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October 15, 2021

What to expect in Washington (October 15)

Congress was mostly out of session this week but negotiations over how to shrink the $3.5 trillion-plus House reconciliation bill to win the support of moderates and still appease progressives continued, with a Democratic self-imposed deadline of October 31 (when the highway authorization expires) on reconciliation and infrastructure, and hard deadlines in December on government funding, the debt limit, and expiring tax provisions. Press Secretary Jen Psaki October 14 denied the White House is growing impatient with the talks but, “we don’t feel that the time is unending, and we feel it’s time to move forward with negotiations.”

Progressive Democrats previously held up a House vote on the Senate-passed infrastructure bill, insisting on having a reconciliation bill in hand first, and Senator Kyrsten Sinema (D-AZ) reportedly told House moderates this week she won’t vote for a reconciliation bill before Congress approves the $1 trillion (including routine spending) infrastructure bill, Reuters reported.

Health – A Punchbowl report on health negotiations said progressives (mostly in the Senate) keep pushing for expanding Medicare to dental, hearing, and vision coverage, which some in the House want excluded; House Democrats continue to push for a Medicaid expansion and making Affordable Care Act subsidies permanent; and proposals have been exchanged between the chambers but they aren’t close to a deal.

During an interview with KQED radio October 13, House Speaker Nancy Pelosi (D-CA) said the proposal to allow Medicare to negotiate prescription drug prices may have to be scaled back. “I’m not even sure we’ll get it in this bill. We’ll get something of that, but it won’t be the complete package that many of us have been fighting for [for] a long time,” she said.

Shrinking the House bill – In an October 13 letter to Speaker Pelosi, progressives formalized their call to maintain a broad scope for reconciliation and clip the duration of proposals, saying, “If given a choice between legislating narrowly or broadly, we strongly encourage you to choose the latter, and make robust investments over a shorter window.”

An October 14 New York Times analysis said, “As they work to shrink the price tag of Mr. Biden’s bill to ensure its passage, Democrats are in essence making a bet that even if some benefits must be made available only temporarily, they will become very hard to rescind. History shows that Democrats are probably correct. Federal benefits are rarely taken away once given…” The analysis noted that Democrats want to use the reconciliation measure to extend the expanded Child Tax Credit enacted under the American Rescue Plan Act earlier this year. “The tax credit has led to millions of families receiving thousands of dollars in monthly payments deposited directly into their back accounts, and it is considered a chief factor in significantly reducing child poverty. Democrats propose to keep it for several more years in the new legislation, effectively daring Republicans to end it,” the Times said.

Companies have been raising concerns about the Ways & Means proposal for a new IRC Section 163(n) limitation on interest deductibility for domestic corporations that are members of an international financial reporting group. Politico reported, “the Global Business Alliance, the Information Technology Industry Council, the Institute of International Bankers and the National Foreign Trade Council have written a letter to top Democrats asking them to pull back from a proposed new limitation on business interest. ‘This additional limitation would significantly increase the cost of capital for employers interested in growing and maintaining their operations in the United States,’ the groups wrote…”

Debt limit – The President signed the short-term debt limit increase October 14. Deadlines facing Congress:

  • October 31 – expiration of highway authorization, leadership target for House vote on infrastructure
  • December 3 – expiration of government funding
  • Sometime in December (likely) – new must-act date on the debt limit
  • December 31 – expiration of expanded Child Tax Credit, IRC Section 163(j) interest expense and IRC Section 174 R&D expense TCJA cliffs, expiration of some tax extenders.

Regarding how long the $480 billion debt limit increase will allow Treasury to meet the nation’s financial obligations, Oxford Economics researcher Nancy Vanden Houten tweeted October 12: “$480 bn will be exhausted quickly >Treasury will need to use special measures after that; they’ll likely be used up by early December >Only cash and incoming receipts to pay bills after that.” The tweet suggested that, without further action on the debt limit, the nation will be at risk of default just before Christmas, with default likely by New Year’s Eve.

Global tax – Politico reported that the U.S. has reached an agreement with France, Italy and other European countries over withdrawing unilateral digital services taxes, according to Bruno Le Maire, the French finance minister. Countries with a DST “came to an agreement with the U.S. administration on the way we will withdraw our national taxation once the international solution on digital taxation will be implemented and will enter into force,” he said.

The Wall Street Journal: “The deal isn’t likely to yield an immediate withdrawal of those taxes because it is still linked to the broader global tax agreement being completed and implemented over the next few years. But having a path forward could ease tensions between the U.S. and France, Italy, the U.K., Austria and Spain. ‘That’s good news,’ Mr. Le Maire told reporters. ‘We came to an agreement during these two days in Washington about the way in which we will withdraw’ those taxes.”

The G20 Finance Ministers endorsed the BEPS 2.0 agreement October 13, as expected:

Also on October 13, OECD presented the international tax update to G20 Finance Ministers and Central Bank Governors, which included details of the BEPS 2.0 agreement and discussion of carbon taxes.


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Washington Council Ernst & Young
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