October 25, 2021
What to expect in Washington (October 25)
Senator Joe Manchin (D-WV) and Senate Majority Leader Chuck Schumer (D-NY) visited President Biden in Delaware Sunday to try to seal a deal on a budget reconciliation bill. There’s pressure for an agreement as Democrats near a self-imposed October 31 deadline for a House infrastructure vote – progressive members want a reconciliation deal before voting for the bipartisan infrastructure framework (BIF) – the President heads to Europe Thursday, and the November 2 Virginia gubernatorial election approaches. New tax details from the Senate are expected to be released this week.
Billionaires’ tax – Asked on CNN State of the Union Sunday about Senator Kyrsten Sinema’s (D-AZ) opposition to raising the corporate tax rate or the tax rate on high-income individuals and what would be a substitute revenue source, House Speaker Nancy Pelosi (D-CA) said, “the billionaires’ tax, shall we say, has an appeal, but it doesn’t produce that much money.” She said, “the bill is not written yet – we hope it will be written today and introduced tomorrow” – an aide said that referred to a tax proposal being advanced in the Senate, not the entire reconciliation bill – and only after the bill is written “can the Joint Tax Committee evaluate what it brings in. We anticipate $200 billion, $250 billion, but we need closer to $2 trillion.”
The Speaker said, “We probably will have a wealth tax… we will see. We haven’t seen the bill yet.” She said, “This is a Senate proposal. And they supposedly are writing it today. Tomorrow, they would introduce it. And then the Joint Tax Committee is the one that says, ‘This is how much you get from that.’ But again, on our side, we have been totally ready with alternatives. In terms of House and Senate and the White House, we have plenty of alternatives. We’re ready.”
Senate Finance Committee Chairman Ron Wyden’s (D-OR) push for a billionaires’ tax was first reported about a month ago and is an offshoot of a mark-to-market plan for capital gains he has been pursuing for a few years, but it has been a particular focus since late last week given Senator Sinema’s opposition to rate increases. The New York Times reported on Friday, “Under the proposal, people with $1 billion in assets or $100 million in income for three consecutive years would be brought into an entirely new tax system. Initially, they would have to assess the current value of their tradable assets — like cash, stocks and bonds — and their value when they were purchased, then pay a one-time levy on them…” Politico this morning reported that proposals on a billionaire’s tax and a minimum tax on corporations are expected to be unveiled on Wednesday.
On the same CNN program, Treasury Secretary Janet Yellen said: “Well, I think what’s under consideration is a proposal that Senator Wyden and the Senate Finance Committee have been looking at that would impose a tax on unrealized capital gains, on liquid assets held by extremely wealthy individuals, billionaires. I wouldn’t call that a wealth tax. But it would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals, and right now escape taxation, until they’re realized...”
Wealth-focused taxes have long been pushed by progressive senators, but in a different form from the emerging Wyden proposal. The Wall Street Journal (WSJ) reported October 24, “A spokeswoman for Ms. Sinema said Friday that she was working with Sen. Elizabeth Warren (D., Mass.)” and noted that the Wyden proposal is different than the “annual tax on the wealthiest Americans’ assets” previously pushed by Senator Warren in that it “would focus on unrealized capital gains and it is expected to include a one-time tax on gains to date.” The story said, “The proposal is expected to have provisions dealing with enforcement, unrealized losses and the tricky administrative challenge of valuing illiquid assets such as closely held businesses and artwork. And it is likely to encounter well-financed legal challenges over whether it fits within the 16th Amendment’s definition of an income tax.”
A story in the Sunday Washington Post on the mystery surrounding Senator Sinema’s negotiations said it was “the White House that made it clear to the Senate Finance Committee — which has chief jurisdiction over tax policy — that Sinema would not support any increase to the corporate or individual rates.” Though that opposition had been hinted at previously, the severity of Senator Sinema’s views and implications for the reconciliation bill came to light publicly on Wednesday, October 20, a day after Senator Manchin said he was working on an agreement with Schumer and Senator Bernie Sanders (I-VT).
Still, “Sinema has talked quietly with Sen. Chris Murphy (D-Conn.) and House moderates on a compromise for prescription drug pricing and with Sen. Elizabeth Warren (D-Mass.) on taxes targeting corporations. She and Sen. Patty Murray (D-Wash.), chairwoman of the Health, Education, Labor and Pensions Committee, have discussed issues under Murray’s purview such as paid leave and community college… She is in touch with Schumer or his aides nearly every day,” the story said.
Tax – The WSJ reported on the tax piece, “Other possibilities that Ms. Sinema appears open to include an excise tax on stock buybacks and a 15% minimum corporate tax rate, designed to raise taxes on companies that are paying low rates now because of legal use of tax breaks.” Additionally, on alternative tax proposals that don’t address tax rates, Speaker Pelosi said on CNN, “we have enforcement. And that’s several hundred billion dollars. We have the overseas harmonization of taxes, and that’s a few hundred billion dollars. We have an array. We have an array. And I’m not going to say what they are right here.”
She also said that tax increases in the Ways & Means portion of the House bill could be revisited even if alternatives are ultimately tapped for reconciliation. “I don’t want the Trump tax cuts perpetuated. So, I don’t want anybody to think, if we don’t address those right now, that they’re off the table,” the Speaker said. “No, we will use them for something at some point, because you can’t use the wealth tax and tax of billionaires, which is what we should be doing, and let corporate America off the hook. But corporate America will be paying because of the overseas tax. And some of the other provisions are very technical to go into right now.” On attaching a debt limit increase to the reconciliation bill, she said, “That’s one path.”
Politico reported that Democratic leaders hoped a reconciliation deal could allow a House vote on the BIF by midweek – progressives have insisted that progress on reconciliation precede an infrastructure vote – and that the emerging deal of around $1.75 trillion could include a two-year suspension of the $10,000 state and local tax (SALT) deduction cap. A separate Politico story said, as part of late negotiations on the reconciliation bill, “a plan to expand Medicare with dental, vision and hearing benefits for tens of millions of seniors — as well as a pitch to guarantee paid family and medical leave to all U.S. workers — is now in danger of getting cut from the bill entirely.”
Global tax – With regard to the October 8 global tax agreement, implementation of Pillar 1 appears to need Congressional support, potentially through Senate ratification of the multilateral convention that is still be drafted by the OECD. Several aspects of Pillar 1, including the creation of a new taxing right for countries, would override existing bilateral tax treaties. Some have questioned whether Senate ratification, requiring a two-thirds vote, is a realistic possibility. Another avenue may be a Congressional-Administrative Agreement, which would require passage by both the House and Senate and is similar to the process that has been used for numerous trade agreements over the last 30 years but never used in the tax treaty context.
An editorial in the Saturday WSJ said that given that treaty ratification “would require Ms. Yellen to corral 67 Senators to support the OECD tax plan as a treaty, and there’s no chance of that … Treasury is looking to circumvent the treaty process. One idea is a so-called congressional-executive agreement. This could enshrine the elements of a treaty in U.S. law, but would require support from both chambers, including a filibuster-proof 60 Senate votes.” The editorial said a dispute resolution mechanism could be prohibited if implementation is pursued under a third route – budget reconciliation – because it may not directly affect revenue. “A congressional-executive agreement could include the dispute-resolution provision. But foreign governments that have ratified their own treaties would still have to decide whether to accept this legislative ploy as a treaty equivalent,” the editorial said.
WCEY’s DC Dynamics podcast focuses on US tax policy. Host Ray Beeman breaks down and examines current developments in Congress and puts them into political and policy context.