Democrats have been working feverishly to reach a deal on a budget reconciliation bill that will persuade House progressives to vote for the bipartisan infrastructure framework (BIF). Senators Kyrsten Sinema (D-AZ) and Joe Manchin (D-WV) were at the White House for a late meeting Tuesday and Politico reported Sinema was determined to reach agreement. Senate Finance Committee Chairman Ron Wyden (D-OR) and others released proposals for a corporate minimum tax and (overnight) a billionaires tax, both responding to Senator Sinema’s opposition to raising the corporate tax rate or tax rates on high-income individuals. As Axios reported last night, “The deal is being cut.” The New York Times reported, “Democratic leaders hoped to unveil a final bill on Wednesday that could pass the House and Senate, but several sticking points remained.” These include tax, health, and paid leave provisions.

House Speaker Nancy Pelosi (D-CA) told members October 26 she was waiting on the billionaires tax language; votes on the BIF and budget reconciliation bill are possible this week; and she is seeking assurances that the Senate would vote on the exact same budget reconciliation bill brought before the House. Exiting a caucus meeting, the Speaker said, “there’s not that much more time — we have to have decisions largely today, a little bit into tomorrow, so we can proceed,” CNN reported. Democrats have generally said they can’t let the reconciliation bill remain undecided much longer, and there are efforts to have a framework nailed down by the time the President heads to Europe on Thursday. There is also the expiration of the highway authorization October 31, though Senate EPW Committee Chairman Tom Carper (D-DE) said he drafted an extension if it is necessary (a longer-term, five-year reauthorization is included in the BIF).

Tax – Other non-rate tax increases brought into focus due to Senator Sinema’s views are an excise tax on stock buybacks, expansion of the Net Investment Income Tax (NIIT), and a tax gap information reporting proposal that would require reporting of gross inflows into and outflows from certain financial accounts with more than $10,000 in annual deposits or withdrawals. CQ reported that Senator Manchin told the Economic Club of Washington, DC October 26 he communicated concerns with the tax gap proposal to the President over the weekend and it is likely to be omitted.

Billionaires tax – The billionaires tax would require a one-time tax on the current value of tradable assets like stocks and bonds over when they were purchased, which is payable over five years, then an annual mark-to-market tax on gains. Taxpayers would be able to carry back their losses for up to three years in certain circumstances. According to a fact sheet, when a billionaire sells a nontradable asset (like real estate or a business interest), they would pay their usual tax, plus a “deferral recapture amount,” which is akin to interest on tax deferred while the individual held that asset. The Wall Street Journal reported this morning, “Without any other change, that rule would create a tax preference for such assets over annually taxed publicly traded stock because the tax on real estate and businesses could be deferred.” However, it also means that the inflation component of capital gains would effectively be taxed twice.

While Democratic leaders had projected unity among Senate Democrats on the emerging proposal, Axios reported October 26 that Senator Manchin “is telling colleagues he has deep concerns about a proposed ‘billionaire tax’ but is waiting for more details before making a final decision.” Senator Jon Tester (D-MT) also said he was skeptical about the proposal until he sees the details. House Ways & Means Committee Chairman Richard Neal (D-MA) said October 25 he has concerns about administrability and legal challenges. “You have a bad year, how do we do it?” Neal said Monday, according to Bloomberg. “Do I like the politics of it? Yeah it’s sensible. I think that the implementation of the plan could be a bit more challenging.”

The Washington Post reported, “Democrats are considering swapping the billionaire tax for a separate 3 percent ‘surtax’ on millionaires earning more than $5 million per year,” included in the Ways & Means bill. NBC News said a surtax on those who make more than $10 million a year has been discussed but it would raise only about $63 billion and Sinema is opposed to the $5 million threshold version. Neal has defended proposals in the Ways & Means bill and expressed skepticism that new proposals can be properly vetted.

Corporate minimum tax - The proposal by Chairman Wyden and Senators Elizabeth Warren (D-MA) and Angus King (I-ME) for companies that report over $1 billion in profits to shareholders would amend tax code Section 55 regarding the AMT – the corporate AMT was repealed by the TCJA – to apply a 15% minimum tax to any corporation (other than an S corporation, RIC, or REIT) that has average annual adjusted financial statement income greater than $1 billion for three tax years. For corporations that are members of an international financial reporting group with a foreign parent, the threshold income is $100 million or more and requires the corporation to include the adjusted financial statement income of all foreign members of that group. Only tax years beginning after December 31, 2019, are taken into account.

Adjusted financial statement income is the net income or loss reported in the applicable financial statement with adjustments for items like book-tax year differences, related-party dividends, CFC income, disregarded entity income not otherwise reflected in the financial statement, and losses. The bill would apply for tax years beginning after December 31, 2022. The book income corporate minimum tax concept goes back at least to 2019, when Warren and Biden put forward proposals during the campaign for the Democratic presidential nomination.

Health – Senator Manchin opposes a clean electricity program and now also a fee on methane emissions, and he has expressed concern over proposed Medicare expansions, saying his focus is on program solvency. Progressives continue to say health provisions are a must-have. Senator Bernie Sanders (I-VT) – with whom Manchin said he was working to forge a deal, prompting an uptick in the negotiations last week – said October 26 that “any reconciliation bill must include serious negotiations on the part of Medicare with the pharmaceutical industry, lower the cost of prescription drugs” and a “serious reconciliation bill must include expanding Medicare to cover dental, hearing aids and eyeglasses.”

CNN reported that Medicare, Medicaid, and paid leave were among the issues declared undecided during the regular Tuesday Senate Democratic policy lunch. NBC reported that paid leave could be pared back or cut entirely and “Manchin is also souring on Medicare vouchers to help cover annual dental costs, as well as a push to expand Medicaid in Republican-led states that have not expanded coverage.”

The NYT reported: “Senator Kirsten Gillibrand, Democrat of New York, was trying to line up support, including from Mr. Manchin, to beef up a federally paid family and medical leave provision that had been whittled down to just four weeks from 12. Senator Raphael Warnock, Democrat of Georgia, threatened to withdraw his support for the bill if, as expected, it dropped a provision that would expand health coverage for the working poor in a dozen states like his that have refused to expand Medicaid under the Affordable Care Act.”

Punchbowl reported that Chairman Wyden said of prescription drug negotiation, a revenue raiser: “I think there is a growing awareness on all sides that there has to be negotiation. And I keep saying to the [drug] companies that you all tout this idea that you’re so expert at negotiating, why are you so afraid to negotiate with the government that wants a fair shake for seniors and taxpayers? The issue on negotiation that all the [senators] are asking about is how many drugs, under what circumstances? I want it understood that I will not accept a fig leaf that somebody wants to call ‘negotiation.’”

Washington Council EY’s “DC Dynamics” podcast series looks at what’s coming up in US tax policy. Host Ray Beeman, leader of WCEY, draws on his experience as a former congressional staffer for the House Ways & Means Committee and the Joint Committee on Taxation to break down and examine current developments in Congress and put them into a political and policy context.

———————————————