The Senate has approved two major pieces of legislation this week. Below is an explainer on what they include and where they’re headed.
Bill #1: The $1.2 trillion Bipartisan Infrastructure Bill:
The majority of provisions included in the legislation relate to direct spending by the Federal government, but there are several tax-related provisions (that do not raise individual or corporate tax rates) noted below:
- Revival of Superfund taxes: Prior to 1996, a tax of 9.7 cents per barrel of crude oil, and equivalent taxes on certain chemicals, was collected on their sale to fund the cleanup of Superfund sites. The Bipartisan Infrastructure Bill would restore the superfund tax with respect to most chemicals that were previously subject to the tax. The tax is NOT restored with respect to crude oil.
- Cryptocurrency reporting: The proposed legislation would treat digital currency the same as cash for required reporting of payments in excess of $10,000, clarify that digital currency is a “covered security” for broker-to-broker reporting, and make other changes.
- This provision proved controversial during legislative debate. Some Senators think it goes too far by forcing reporting requirements on entities that don’t broker digital assets. However, efforts to amend this provision fell short. Senator Rob Portman (R-Ohio) has vowed to try and change this provision in future legislation.
- Modification to the Employee Retention Tax Credit (ERTC): The Bipartisan Infrastructure Bill sunsets ERTC after September 30, 2021, instead of December 31, 2021, as originally written. However, startup businesses that began operations after February 15, 2020, and had annual gross receipts of less than $1 million, are exempt from this provision. For these entities, ERTC expiration remains December 31, 2021.
- Extending the period for filing a petition with the Tax Court.
- When the Tax Court is inaccessible, the legislation provides for an additional 14 days after the Tax Court reopens to file a petition.
- This provision is related to all closures, not just those caused by COVID-19.
- The legislation extends the IRS tax filing deadlines in Fire Management Assistance areas after significant fires.
- The provision gives victims of significant fires the ability to postpone certain tax deadlines, similar to the postponement available to those affected by Presidentially declared disaster or terroristic or military actions.
Where its headed: The House of Representatives.
The House is currently expected to vote on this bill in the fall. This timeline could be accelerated if moderate House Democrats get their way (more on this later).
Bill #2: The $3.5 trillion budget, which lays the groundwork for Congress to create legislation that increases taxes on corporations and wealthier taxpayers.
Granted, this is not a bill. It’s a resolution. The difference is that a bill can be signed into law, but a resolution cannot. A resolution is an agreement between the House and Senate that does not go to the White House to be signed into law. This is an important distinction because it means that any provision in the budget does not become law.
What the budget does is direct committees to create legislation, which can become law.
Regarding the $3.5 trillion budget, it directs the tax-writing Senate Finance Committee and the House Ways and Means Committee to “reduce the deficit by not less than $1,000,000,000 for the period of fiscal years 2022 through 2031.”
The budget also provides guidance to the tax-writing committees on where to raise revenue:
- Corporate and international tax reform
- Tax fairness for high-income individuals
- IRS tax enforcement
- Health care savings
- Carbon Polluter Import Fee
Further, it directs the Senate Finance Committee to make the following “investments” that are within its jurisdiction:
- Paid Family and Medical Leave
- ACA expansion extension and filling the Medicaid Coverage Gap
- Expanding Medicare to include dental, vision, hearing benefits and lowering the eligibility age Addressing health care provider shortages (Graduate Medical Education)
- Child Tax Credit/EITC/CDCTC extension
- Long-term care for seniors and persons with disabilities (HCBS)
- Clean energy, manufacturing, and transportation tax incentives
- Pro-worker incentives and worker support
- Health equity (maternal, behavioral, and racial justice health investments)
- Housing incentives
- SALT cap relief
Lastly, the budget stipulates that tax increases should not fall on people earning less the $400,000 a year, small businesses or family farms.
Again, provisions in a budget do not become law. That requires a committee, which will determine the specific provisions that will be in a bill. It will likely take weeks (if not longer) before these details are made public.
Also, the tax-writing committees are likely to increase revenue that exceeds $1 billion, as directed in the budget. President Joe Biden proposed $2.4 trillion in tax increases, so the revenue increase will likely fall somewhere between the budget’s instruction and the president’s proposals. Some expect that the tax increases will total between $1.3 to $1.4 trillion over a ten-year period.
President Biden proposed tax increases include raising the corporate tax rate to 28%, increasing the top individual income tax rate from 37% to 39.6% and taxing long-term capital gains and qualified dividends at ordinary income tax rates for taxpayers with adjusted gross income of more than $1 million – to name a few. Details on all proposed tax increases can be found here.
Where its headed: The House of Representatives.
The House is expected to vote on the budget on August 23, 2021. Assuming it passes, the committees will begin publicly vetting the legislation that abides by the budget's instructions. It is currently expected that legislation will be finalized in the fall, at the earliest.
Best Laid Plans…
The current plan is for the House to vote on the budget on August 23, 2021. This will allow committees to create legislation that is expected to increase taxes on corporations and wealthier taxpayers. A finalized bill is not expected until the fall.
Once that piece of legislation is ready for a vote, the House will vote on the $1.2 trillion Bipartisan Infrastructure Bill, which passed the Senate this week. The House and Senate will then vote on the $3.5 trillion tax and spending bill.
Possible Hurdles Ahead:
- Moderate House Democrats want a vote on the $1.2 trillion Bipartisan Infrastructure Bill immediately so it can be signed into law asap. They are opposed to waiting for weeks (if not months) before the $3.5 trillion tax and spending bill is finalized.
- Several moderate House Democrats are not in favor of the $3.5 trillion tax and spending bill because most of their constituents are politically just-left-of-center and think the bill spends and taxes too much.
- Progressive House Democrats are not in favor of the $1.2 trillion Bipartisan Infrastructure Bill because it does not contain their priorities. They support the $3.5 trillion tax and spending bill, which includes their priorities.
- To keep moderate and progressive House Democrats happy, Speaker Nancy Pelosi (D-Calif) has promised that the chamber will hold consecutive votes on the $1.2 trillion Bipartisan Infrastructure Bill and the $3.5 trillion tax and spending bill.
- Yes, there is an argument over which bill should be voted on first.
- It could take months for the $3.5 trillion tax and spending bill to be written, and time is risky when trying to pass legislation.
- House Republicans are not expected to support either piece of legislation. This means that if four House Democrats oppose either of the bills they will not pass and will not be signed into law.
- On the Senate side, all Democrats must support the $3.5 trillion tax and spending bill or it does not pass. No Senate Republican is expected to support the bill.
In closing, both of these bills have a long way to go before enactment.