September 8, 2021
What to expect in Washington (September 8)
The House Ways & Means Committee September 7 released some titles of its portion of the potentially multitrillion dollar health, climate, caregiving, and education Build Back Better Act reconciliation bill, but not the highly anticipated tax proposals. Press reports suggested the tax pieces wouldn’t be released before Friday, and there are other signals they won’t be out until early next week ahead of a continued markup September 14-15. Negotiations continue between House and Senate leaders and the White House, and Punchbowl News reported that “tax rates for multinational corporations and treatment of capital gains have split Democrats between their moderate and progressive factions in both chambers,” and that Affordable Care Act funding and Medicare and Medicaid expansions are also sticking points.
On tax, a story in this morning’s Washington Post cited an unnamed Democratic House member as saying Democrats, who have been aiming for a corporate tax increase closer to 25% (as opposed to 28%), “have yet to build enough support for other tax hikes targeting investments or corporate income earned abroad. ‘The money is just not there,’ the lawmaker said, expressing a belief that the package is likely to come down closer to $2 trillion.”
A main question regarding budget reconciliation is the impact of Senator Joe Manchin’s (D-WV) September 2 Wall Street Journal (WSJ) op-ed calling for a pause in consideration of the reconciliation bill to seek clarity on the trajectory of the pandemic and whether inflation is transitory or not, and to conduct a thorough analysis of the bill. Axios reported September 7 that “[Manchin] has privately warned the White House and congressional leaders that he has specific policy objections to President Biden's $3.5 trillion social-spending dream — and he’ll support as little as $1 trillion of it… At most, Manchin will support $1.5 trillion, sources familiar with the discussions say.”
As a September 3 WSJ story said, “Democrats’ dilemma this month centers on how much of President Biden's proposed taxes on capital gains and multinational corporations they are willing to accept. There is broad agreement on tax-rate increases and tax enforcement that could yield more than $1 trillion over a decade. Beyond that, some changes are likely, but centrist Democrats in both chambers have been raising concerns about the breadth of the Biden proposals.”
Process – House moderates, including Ways & Means member Stephanie Murphy (D-FL), last week called for pre-conferencing with the Senate to avoid the House passing tax increases that the Senate won’t and going slow on the bill, giving members time to review the final version with an eye toward avoiding unintentional errors like those made in the rush to enact the TCJA.
Senate Finance Committee Republicans are wary of Democratic leaders bypassing Committee consideration, saying in a September 7 letter, “Failure to hold a full, open markup, as our House Ways and Means and Energy and Commerce Committee counterparts are doing, would amount to a massive and unfortunate concession to the House, as well as to Congressional leadership. It would also serve to further erode the American people’s trust in the Senate as an open and effective institution, substituting a secretive process behind closed doors for a productive public dialogue.”
Non-tax – Highlights of the reconciliation titles to be marked up in Ways & Means September 9-10 include:
International tax – In a September 7 letter, 41 House Democrats led by Rep. Lloyd Doggett (D-TX), a longtime critic of US international tax policy, called for “establishing a GILTI rate as near as possible to the domestic corporate tax rate. If the domestic rate is raised to only 25%, the GILTI rate should remain at 21% as requested by the Biden administration. We certainly should not increase the incentive for outsourcing jobs by lowering the GILTI differential below the 75% in the Biden proposal, which would mean 19% if paired with a 25% domestic rate.” It also called for applying GILTI on a per country basis and properly allocating expenses to foreign income. Beyond Doggett, the only other Ways & Means members on the letter are Reps. Judy Chu (D-CA) and Jimmy Gomez (D-CA).
A September 7 Treasury web post by Itai Grinberg, Deputy Assistant Secretary for Multilateral Tax, and Rebecca Kysar, Counselor to the Assistant Secretary for Tax Policy, “Why the United States Needs a 21% Minimum Tax on Corporate Foreign Earnings,” said the current 10.5% GILTI rate is “far less than small businesses pay on Main Street - which earn all of their profits at home - or the tax rates faced by workers - who bear an increasing share of the tax burden as the corporate burden dwindles.” The post also defended using tax changes to pay for climate change mitigation, education, infrastructure, and R&D.
Deadlines – The Senate doesn’t return until next week and the full House the week after, and members face what is widely viewed as a busy and dynamic September with hard deadlines and self-imposed targets.
CR, debt limit – A September 7 OMB blog post suggested a short-term patch for government funding beyond September 30 is inevitable: “It’s clear that Congress will need to pass a short-term continuing resolution (CR) to provide more time for the FY 2022 process to unfold.”
The White House September 7 listed anomalies for the CR – priorities outside currently funded programs – that include disaster relief related to Hurricane Ida, seen as potentially drawing support from Republicans representing Louisiana and other affected states for a CR that could also carry a debt limit increase or suspension.
Politico reported September 7, “The White House asked Congress on Tuesday to include hurricane relief and money for Afghan resettlement in a package to fund the government later this month, upping the ante in the latest shutdown scare. Those special requests will increase the political pain for any lawmaker planning to oppose the funding patch Congress needs to pass this month to keep government agencies open beyond Sept. 30. Top Democrats have also been flirting with the idea of adding action on the debt limit to that package, a move that would further squeeze Republicans who have pledged zero cooperation as the Treasury Department nears a breaking point on the nation’s borrowing limit.”
On Friday, September 10 (12:00 p.m. ET), is the EY Webcast, “Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments.” Register