Income tax increases absent from bipartisan infrastructure plan backed by President Biden

June 24, 2021

President Joe Biden on Thursday threw his support behind a $1.2 trillion infrastructure plan that does not increase personal or corporate income taxes and was recently endorsed by a bipartisan group of Senators.

The plan, technically called a “framework” because its details have not been fleshed out nor turned into legislative language, funds infrastructure projects for eight years. Included in the topline dollar figures is $559 billion for new spending on roads, bridges, public transit, ports, airports and broadband technologies.

The framework’s cost is expected to be fully paid for without income tax increases, and, according to the White House, will instead be offset by the following:

  • Reduce the IRS tax gap
  • Unemployment insurance program integrity
  • Redirect unused unemployment insurance relief funds
  • Repurpose unused relief funds from 2020 emergency relief legislation
  • State and local investment in broadband infrastructure
  • Allow states to sell or purchase unused toll credits for infrastructure
  • Extend expiring customs user fees
  • Reinstate Superfund fees for chemicals
  • 5G spectrum auction proceeds
  • Extend mandatory sequester
  • Strategic petroleum reserve sale
  • Public private partnerships, private activity bonds, direct pay bonds and asset recycling for infrastructure investment
  • Macroeconomic impact of infrastructure investment

Again, details are scant for how these provisions will work.

Also, the road will be long for this framework to be turned into legislation. For starters, the Senate adjourns today for a two-week recess to celebrate the July 4th. The House adjourns next week for two weeks. This means that after today both chambers will not be in session at the same time until July 19, 2021. Lawmakers will then remain in session for roughly two weeks before adjourning for the month of August. Both chambers return into session on September 20, 2021, after the Labor Day recess and honoring the Jewish holidays. This does not give lawmakers a lot of time to turn the framework into legislation. 

The current plan by congressional Democratic leaders is to turn the bipartisan infrastructure framework into legislation as soon as possible, but that might take a while and a vote on it might not occur until September.

Its passage in the Senate will require 60 votes, which might be hard to accomplish. Some progressive Senate Democrats have spoken out against the bill and could oppose it. That means passage would rely on Senate Republican support, which could be a hard sell if Senate Minority Leader Mitch McConnell (R-Ky.) opposes the legislation.

Congressional Democratic leaders also want to vote on a second bill that would provide $6 trillion in relief to families and include $2.4 trillion in tax increases.

These tax increases would largely come from President Biden’s American Jobs Plan and American Families Plan. These plans were released earlier this year and have yet to be turned into legislation.  

Their tax proposals are explained in the Treasury’s Green Book, and include: 

  • Increasing the top individual income tax rate from 37% to 39.6%.
  • Raising the corporate income tax rate from 21% to 28%.
  • Taxing long-term capital gains and qualified dividends at ordinary income tax rates for taxpayers with adjusted gross income of more than $1 million.
  • Significantly modifying the taxation of the international activities of U.S.-owned businesses. 
  • Limiting the amount of gain eligible for deferral under section 1031.
  • Repealing tax provisions benefiting the fossil fuel industry.
  • Providing additional tax incentives for renewable and alternative energy.
  • Transferring appreciated property by gift or on death would be taxed as realization events, subject to a $1 million per person exemption, effectively allowing stepped-up basis with respect to exempted property.
  • Ensuring that all trade or business income of taxpayers with adjusted gross income in excess of $400,000 would be subject to either the 3.8% Medicare tax or the 3.8% net investment income tax.

Congressional Democratic leaders do not expect Republican lawmakers to support a $6 trillion bill that increases taxes on individuals and corporations.

To ensure that the second bill passes both chambers of Congress, Democrats plan to use budget reconciliation. Using this budget maneuver means that the bill can pass the Senate with a simple majority of support.

There are currently 50 Democratic Senators, and if they all support the legislation, along with Vice President Kamala Harris, the legislation will pass the Senate. A simple majority of support is also required in the House, which is likely to occur since Democrats are the chamber’s majority party.

Still, budget reconciliation comes with several legislative and procedural hurdles that must be cleared before a vote on the legislation can occur. This will be a time-consuming process, and the current expectation is that a vote on a second bill will occur in the fall.

Expand Full Article

We're Here to Help

We are here to help
From business growth to compliance and digital optimization, Eide Bailly is here to help you thrive and embrace opportunity.
Speak to our specialists