October 6, 2021
What to expect in Washington (October 6)
Last week's Democratic dispute over the size of the Build Back Better budget reconciliation bill, which is holding up enactment of the Bipartisan Infrastructure Framework, has set off new discussions on the total cost, what provisions in the $3.5 trillion-plus House reconciliation bill should be slimmed or cut entirely, or whether the scope should remain broad but the duration of proposals clipped. Senator Joe Manchin (D-WV) set a $1.5 trillion ceiling last week but yesterday didn't dismiss the prospect of $1.9 trillion-$2.2 trillion, saying, "I'm not ruling anything out," CNN reported. House Speaker Nancy Pelosi (D-CA) set another self-imposed deadline for action on the bill of October 31, the new expiration of the highway authorization. Politico reported the widely-held view that talks could spill into December, when Congress will again be confronting the expiration of government funding (December 3) and some tax provisions at year's end.
The Washington Post reported that progressive leader Rep. Pramila Jayapal (D-WA) pushed back against a $1.9 trillion-$2.2 trillion plan in a virtual meeting with President Biden October 4 and offered a range of $2.5 trillion-$2.9 trillion, as well as "keeping all the major elements of the safety net plan but letting some expire sooner to cut costs."
An opinion piece in the Post argued that "'Building Back Better' almost by definition requires investing in a lower-carbon future, to literally keep the planet habitable … other priorities must include investing in children, particularly low-income children, such as through universal, high-quality pre-K; and a generous child tax credit that aims its firepower at families with low or zero earnings, so that more children are lifted out of poverty."
The Wall Street Journal (WSJ) has reported that members like Rep. Suzan DelBene (D-WA), the chairwoman of the moderate New Democrat Coalition, are pushing to focus resources on the expanded child tax credit (CTC) and avoiding doing "a little bit of everything" in favor of "picking what we're doing well." (The CTC extension in the Ways & means bill would cost $556 billion over 10 years.) A separate story said: "Beyond adjusting the duration of the programs, Democrats are also looking at narrowing the eligibility for the programs to lower-income Americans. Some of the programs Democrats are proposing, such as universal prekindergarten, are currently set to be available to Americans regardless of income level."
Needs-based qualifications and means testing are features Senator Manchin has called for in the package. Identifying a topline spending number likely precedes determining which tax increases will ultimately be tapped to help pay for the measure.
The New York Times reported October 5, "The president acknowledged in private meetings on Monday and Tuesday with House Democrats that he was now negotiating a plan to spend no more than $2.3 trillion, and possibly less, in a concession to" Senators Manchin and Kyrsten Sinema (D-AZ). Also, "Some liberals have called for including as many programs as possible, and then continuing to build on them in future legislation. But Ms. Pelosi, speaking privately to members of the House Democratic leadership on Tuesday, suggested that many in the caucus felt it would be better to focus on fewer programs that they could carry out well."
Tax gap — On one potential revenue raising proposal, targeting the difference between taxes owed and paid, Treasury Secretary Janet Yellen said on CNBC's Squawk Box October 5: "Right now, on every bank account that earns more than $10 a year in interest, the banks report the interest or into the IRS, that's part of the information base that includes W2s and reports on dividends and other income that taxpayers have earned so collection of information is routine. But there's an enormous tax gap … that's not coming from people failing to report wage income or dividend income where there's good information. It comes from places where the information on income is opaque and can be hidden."
An October 4 WSJ editorial critical of the proposal said, "the IRS plans to review every account above a $600 balance, or with more than $600 of transactions in a year. So every American with a job could get looked over … It's also a privacy breach waiting to happen."
Debt limit - The Senate today will take a procedural vote on the House-passed clean debt limit suspension through December 16, 2022, but it won't advance because Republicans are united in filibustering the measure out of opposition to Democrats pursuing their agenda through reconciliation. A viable approach to meeting the projected October 18 terminal date for Treasury extraordinary measures hasn't been laid out. Some Democrats say using reconciliation is necessary, though Senate Majority Leader Chuck Schumer (D-NY) called it a "a convoluted and risky process."
Punchbowl News reported that the Senate parliamentarian told Democrats they could address the debt limit through budget reconciliation without impacting the existing reconciliation package, which would stay on a separate track and not lose its privilege in the Senate and would only require a majority vote for approval. "Democrats had been concerned that they could jeopardize that bigger bill by attempting to do a separate, debt-limit-only reconciliation bill, but that's not the case, the parliamentarian said," according to the report. "It's still not entirely clear, however, if Democrats could suspend the debt limit for a certain amount of time under this approach or whether they would have to increase the debt limit by a fixed number."
The WSJ reported Sen. Chris Murphy (D-CT) "and other Democrats said they were discussing a possible one-day elimination of the 60-vote filibuster in order to raise the debt ceiling, or potentially a permanent carve-out that would make it against the Senate rules to filibuster debt ceiling increases."
Secretary Yellen will join President Biden for a meeting with CEOs on Wednesday to discuss "the urgent need for Congress to act quickly to address the debt limit and prevent damaging consequences to American families, small businesses and the economy," per Treasury, the New York Times reported.
Global tax — Tax Notes reported that "Ireland has received the final text of a two-pillar global tax reform agreement, which responds to many of its concerns about the deal's proposed corporate minimum tax rules, Ireland's deputy prime minister" Tánaiste Leo Varadkar said. There is an Inclusive Framework meeting on October 8, G-20 Finance Ministers could be in a position to approve the plan at their October 12-13 meeting in Washington, and a G-20 Finance Ministers summit is also scheduled for October 30-31 in Rome.
Trade — USTR Katherine Tai October 4 outlined the Administration's new approach to the U.S.-China bilateral trade relationship, saying they will discuss with China its performance under the Phase One Agreement, including commitments that benefit US industries like agriculture; and, while pursuing Phase One enforcement, "restart our targeted tariff exclusions process to mitigate the effects of certain Section 301 tariffs that raised costs on Americans."
Financial services - The House Financial Services Committee October 5 held a hearing on "Oversight of the U.S. Securities and Exchange Commission: Wall Street's Cop Is Finally Back on the Beat" featuring SEC Chairman Gary Gensler, who reiterated his appeal for more agency resources, especially given the growth in capital markets.
On Friday, October 8 (12:00 p.m.), is the EY Webcast, "Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments." Register