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Biden Says Democrats Should Delay Infrastructure Vote Until Deal Reached – Andrew Duehren, Kristina Peterson and Lindsay Wise, Wall Street Journal ($). “President Biden called on House Democrats to hold off on voting on a roughly $1 trillion infrastructure bill until after they reach an agreement on a separate social-policy and climate bill, moving to again delay final passage of a central piece of his own agenda in a bid to unify restive Democrats.”
Even as Mr. Biden endorsed progressives’ push to hold up a vote on the infrastructure bill, however, he acknowledged in a closed-door meeting with House Democrats on Friday that the price tag of the social-policy and climate bill would need to drop substantially below $3.5 trillion to closer to roughly $2 trillion, according to lawmakers and aides.
The infrastructure bill 'ain’t going to happen until we reach an agreement on the next piece of legislation,' Mr. Biden told House Democrats, according to a person familiar with his remarks. Exiting the meeting, Mr. Biden told reporters: 'It doesn’t matter whether it’s in six minutes, six days or six weeks. We’re going to get it done.'
Latest intel: Democratic congressional leaders want votes on these two bills before Halloween. Passage for both requires the support of nearly all Democrats and at this point that support is not there. The Democratic party also suffers a trust deficit where one faction doesn't trust the other to support both pieces of legislation. It is unclear if votes will occur before the month's end.
This week: Democrats regroup after setback on Biden agenda – Jordain Carney, The Hill. “Democrats are trying to figure out their next steps after the House failed to pass a bipartisan infrastructure bill, and the White House and Democrats on Capitol Hill weren’t able to reach a deal on sweeping social spending legislation. Biden is hitting the road this week to make the case for the package, with Press Secretary Jen Psaki indicating that he’ll also be meeting with lawmakers at the White House."
And House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Charles Schumer (D-N.Y.) are now setting the end of October as their next self-imposed deadline for advancing the two part spending package that is at the heart of Biden’s legislative agenda.
Meanwhile, the White House says there is no deadline, which is not what Democratic lawmakers are saying:
No time frame for votes on Biden’s agenda, senior adviser says – Quint Forgey, Politico. “White House senior adviser Cedric Richmond said Sunday that White House officials do not have a set timeline for passage of President Joe Biden’s legislative agenda after a House vote on a bipartisan infrastructure bill was delayed last week.”
‘We don’t have a time frame on it. This is just about delivering and making sure that we deliver both bills to the American people because it meets their needs,’ Richmond told ‘Fox News Sunday’ in an interview. Richmond was referring to both the infrastructure bill as well as a $3.5 trillion spending plan Democrats are seeking to pass.
Democrats Weigh Cutting Programs or Reducing Scope to Trim $3.5 Trillion Bill – Andrew Duehren, Wall Street Journal ($). “As Democrats work to unite around a far-reaching social policy and climate bill, they are weighing two different approaches to reduce its overall cost: eliminating proposed programs entirely or cutting their duration.”
Democrats had for months set their sights on spending $3.5 trillion over a decade on the legislation, which proposes expanding or creating many education, healthcare and climate programs. Centrists oppose a top line that high, questioning whether the funding could be paid for with tax increases and raising concerns about the spending’s impact on inflation.
President Biden told House Democrats on Friday that he expects the overall cost to ultimately land between $1.9 trillion and $2.3 trillion after negotiations with centrists, according to people familiar with his remarks.
Progressives Offer to Cut Spending Short to Save Biden Plan – Gregory Korte, Bloomberg ($). “House progressives looking for ways to rescue President Joe Biden’s stalled domestic agenda opened the door to scaling back some of the more ambitious social spending by having those programs expire rather than be permanent.”
‘One of the ideas out there is to fully fund what we can fully fund, but instead of funding it for 10 years, fund it for five years,’ said Representative Alexandria Ocasio-Cortez, a New York Democrat and leading progressive voice, on CBS’s ‘Face the Nation.’
If the overall cost of this bill shrinks, that means there is less cost to offset so fewer tax increases could be needed. But getting to that number could take some time:
Democrats are looking for ways out of their deadlock three days after House Speaker Nancy Pelosi scuttled a planned vote on a $550 billion infrastructure package. She retreated as progressives balked at a standalone bill without the $3.5 trillion social safety-net spending and tax increases they want.
Progressives say they’re willing to compromise on that number — within limits. The chairwoman of the Congressional Progressive Caucus flatly rejected Senator Joe Manchin’s offer of $1.5 trillion in social spending.
'That’s not going to happen,' Representative Pramila Jayapal, a Washington State Democrat, told CNN’s 'State of the Nation' on Sunday. 'Because that’s too small to get our priorities in. So, it’s going to be somewhere between $1.5 and $3.5. And I think the White House is working on that right now, because, remember, what we want to deliver is child care, paid leave, climate change, housing.'
Democrats’ Tax Plans Worry High-Income Business Owners- Ruth Simon and Richard Rubin, Wall Street Journal ($). “The largest closely held businesses would face a series of overlapping tax increases under Democratic proposals, leading to heavier burdens on high-income owners of partnerships and S corporations."
The plan, detailed in September by the House Ways and Means Committee, seeks to raise about $2 trillion over a decade to expand the social safety net and combat climate change. The House plan differs from the Biden administration’s proposals, and it is likely to change again as lawmakers negotiate the size and details of their agenda.
Most mom-and-pop businesses would see little or no change in their tax bills under the proposal. But owners of some larger, more profitable companies are raising alarms.
It cannot be overstated that this bill remains a work in progress.
Rep. Richard Neal (D., Mass.), chairman of the House Ways and Means Committee, said last week that he was just starting to hear some of the concerns from business owners.
'There’s some unease, that’s for sure,' he said. 'We’re trying to respond to some of the concerns they’ve raised and, if they’re legitimate, we’d obviously be interested in repairing them.'
…
'You read all of the individual pieces and none of them sound that daunting by themselves, but then you start stacking them together,' said Eric Wenger, a partner with the Lancaster, Pa., accounting firm RKL LLP.
Biden Capital Gains Tax Hikes Could Be Early Budget Casualty – Alan Ota, Law360 ($). “President Joe Biden's vision for taxing capital gains like ordinary income and limiting tax deferrals for the investments of wealthy individuals could be an early casualty of the Democrats' intraparty feud over revenue-raising measures to finance their reconciliation bill.”
Several senior Democrats said a bicameral tax accord would be needed to reshape the House's $3.5 trillion reconciliation billand move toward a $1.5 trillion top-line target set by Sen. Joe Manchin, D-W.Va., a key swing vote. They said such a deal probably would make few changes to the current framework for capital gainsexcept for a modest increase in the 20% capital gains rate for wealthy individuals.
Capital Gains and Capital Pains in the House Tax Proposal – Laura Saunders, Wall Street Journal ($). “It hasn’t been noticed much, but proposed changes to capital-gains taxes have good news for some of the highest-earning Americans and bad news for those earning between $400,000 and $1 million.”
The “good” news:
The good news, for the highest earners: The House Ways and Means Committee didn’t adopt the Biden administration’s proposal to raise the top rate on long-term capital gains to 43.4% for people with income of $1 million or more. That would have been a huge increase over the current top rate of 23.8%, which consists of a 20% rate plus a 3.8% surtax for many. (Long-term gains are those on sales of assets held longer than a year.)
Instead, the House tax writers proposed raising the 20% rate to 25% and retained the 3.8% surtax, bringing it to 28.8%. They also added a 3% surtax for those with income of $5 million or more, but that will affect few Americans.
The bad news:
The proposed 28.8% rate would kick in at $400,000 of taxable income for single filers and $450,000 for married joint filers. That’s around $50,000 below the thresholds for the current 23.8% top rate, which are $445,851 for single filers and $501,601 for married joint filers.
Biden Administration Seeks to Regulate Stablecoin Issuers as Banks – Andrew Ackerman and AnnaMaria Andriotis, Wall Street Journal ($). “The Biden administration is considering ways to impose bank-like regulation on the cryptocurrency companies that issue stablecoins, according to people familiar with the matter, including prodding the firms to register as banks."
The administration is also expected to urge Congress to consider legislation to create a special-purpose charter for such firms that would be tailored to their business models, the people say.
The moves are intended to address regulators’ fears that stablecoins—digital currencies pegged to national currencies like the U.S. dollar—could fuel financial panics and need to be more tightly regulated.
A word about the debt ceiling:
The fight on Capitol Hill over Biden’s economic agenda is already complicated, but it could get worse. The debt ceiling, which is the limit that the federal government can issue debt, is about to be pierced. Congressional Democrats are trying to increase the ceiling but needed Republican support is nonexistent.
Congressional Democrats might need to use the budget reconciliation process to increase the debt ceiling, which could be a time-consuming process. This is the same process Democrats are using to pass the likely-to-shrink $3.5 trillion tax and spending bill.
The current thinking (which is subject to change) is that the debt ceiling legislation would be separate from the tax and spending bill.
But here is the rub: Congressional Democrats don’t want to use the budget reconciliation process because they might need to increase the debt ceiling to a specific number, which would be trillions of dollars and politically not good. They would rather suspend the debt ceiling so there would be no number attached to their actions.
Democratic leaders need to act on the debt ceiling soon, as estimates say the ceiling could be breached as early as October 18th.
More on this subject from Punchbowl News:
There’s only two weeks until the 'X date' set by Treasury Secretary Janet Yellen for raising the debt limit. If there’s no movement by the end of this week -- and the House isn’t scheduled to be back in town until Oct. 19 -- then financial markets are likely to start getting seriously rattled.
In case you're wondering: Yes, bets are being placed all over Washington on whether Congress can get its act together and increase the debt ceiling before all "heck" break loose. There are also wagers on what the final price tag will be for the budget reconciliation bill.
Final Regs Establish User Fee for Estate Tax Closing Letters – Joseph Disciullo, Tax Notes ($). “Final regulations (T.D. 9957) establish a new user fee of $67 for persons requesting the issuance of IRS Letter 627, also referred to as an estate tax closing letter. Effective October 28, the final regs adopt, without significant change, proposed regulations (REG-114615-16) issued in December 2020.”
Before June 2015, the IRS generally issued an estate tax closing letter for every estate tax return filed. However, for estate tax returns filed after May 31, 2015, the agency offers an estate tax closing letter only on an authorized person’s request. The preamble to the proposed regs explained the reasons for the change, including the increased volume of estate tax return filings and IRS budget and resource constraints. The letters were still provided without a fee as a customer service convenience.
‘Ground-Shaking’ Grantor Trust Tweak Threatens Last-Minute Plans – Jonathan Curry, Tax Notes ($). “A subtle but significant change to the grantor trust reforms contemplated by House Democrats has estate planners scrambling to undo advice from just a week ago.”
The challenge for estate planners trying to help their clients get ahead of the major tax changes being contemplated in Congress is that the reconciliation package under consideration is, at any given moment, like 'a hot potato that will continue to change at a rapid pace,' Martin M. Shenkman of Shenkman Law said.
SALT Shaky in Tax Bill Impasse – Doug Sword, Tax Notes ($). “A push to lift or eliminate the $10,000 cap on the deductibility of state and local taxes is taking a back seat to reconciliation negotiations, though backers say they are still confident that SALT relief will be in the final package.”
‘The debate right now is not over SALT. It’s about the nature of the budget reconciliation deal, the sequencing, all of the other things that are the source of drama,’ [Rep. Tom] Malinowski [D-NJ] said.
Suozzi disagreed that the smaller the reconciliation bill’s price tag, the lower SALT relief’s chances are.
‘I feel very confident and I feel very good about both the BIF and the Build Back Better and I feel confident about SALT,’ he said, referring to the $550 billion bipartisan infrastructure framework (H.R. 3684) and the reconciliation bill.
The SALT debate is arguably one of the most divisive issues within the Democratic party. And that's saying a lot considering the many disagreements that exist between Democratic lawmakers over the budget reconciliation bill.
Making ‘SALT’ relief pay for itself among Democrats’ options – Laura Weiss, Roll Call. “With the price tag of their sweeping budget reconciliation package seemingly dwindling, Democrats pushing an expensive plan to lift a cap on state and local tax deductions may find themselves in the uncomfortable position of needing to pay for that relief by keeping some limit in place for years to come.”
The $10,000 cap on state and local tax, or ‘SALT,’ deductions, imposed under the 2017 GOP-written tax overhaul, is set to expire after 2025. Democrats from high-tax states like New York, New Jersey and California want to repeal the cap, though some say they’ll settle for at least a two-year repeal through the midterm elections. However, that could still cost in the neighborhood of $170 billion by some estimates.
One option in play that could be a middle ground approach: Set the cap at a much higher level, short of full repeal, but extend it out past 2025, perhaps through the end of the decade depending on how long it would take to make it revenue neutral.
SALT deduction redux may spark high-end spend, opportunity funds – Bloomberg ($):
Getting rid of the state and local tax deduction limit has a strong chance of being in Democrats’ 'soft' infrastructure bill. Ending the cap may enrich some real estate brokers and boost retail spending. It may also help opportunity zone funds invested in high-tax cities. The most likely funding source for the SALT cap’s removal is a new bank compliance regime.
Pennsylvania Exec Can Pursue Remote Work Income Tax Suit in Ohio – Alex Ebert, Bloomberg ($). “A cross-state remote-worker municipal tax lawsuit brought by a Cleveland biotech executive survived dismissal this week thanks to a state court judge’s one-line ruling.”
Dr. Manal Morsy, a Pennsylvania resident and vice president and head of global regulatory affairs at Athersys, Inc., is arguing that Cleveland improperly withheld it’s 2.5% city income tax from her earnings when she stopped commuting to the city during the Covid-19 pandemic.
Oregon High Court Disallows Deductions for Dubai Travel Expenses – Donna Borak, Bloomberg ($). “The Supreme Court of Oregon affirmed the state’s Tax Court decision that business expense deductions claimed by a sole proprietor in the sale of all-terrain vehicles weren’t permissible.”
Rami Khalaf, the owner of Khalaf Motors, had challenged the Tax Court’s denial of claimed deductions for travel expenses to the United Arab Emirates, including $7,000 to rent a vehicle from one of his sisters and $3,150 to rent an apartment from another sister. He also claimed a $7,280 deduction for depreciation on a dune buggy used as a demonstration model. Khalaf is in the business of buying products for customers in the UAE, primarily ATVs.
Recall, Surplus Push Calif. Tax Hike Agenda Down The Road – Maria Koklanaris, Law360 ($). “An array of tax measures pushed by California progressives went nowhere this year, derailed by a divisive recall election and a surprisingly large general fund surplus, developments that will likely delay any further action until after the 2022 gubernatorial election.”
Early in his term, Democratic Gov. Gavin Newsom didn't shy away from backing an array of new taxes. In 2019, for example, he endorsed a water tax, a health care tax and a phone tax. But about a year ago, his tone toward tax increases championed by progressive legislators changed considerably when two things had become clear. The first was that there would be a serious effort to recall him. The second was that budget deficits California feared as inevitable at the beginning of the coronavirus pandemic did not emerge. In fact, the state was looking at tens of billions in surplus.
Reconciliation Bill Could Encourage Asset Shifting, Study Says – Theresa Schliep, Law360 ($). “Significant changes to international tax policy included in the $3.5 trillion budget reconciliation bill containing President Joe Biden's top legislative priorities could encourage multinational companies to shift intangible assets abroad, according to a Penn Wharton Budget Model report released Friday.”
Specifically, reducing the FDII deduction to roughly 22% next year rather than 2026 and increasing the corporate tax rate from 21% to 26.5% would result in a nearly 21% tax rate for such income, according to the analysis. Countries with tax rates below that threshold could attract more multinationals and encourage profit or asset shifting, Penn Wharton said.
‘Putting these pieces together, the U.S. would become an even more tax-disadvantaged location for a multinational's intangible investment compared to a foreign country with a tax rate below 20.7 percent under the House proposal,’ the report said.
Here Are the Biggest Revelations From the Pandora Papers Leak – Iain Marlow, Bloomberg ($). “An unprecedented leak of financial records known as the Pandora Papers has revealed the offshore financial assets of dozens of current and former world leaders and hundreds of politicians from Asia and the Middle East to Latin America.”
The International Consortium of Investigative Journalists obtained 11.9 million confidential documents from 14 separate legal and financial services firms, which the group said offered ‘a sweeping look at an industry that helps the world’s ultrawealthy, powerful government officials and other elites conceal trillions of dollars from tax authorities, prosecutors and others.’
Moving money through offshore accounts, in mostly low-tax jurisdictions, is legal in most countries, and many of the people named in the data release aren’t accused of criminal wrongdoing. But the journalist group said the 2.94 terabytes of financial and legal data -- which makes this leak larger than the 2016 Panama papers release -- shows the ‘offshore money machine operates in every corner of the planet, including the world’s largest democracies,’ and involves some of the world’s most well-known banks and legal firms.
It ain’t Tuesday, but it’s National Taco Day! I’ll eat tacos any day of the week! Interesting tidbit: “It is unclear why the Spanish used the word taco to describe this native food. One suggested origin is the word ataco, meaning stuff or to stuff,” according to National Day Calendar.