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August 15, 2021

Americas Tax Policy: This Week in Tax Policy News for August 13

This Week (August 16-20)

Congress: The House and Senate are out of session for the August recess. The House, in recess since the beginning of the month, will return the week of August 23 to vote on the budget resolution and voting rights legislation.

Publication note: With both chambers in recess, This Week in Tax Policy News won't be published until Congress returns in September, though WCEY Alerts will be issued as events warrant.

Last Week (August 9-13)

Outlook: The Senate this week approved the bipartisan infrastructure bill and the FY2022 budget resolution that provides reconciliation instructions for a forthcoming $3.5 trillion bill of Democratic priorities to pass the Senate with a simple majority vote. Speaker Nancy Pelosi (D-CA) has maintained her insistence that the House won't take up the infrastructure bill until the Senate passes a massive reconciliation bill reflecting Democratic priorities. Moderate Democrats are pushing for a vote on the infrastructure bill soon and threatened to withhold their vote on the budget resolution, while progressives want the follow-on $3.5 trillion bill passed first.

  • The Hill Newspaper reported that Speaker Pelosi reiterated August 11 that she would not bring the infrastructure bill to a vote before the reconciliation bill passes the Senate. "I am not freelancing. This is the consensus," she said. (The House, in recess since the beginning of the month, will return the week of August 23 to vote on the budget resolution and voting rights legislation.)
  • Some moderates disagree with that approach. Rep. Stephanie Murphy (D-FL) tweeted August 11: "Now that the Senate approved the bipartisan infrastructure bill, the House must pass it ASAP. While I support passing a targeted reconciliation bill to help FL families, we shouldn't hold infrastructure hostage to it. I urge @SpeakerPelosi to put the bill on the floor this month." In an August 12 letter to the Speaker, a group of nine House moderates including Rep. Josh Gottheimer (D-NJ) said "we simply can't afford months of unnecessary delays or risk squandering this once-in-a-century bipartisan infrastructure package … We will not consider voting for a budget resolution until the bipartisan Infrastructure Investment and Jobs Act passes the House and is signed into law."
  • Progressives support the Speaker's approach of waiting for a reconciliation bill to pass. The Congressional Progressive Caucus told the Speaker in an August 10 letter that a majority of their members "would withhold their votes in support of the bipartisan legislation in the House of Representatives until the Senate adopted a robust reconciliation package. We therefore encourage you to continue coordinating closely between the two chambers, collaborating with the White House, and engaging with our caucus so that the reconciliation framework reflects our shared and longstanding investment priorities, and that the Senate first adopts this reconciliation package before House consideration of any bipartisan infrastructure legislation."
  • Meanwhile, on the Senate side, key moderates Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ) are expressing unease with a reconciliation bill as large as $3.5 trillion. Manchin said August 11, "I have serious concerns about the grave consequences facing West Virginians and every American family if Congress decides to spend another $3.5 trillion … I firmly believe that continuing to spend at irresponsible levels puts at risk our nation's ability to respond to the unforeseen crises our country could face. I urge my colleagues to seriously consider this reality as this budget process unfolds in the coming weeks and months." Senator Sinema previously announced she could not support a bill that size.
  • Politico reported that House Democratic committee staff, including from Ways & Means, was headed to the White House August 13 to discuss reconciliation strategy.

Infrastructure: The August 10 Senate vote to approve the Infrastructure Investment and Jobs Act (H.R. 3684) was 69-30, and the package would provide $550 billion in new spending that, combined with routinely authorized transportation funding, is $1 trillion over five years. The bill makes investments in roads & bridges, broadband, water, and power, paid for with unused COVID funds, IRS cryptocurrency reporting, pension smoothing, a delay of the Medicare Part D rebate rule, and other provisions. From a tax perspective, another noteworthy provision is the termination of the Employee Retention Credit on October 1, 2021 rather than January 1, 2022. A standoff over accelerating passage of the bill was blamed for preventing the consideration of additional amendments, including on cryptocurrency.

Cryptocurrency: Even with a stalemate on amendments, the prominence of the cryptocurrency issue as a persistent sticking point late in consideration of a massive, broad-ranging bill previewed potential further efforts by Congress to address a difficult-to-understand issue with increasing political heft. "An intense infrastructure bill brawl between Bitcoin advocates, Congress and the White House has revealed a new power player in Washington that's starting to find its footing: the cryptocurrency lobby … " Politico reported.

  • Senator Pat Toomey (R-PA) August 9 offered a compromise amendment on cryptocurrency addressing concerns that reporting requirements could extend to those who are not brokers, which was objected to due to the broader controversy over offering amendments.
  • Thus, the bill was passed with the original cryptocurrency language to apply information reporting requirements to digital assets (including cryptocurrency), and updating the definition of broker with the intention of reflecting the realities of how digital assets are acquired and traded, by adding to the definition "any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person."
  • Senator Rob Portman (R-OH) said a clarification that reporting only applies to brokers could be provided by the Treasury Department. Also, Politico reported that a group of House lawmakers intend to push for such a clarification when the bill is considered there. Further, if the House changes the Senate bill, a process to resolve differences between the two chambers will be required.
  • A story in the August 12 Wall Street Journal said the industry hopes to convince House lawmakers to narrow the types of entities that could be considered brokers under the law. "The Treasury already has the legal authority to require crypto exchanges to report information to the IRS and was planning to roll out such requirements in coming years. Rather than granting the Treasury new authority, the infrastructure bill's crypto provision would allow the projected revenue from heightened crypto tax compliance to help pay for increased infrastructure spending," it said.
  • Bloomberg reported August 13 that Treasury "is set to clarify that only cryptocurrency companies it considers brokers will need to comply with proposed IRS reporting requirements" under the Senate-passed bill, in guidance that "could be made public as soon as next week."
  • A New York Times essay on the issue said unnamed Treasury Department staff viewed the mobilization against the bill language as an "overreaction to a modest provision that would be followed by a multiyear rule-making process, where the crypto industry would have plenty of say. The language of the bill was expansive not because the Treasury Department wants to force everyone who touches a blockchain to produce a 1099 but because it doesn't want to prejudge how the crypto networks were structured. Crypto advocates keep saying that they shouldn't be regulated until they're better understood, but that's precisely, from the Treasury Department's point of view, why Congress shouldn't tie its hands before it can go through a full regulatory process."

Budget: The Senate also approved the FY2022 budget resolution by a 50-49 vote just before 4 a.m. August 11. It includes reconciliation instructions to various committees to report provisions under their jurisdictions by September 15 (no penalty for missing), including a nominal $1 billion deficit reduction target to the Senate Finance Committee. (A similar $1 billion instruction was included in the FY2010 resolution ahead of the ACA, some of which was enacted under reconciliation, while the FY2018 resolution ahead of the TCJA called for a $1.5 trillion tax cut.)

  • There is the expectation from Democratic leaders that the Senate Finance Committee will develop $1.8 trillion in investments for families, senior citizens, and the environment. That will require revenue-increasing or spending cut proposals within the Committee's jurisdiction of at least $1.81 trillion, though not all revenue will come from tax increases (some will come from health and climate) and it is also possible the policies cost less than the $1.8 trillion target and require less in revenues or spending cuts. The tax increases that will be proposed to be part of the reconciliation bill may not be known for a month or more, but a Democratic memo envisions offsets on corporate and international tax reform; tax fairness for high-income individuals; IRS tax enforcement; health care savings; and a Carbon Polluter Import Fee.
  • The budget resolution provides a fiscal blueprint, but the most practical and impactful element is the reconciliation instructions that will allow a $3.5 trillion bill of Democratic priorities like health care, climate, education, caregiving, and low-income tax credits to pass with a simple majority vote in the 50-50 the Senate. Budget resolution adoption is preceded in the Senate by the customary "vote-a-rama" that has no time limit and involves the rapid consideration of nonbinding amendments on a variety of issues that don't have a practical outcome in the reconciliation bill but put members on record on issues. Tax amendments considered addressed stepped-up basis, R&D expensing, IRS tax gap enforcement, and the President's pledge not to increase taxes on those earning under $400,000 annually.

Stepped-up basis: Senator Sinema crossed party lines to vote with Republicans against Senator Catherine Cortez Masto's (D-NV) budget amendment "relating to protecting family farms, ranches, and small businesses while ensuring the wealthy pay their fair share," which was taken as a signal that she may not support Democratic efforts to limit stepped-up basis. "Sinema's vote against Cortez Masto's amendment suggests she might not be on board with Biden's proposal to eliminate-stepped up basis for valuable assets," Roll Call reported. All Senators present voted in favor of Senator John Thune's (R-SD) stepped-up basis amendment calling on Congress to protect owners of generationally-owned businesses, farms, and ranches so that they may continue to transfer ownership or operations to family members or others based upon the same tax principles that existed when they began operations, which was adopted 99-0. Senator Thune said unlike the Cortez Masto amendment, "which would simply delay the tax, my amendment would provide permanent relief by preserving step-up in basis for all family-owned businesses, farms, and ranches."

Corporate rate increase: Senate Finance Committee Ranking Member Mike Crapo (R-ID) and House Ways and Means Ranking Member Kevin Brady (R-TX) released a JCT analysis showing that, "Within 10 years of a corporate tax increase from 21% to 25%, 66.3% of the corporate tax burden would be borne by lower- and middle-income taxpayers with income well below $500,000." It includes distributional analysis of a corporate rate at 24%, 25%, and 28%, and shows revenue over a 10-year window:

  • 24% rate: $298.9 billion
  • 25% rate: $409.6 billion
  • 28% rate: $701.4 billion

GILTI: Politico reported August 12 that a group of House Democrats has expressed concerns that the Biden administration's plans to increase the GILTI tax could leave American companies facing higher taxes than their competitors are likely to face under an effort to have countries worldwide adopt a new minimum tax on big companies, putting U.S. firms at a disadvantage. "A level playing field — that's all we're asking for," said Rep. Brad Schneider of Illinois, one of 10 members of the chamber's New Democrat Coalition to raise the issue in a letter to House Ways and Means Committee Chair Richard Neal (D-MA). "We want to make sure everything is in sync," Schneider said.

Debt limit: The federal debt limit, reinstated August 1, was not addressed in the budget resolution, though an increase can be passed with Democratic-only support under reconciliation. The Administration is projecting that increasing the limit is a shared responsibility and Republicans should support it.

  • Treasury Secretary Janet Yellen said August 9: "The vast majority of the debt subject to the debt limit was accrued prior to the Administration taking office. This is a shared responsibility … "
  • The August 10 Wall Street Journal reported: "While Democrats could amend the budget plan to include a debt-limit increase, the more likely path is that the issue is addressed in September … One idea Democrats are considering is a stand-alone vote to suspend the debt limit … which could put pressure on Republicans to support the measure or risk rattling financial markets if the vote fails. Lawmakers could also attach the measure to another must-pass bill, like government funding, to force the issue."
  • The WSJ subsequently reported Senator Ron Johnson (R-WI) as saying that some 46 Republicans have signed on to a letter saying they won't support raising the debt limit.


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