sale of an investment.

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