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This week (October 4 - 8)

Congress: The Senate is in session before being scheduled to be out of session October 11-15 for the Columbus Day State Work Period. October 18 is the must-act date on the debt limit set by the Treasury Department.

The House is scheduled to be out of session in Washington, D.C., in Committee Work Weeks the next two weeks.

Last week (September 27 - October 1)

Reconciliation outlook: Democrats remained at odds over how to move forward on the Bipartisan Infrastructure Framework (BIF) bill that passed the Senate over the summer and a massive budget reconciliation bill that embodies much of President Biden's "Build Back Better" agenda. House Democratic leaders were forced to delay a floor vote on the BIF October 1 for a second day in a row as progressives continued to threaten to vote against it until they had a better understanding of the parameters of what Senate moderates can accept in the budget reconciliation bill. The House did late October 1 approve a 30-day extension of the surface transportation authorization that had expired September 30. Negotiations on parameters for a budget reconciliation bill will continue. President Biden addressed a House Democratic caucus meeting the afternoon of October 1, "telling lawmakers to expect a smaller tax and spending package and that passage of a bipartisan infrastructure bill can wait," Bloomberg reported. Politico reported that the President "pushed for Democrats to support a total cost of between $1.9 trillion and $2.3 trillion for the party's broader spending bill."

House Speaker Nancy Pelosi's (D-CA) efforts to decouple the reconciliation bill from the BIF earlier in the week were met with resistance from progressives, who are using their support as leverage to ensure Congress undertakes a large bill of other Democratic priorities, including on health, climate, caregiving, and the extension of low-income tax credits. Momentum Democratic leaders had been building for the reconciliation effort, in part because of the interplay with the BIF, was met with a statement from Senator Joe Manchin (D-WV) September 29 suggesting a framework would not emerge quickly because he can't support $3.5 trillion more in spending. He also said "our tax code should be reformed to fix the flaws of the 2017 tax bill … but it should not weaken our global competitiveness … " An outline of what he would support from late July (as the Senate was considering the FY2022 budget) published by Politico September 30 suggested a $1.5 trillion bill with a 25% corporate rate, 28% "all-in" capital gains rate, ending carried interest, keeping fossil fuels credits if solar and wind credits are extended, and giving the Energy & Natural Resources Committee he chairs sole jurisdiction on a clean energy standard. Manchin suggested to reporters that Congress work on a $1.5 trillion plan "and they can come back with it later and they can run on the rest of it later. I think there's many ways to get to where they want to, just not everything at one time." Another key moderate, Senator Kyrsten Sinema (D-AZ), made three visits to the White House September 28 and later said she had made her reconciliation priorities known.

Progressives were not pleased with Manchin's $1.5 trillion target, which he had previously hinted about. Politico reported, "Democrats with knowledge of the discussions said party leaders had hoped to convince Manchin and Sinema to agree to a $2.1 trillion topline target for the broader package, without success." While the Manchin statement and release of his vision for a $1.5 trillion plan could be viewed as setbacks to the reconciliation process, the developments also yielded progress in broadening and intensifying the talks among Democrats in Congress and with the Administration. President Biden had previously been conferring with Senators Sinema and Manchin privately to set a topline spending number.

International tax: The forecast for the $3.5 trillion-plus package of reconciliation recommendations from 13 House committees — including the Ways & Means Committee-approved tax credits and robust set of corporate, international, and high-income individual tax increases — is entwined in the broader negotiations over a topline number and what revenue proposals moderates and progressives can agree on (other sources of revenue beyond tax, including from drug pricing negotiation, are envisioned under the House bill). The House Budget Committee approval of the assembled reconciliation bill September 25 was mostly a formality given that they couldn't make changes, though a Ways & Means Committee report was released in conjunction that offers some new details. For instance, the report language added that the foreign-derived intangible income (FDII) provision includes "several technical amendments to rules relating to the section 250 deduction. These amendments identify income that is not taken into account for purposes of determining the amount of a deduction allowed to a domestic corporation on its FDII. Such excluded income includes (i) any income received or accrued which is of a kind which would be foreign personal holding company income (as defined in section 954(c))." Footnote #642 provided that "[t]his clause is intended to exclude passive income, not active income. See. e.g., Treas. Reg. sec. 1.904-4(b)(2)(iii)."

Global tax: U.S. Treasury officials are continuing to work with international counterparts towards a global tax agreement ahead of an Inclusive Framework meeting on October 8 and a G20 summit in Rome at the end of October. A HM Treasury Spokesperson said in a September 29 statement, "The UK chaired a productive G7 Finance Ministers' discussion on international tax reform, where a common understanding was reached on some important remaining issues, to support reaching political agreement amongst members of the OECD/G20 Inclusive Framework countries next week. All re-iterated their commitment to working together as a group to ensure that reforms are implemented to an ambitious timeline." A U.S. Treasury statement said Secretary Janet Yellen participated in the meeting with her G7 finance minister counterparts and "a common understanding was reached on some of the important open issues, to support reaching final political agreement within the OECD Inclusive Framework in October. At the meeting, Secretary Yellen reiterated the importance of reshaping the global tax rules to ensure that profitable corporations pay their fair share and provide governments with the resources to invest in their people and economies." Bloomberg Tax reported that countries "aim to reach a final agreement on the precise minimum tax rate under Pillar Two by Oct. 8, people familiar with the matter said. The July accord called for 'at least 15%.' Ireland, which didn't sign on to that statement, is worried the final number could end up significantly higher than its 12.5% corporate tax rate. Irish Finance Minister Paschal Donohoe said he reiterated concern about the 'at least' language to the G-7 on Wednesday."

Looking forward to the US process for approval of a global deal, during a September 28 Senate Banking Committee hearing with Sec. Yellen and Fed Chairman Powell, Ranking Member Pat Toomey (R-PA) warned about tax negotiations with the OECD and policy decisions here in the US: "these countries have only reluctantly agreed to pillar two in return for pillar one, which is the transfer of U.S. tax revenue from us to them. But implementing pillar one in the U.S. requires a treaty ratified by two-thirds of the United States Senate; I think that's unlikely to happen." Secretary Yellen said, "I believe there are a number of ways in which Congress could implement it but certainly ratification of the treaty would be one way in which Congress could authorize. And, certainly, Congress has to authorize the transfer of taxing rights that's contemplated in Pillar One."

Government funding, debt limit: Government funding has been extended through December 3 after Democrats delinked the measure from a debt limit suspension — that issue is on hold for now with a must-act date a few weeks away — and Congress passed a continuing resolution (CR) that was signed by the President September 30. A standalone debt limit suspension bill that passed the House 219-212 September 28 could be considered in the Senate as soon as next week, Majority Leader Chuck Schumer (D-NY) said, though it is expected to fail given Republican opposition. Schumer and other Democratic Senate leaders are resistant to using the budget reconciliation process to suspend the debt ceiling, while Democratic House leaders have noted that it is a possibility. Politico reported that some House members feel the debt ceiling should be dealt with by reconciliation, which would require only Democratic votes, "Yet Schumer is eager to paint the GOP as the party of 'default' and wants to lambaste them for risking the country's credit worthiness."

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