November 17, 2021
What to expect in Washington (November 17)
Speaker Nancy Pelosi (D-CA) has told members they won’t leave for Thanksgiving without a House vote on the Build Back Better Act (H.R. 5376) reconciliation bill, and Majority Leader Steny Hoyer (D-MD) said it will probably happen on Thursday or Friday. The Congressional Budget Office (CBO) has said they will release all estimates by Friday, and the potential revenue from IRS enforcement funding has become a major focus. The New York Times reported, “the director of the nonpartisan Congressional Budget Office said on Monday that the I.R.S. proposal would yield far less than what the White House was counting on to help pay for its bill — about $120 billion over a decade versus the $400 billion that the administration is counting on.”
CNN reported that the White House and Democratic leaders expect CBO estimates “will fail to meet President Joe Biden’s promise to not add to the federal deficit” but have been making the case that the shortfall “stems from the different methods used to calculate the revenue gained” from IRS enforcement investment and hope that argument “will carry weight with Democrats.” The story said a September memo by Mark Mazur, then acting assistant Treasury secretary for tax policy, and circulated to lawmakers said, “When analyzing proposals that provide increased enforcement resources to the IRS, the conventional approach is to merely estimate the increased revenue collected by the IRS through additional audits and additional collection activities, but not to ascribe any changed behavior on the part of taxpayers who potentially would be subject to added enforcement scrutiny,” leading to an underestimate.
Key moderates don’t seem bothered by the tax gap revenue issue. House Ways & Means Committee member Stephanie Murphy (D-FL), one of the holdouts for CBO numbers, said the discrepancy between Treasury and CBO’s analysis of tax enforcement revenue “doesn’t come as a surprise to anyone.” Another key member, Rep. Josh Gottheimer (D-NJ), tweeted, “The current Treasury estimate of savings from IRS enforcement in Build Back Better— $400b/10 years — is, if anything, too conservative. Former Republican & Democrat UST Secretaries & IRS commissioners estimate the savings will be considerably higher.” He said on CNN, “I don’t see any reason why we can’t move forward” as long as the CBO estimates are released.
Beyond House passage, the next question is what happens in the Senate and how quickly. The Hill reported that Senator Joe Manchin (D-WV) may not be on board with Senate Majority Leader Chuck Schumer’s (D-NY) plan to get the bill passed by Christmas and has “a lot of concerns.”
On CNN November 16, Senator Chris Coons (D-DE) said CBO’s estimates could cause some trimming and adjustment to the reconciliation bill. He noted that Senator Schumer is planning to add the United States Innovation and Competition Act (USICA) supply chain bill approved by the Senate earlier this year to the FY2022 National Defense Authorization Act under consideration this week. Supply chain issues and resulting increases in consumer prices have become a major political issue. Senator Coons said if the USICA bill can get done along with the social spending reconciliation bill, those two measures plus the new infrastructure law create a “strong profile” of beneficial items Democrats can point to as the 2022 midterm elections approach.
Sitting out the elections is Senate Appropriations Chairman Pat Leahy (D-VT), who announced retirement from what is considered a likely safe Democratic seat. He is the sixth senator but first Democrat to make a retirement announcement this cycle. Elected in 1974, Senator Leahy is the current president pro tempore.
Debt limit – In addition to the expiration of government funding on December 3 – Senator Schumer said a continuing resolution is likely and Senate Republican leader Mitch McConnell (R-KY) said November 16 the patch could extend into the new year – Congress is also being called upon to address the Federal debt limit. Treasury Secretary Janet Yellen said in a November 16 letter to Congress, “While I have a high degree of confidence that Treasury will be able to finance the U.S. government through December 15 and complete the Highway Trust Fund investment, there are scenarios in which Treasury would be left with insufficient remaining resources to continue to finance the operations of the U.S. government beyond this date.”
The letter noted that the Infrastructure Investment and Jobs Act ”appropriates $118 billion for the Highway Trust Fund… [T]hese funds must be transferred into the Highway Trust Fund within one month after the enactment of the legislation, and the transfer will be completed on December 15. Promptly thereafter, the funds will be invested in nonmarketable Treasury securities subject to the debt limit.”
Senate Republicans previously expressed reluctance to support an increase in or suspension of the debt limit. However, Senator McConnell said November 16, “We’ll figure out how to avoid default. We always do.”
Opportunity Zones - The House Ways & Means Oversight Subcommittee November 16 held a hearing that focused on potential improvements to the OZ program, including more accurate data, a refundable tax credit element, and steering investment to areas beyond those that would be attractive even without the program, which allows capital gains tax deferral and exclusion of gains from income if holding requirements are met. Reforming the program could be a subject of bipartisan cooperation on the Committee, based on member comments. Subcommittee Chairman Bill Pascrell (D-NJ) said several times that no one is proposing an end to the program, and “Nobody wants to cut this program off, but I don’t think it’s going to continue to exist the way it is, and I don’t think that’s a Democratic or a Republican conclusion.” Some Republican members said they wanted to work with the chairman to increase the program’s effectiveness.
Infrastructure – President Biden visited New Hampshire to tout the benefits of the infrastructure bill, including updating bridge safety. The Wall Street Journal reported, “Mr. Biden and members of his cabinet are planning events around the country to promote the roughly $1 trillion infrastructure law, which aims to repair roads and bridges, upgrade the electrical grid and expand access to broadband internet.”
Friday, November 19 (12:00 p.m. ET.), is the EY Webcast, “Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments.” Register.