Tax News & Views Infrastructure Week Roundup

November 8, 2021

House Approves $1 Trillion Infrastructure Bill, Sending to Biden’s Desk - Andrew Duehren, Natalie Andrews and Lindsay Wise, Wall Street Journal. “The House passed a roughly $1 trillion public-works bill, sending to President Biden’s desk a generational investment in roads, bridges and rail that had languished for several months as Democrats feuded over the terms of its approval… The measure passed 228-206, with 13 Republicans joining most Democrats to support the legislation. Six progressive Democrats voted against it.”

House Passes Historic Infrastructure Bill in Win for Biden – Erik Wasson, Billy House and Laura Davison, Bloomberg ($):

Passage capped a day in which Speaker Nancy Pelosi was forced to deal with a last-minute standoff between party progressives and moderates that took hours of intense negotiations and the president’s intervention to resolve… The back-and-forth throughout the day and threats from both factions to scuttle any action, left some lawmakers frustrated.

Passage of this bill was a whole thing on Friday. It was raised from the dead Friday morning only to be slain Friday afternoon. In the end, it passed because certain House Democrats had to sign letters saying that they would play nice and support the budget reconciliation bill whenever it gets a vote.

The infrastructure bill includes provisions that relate to direct spending by the federal government, but there are some tax-related provisions that do not raise individual or corporate tax rates. 

The tax-related provisions in the infrastructure bill can be found here.

About that other bill…

The budget reconciliation bill includes tax increases on corporations and individuals. Congressional leaders are using “reconciliation” so that it only requires a simple majority to pass both chambers.  This means it can pass with only Democrats supporting it. But getting that support has been quite the quagmire since negotiations started on it, e.g., two steps forward, two steps back – for months.

Eide Bailly: “The House late on Friday…cleared a procedural vote for the budget reconciliation bill. This bill includes tax increases on corporations and individuals. A final vote on passage for the legislation is not expected for a few weeks, and it is currently unclear if this bill will pass Congress.

Here's the thing: Moderate Democrats in both chambers are withholding support for the budget reconciliation bill and want to know what it will cost before supporting it. The cost information is expected to be supplied by the Congressional Budget Office (CBO).

Punchbowl News: The CBO score isn’t expected until Thanksgiving week, for example. When it comes out, it still may not meet moderates’ muster. Even if it passes the House, it has to pass the Senate, where it will face huge hurdles. Put plainly, the BBB [budget reconciliation bill] is a long way from getting to the president's desk.”

Important to note: the budget reconciliation bill is a must-pass piece of legislation. But no one currently knows what provisions will be in the final product.

Pelosi’s Political Prowess Tested by Struggle for Biden Agenda – Billy House, Bloomberg ($). “U.S. House Speaker Nancy Pelosi’s struggle to deliver on President Joe Biden’s two biggest policy priorities has illustrated the distrust and divisions within her party at a time Democrats desperately want to show they can govern.”

Democrats eked out a victory on a $550 billion public works bill late Friday night after months of wrangling between moderates and progressives. As soon as it was clear the bill would pass, Pelosi was surrounded by applauding members.

Shortly after, they advanced on a procedural vote a larger package, totaling more than $1.75 trillion in social and climate spending. But actual passage of that bill ended up being delayed amid still simmering intra-party differences.

There has been a lot of false starts in the House when it comes to advancing the budget reconciliation bill. Speaker Nancy Pelosi (D-Calif.) has set another deadline to pass the legislation: The week of November 15th.

From her “Dear Democratic Colleague” letter dated November 7, 2021:

On Friday, Congress took a giant step toward enacting the most transformative, yes, transformative agenda in our country’s history, with the passing of the Bipartisan Infrastructure Framework… But to Build Back Better, we must do more to address the climate crisis, promote equity and ensure that everyone has the opportunity to work… As has been agreed, when the House comes back into session the week of November 15th, we will act with a message that is clear and unified to produce results.


Infrastructure bill tax provisions include ERC termination – Alistair Nevius and Ken Tysiac, Journal of Accountancy:

Employee retention credit

The infrastructure legislation ends the employee retention credit (ERC) early, making wages paid after Sept. 30, 2021, ineligible for the credit (except for wages paid by an eligible recovery startup business).

The ERC was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, and amended by the Consolidated Appropriations Act, 2021, P.L. 116-260. The American Rescue Plan Act, P.L. 117-2, enacted March 11, made the ERC available to eligible employers for wages paid during the third and fourth quarters of 2021; however, H.R. 3684 would repeal the fourth-quarter extension. The IRS issued guidance on claiming the credit in the third and fourth quarters of 2021 (Notice 2021-49), but noted in that guidance that it is watching this legislative development.


SALT Plan Would Mean Tax Cut for New Jersey, Democrat Says  - Laura Davison, Bloomberg ($). “Middle-class households in New Jersey and other high-tax states would benefit from an expansion of the state and local tax deduction, a key House Democrat said.”

‘For middle-class families in my district, this will equal a tax cut for them,’ Representative Josh Gottheimer, a New Jersey Democrat, said on CNN’s ‘State of the Union’ on Sunday.

The House’s version of the President Joe Biden’s economic agenda would increase the cap on the state and local tax, or SALT, write-off to $80,000, up from the $10,000 limit imposed in the 2017.

This provision is not a done deal:

Senators including Bernie Sanders, a Vermont independent, and Bob Menendez of New Jersey, have criticized that idea and say they want to restrict the tax break to those making less than about $400,000 to prevent the wealthiest Americans from benefiting from the deduction.

Gottheimer says that geographic differences -- lower taxes and costs of living in other states -- mean that the SALT deduction cap could affect those taxpayers less.

‘For Bernie Sanders, if you’re in Vermont, it’s a different situation, right?’ Gottheimer said.

House leaders say they plan to pass Biden’s tax and spending bill, which includes the SALT expansion, this month. The legislation would then go the Senate, where SALT is almost certain to undergo changes.


Crypto Traders Have Short Window to Avoid House Anti-Abuse Plan - Allyson Versprille, Bloomberg ($). “Cryptocurrency investors would have little time to plan against possible tax increases under legislation advancing in Congress to treat digital assets like stocks and other securities.”

House Democrats’ proposed tax-and-spend package would subject digital assets to two anti-abuse rules that already apply to stocks and other securities. The change would restrict tools crypto investors can currently use to hedge against potential losses and lower their capital gains taxes.


‘Billionaires Tax’ Would Raise $557.2B Over 10 Yrs: JCT Estimate - Colin Wilhelm, Bloomberg ($). “A tax on the unrealized gains of billionaires and ultra-millionaires proposed by Senate Finance Committee Chairman Ron Wyden would raise $557.2 billion over a ten year period, according to an estimate from the Joint Committee on Taxation.”

The estimate, provided by Wyden’s staff, show the bulk of the revenue raised by the tax to come from the first five years of enactment, when the federal government would take in an estimated $346.2 billion

The tax is still unlikely to become law as part of Democrats’ broader social spending push because of opposition from several Senate and House Democrats to the idea of taxing unrealized gains on assets like stocks, bonds, real estate, and business ownership

Back story: As things were falling apart in the House on Friday over the infrastructure and reconciliation bills, Senate Finance Chairman Ron Wyden (D-Ore.) leaked to the press a report on how much revenue could be raised over ten years by enacting his billionaire’s tax. The release of the document surprised a few folks since this provision is not in either bill, and several Democrats do not support it. The current thinking is that Wyden will attempt to add this provision to the reconciliation bill if the legislation passes the House. If he is successful, there will likely be much debate between House and Senate Democrats on whether this tax should remain in the finalized bill.

THE TIME WILL COME – Bernie Becker, Politico Pro ($). The article reports that tax lobbyists have shifted their focus to the Senate when it comes to the budget reconciliation bill. The reason is because the Senate is expected to make several changes to the legislation, which could include modifying the pass-thru deduction and taxes on wealthier taxpayers.


White House-Backed Carbon Tax in Sight for Biden’s Climate Bill - Jennifer A. Dlouhy, Bloomberg ($). “The White House and at least 49 senators support a proposal to impose an almost $20 per-ton fee on carbon as part of President Joe Biden’s climate-and-spending legislation, U.S. Senator Sheldon Whitehouse said Saturday.”

Under the initiative, the cost on carbon dioxide emissions would start at less than $20 per ton and increase over time, with revenue possibly rebated back to some consumers or dedicated to help fossil fuel workers amid the transition to clean energy, Whitehouse said on the sidelines of the COP26 climate conference in Scotland on Saturday.

‘We have 49 out of 50 votes’ from Democrats in the Senate, the Democrat from Rhode Island said. If the Senate passes it, ‘the House has assured us they will also pass it, and the White House has assured us the president will sign it into law.’


Trump left a $7 million mess after delaying census workers' payroll taxes – Hansi Lo Wang, NPR. “The U.S. Census Bureau has been stuck with a $7 million accounting mess after former President Donald Trump's administration ordered the federal agency to pause payroll taxes last year for certain employees, including many temporary 2020 census workers, NPR has learned.”

The bureau was one of many federal agencies directed to stop collecting some employees' share of a payroll tax that helps fund the Social Security system in the final months of 2020. The deferral applied to workers earning less than $4,000 before taxes each pay period.

‘In total, $7,078,909 in payroll tax collections were deferred for 177,964 temporary employees,’ the bureau confirmed to NPR in a statement.


Elections Have Tax Impacts From Virginia to Washington State – Michael Bologna, Bloomberg ($):

Who says off-year elections come without tax consequences?

Elections for political office and referendum votes on Tuesday suggest possible adjustments in federal, state and local tax policy from Virginia to Washington. Let’s start from the East Coast and head west.

New Jersey Gov. Phil Murphy (D) won reelection by a whisker, but he now faces pressure to rein in taxes even as the Garden State struggles to fund mass transit and pay for services linked to the Covid-19 recovery. Murphy enacted a millionaire’s income tax during his first term and used the money to provide rebates for middle-class homeowners. He has pledged not to raise taxes in his second term.

Colorado voters rejected Proposition 120, a ballot initiative that would have cut property tax assessment rates for multifamily housing units and lodging facilities. The measure also would have required the state to reimburse local governments for homestead exemption.

On the West Coast, Washington state voters signaled disapproval for an excise tax on capital gains that takes effect in 2022. Voters responded to a nonbinding, advisory question on the statewide ballot with 63% in favor of repealing the tax and 37% in favor of maintaining it, the state elections office reported.

As Local Taxes Proliferate, So Too Do Court Challenges – Maria Koklanaris, Las360 ($). “Just as state taxation was the new frontier in the mid-20th century, local taxation has garnered increasing attention as political subdivisions seek new and creative ways to assert their authority in the pursuit of revenue.”

This trend has been only accelerated by the pandemic. States in the spring of 2020 feared the pandemic would cause significant drops in revenue, forcing them to slash services, raise taxes, or both. While their fears did not materialize and state coffers are now flush with cash, the same cannot be said for many local governments. Collectively, local governments are struggling to fund services and have turned to taxation and more aggressive enforcement of taxing rights they do have.

California Aims for SALT Cap Workaround Fixes Next Year – Laura Mahoney, Bloomberg ($). “California lawmakers expect to consider in 2022 whether to expand a workaround for the federal cap on personal income tax deductions for state and local taxes that’s available to members of pass-through entities, a legislative staff member said Friday.”

Under the workaround law (A.B. 150), entities taxed as S corporations or partnerships can elect to pay a 9.3% income tax, and their owners can claim a credit on their personal income taxes equal to the tax the entities pay. But lawmakers have received complaints from taxpayers and practitioners that the law is too restrictive.

California Tax Agencies Plan More In-Person Options in 2022 – Laura Mahoney, Bloomberg ($). “California’s four tax agencies expect to offer more in-person meetings in early 2022 while keeping virtual options available for taxpayers and the public, their chief counsels said Friday.”

Plans to shift to in-person meetings will move forward as long as Covid-19 case numbers remain low, the chief counsels said at a California Lawyers Association conference in San Diego. Employees for all four agencies will be working hybrid telework and in-office schedules.

Mich. Makes Premium Cigar Tax Cap Permanent – Jaqueline McCool, Law360 ($). “Michigan will eliminate the sunset date for a 50-cent tax cap on premium cigars under a bill signed by the governor.”

Democratic Gov. Gretchen Whitmer signed H.B. 4485 on Thursday, which eliminated the Oct. 31 sunset date for the state's cigar tax cap. The maximum tax is now permanently capped at 50 cents per individual cigar.

Indiana lawmakers could debate sales, business tax changes – Tom Davies, Associated Press. “With Indiana’s state tax collections surging, a top Republican legislator is looking at possible significant changes to the state sales tax and cutting property taxes for some businesses.”

House Ways and Means Committee Chairman Tim Brown hasn’t offered details yet for what he could propose for the new legislative session starting in January, but such changes face concerns over the possibility of an economic slowdown and the impact on funding for local governments and school districts.

Topics in Brown’s sights include expanding Indiana’s 7% sales tax that covers merchandise purchases ranging from clothing to cars so that it also is charged for spending on services, which potentially could be anything from haircuts to hospital stays. Brown said his aim would be to lower the sales tax rate if it was applied to a broader range of spending.


Developing Countries Make Final Push to Tweak Global Tax Deal – Isabel Gottlieb and Hamza Ali, Bloomberg ($). “Developing countries are hoping they can win some further concessions to help sweeten a global tax deal set to be implemented by 2023.”

As officials turn to the technical details of implementing the OECD-brokered plan, developing countries are still pushing to influence the discussions where they can—including looking to eke out more revenue from a deal that didn’t give them as much as they’d hoped for, and widen an exemption from binding dispute resolution they say can disadvantage them against richer countries and companies.


Happy National Cappuccino Day! Or Happy National Harvey Wallbanger Day! We got choices today: a frosty cup of espresso and hot milk steamed to perfection, or fruity, vodka drink! Depending on the time of day, I’ll take both!

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