September 13, 2021
House Democrats Consider 26.5% Corporate Tax Rate – Richard Rubin, Wall Street Journal. “House Democrats expect to propose raising the corporate tax rate to 26.5% from 21% and imposing a 3-percentage-point surtax on individual income above $5 million, according to two House Democratic aides familiar with the plans… House Democrats also are considering raising the minimum tax on U.S. companies’ foreign income to 16.5% from 10.5% and increasing the top capital-gains tax rate to 28.8% from 23.8%. Lawmakers are also expected to raise money by expanding Internal Revenue Service enforcement and might include other tax increases on corporations and high-income individuals.”
The tax increases would be part of the House Ways and Means Committee’s plans to pay for the party’s priorities in a fast-moving budget bill. Those items include an expanded child tax credit, a national paid-leave program and renewable-energy tax breaks… The plans, aimed for a Ways and Means Committee vote later this week, will face challenges as Democrats try to determine how far they are willing to go in reversing the 2017 tax cuts and imposing stiffer burdens on corporations and high-income households.
HOT OFF THE PRESS: The section-by-section summary of the tax provisions in the House Ways and Means bill is here.
House Democrats circulate new tax plan as party seeks unity on key economic package – Tony Romm and Jeff Stein, Washington Post. “A powerful panel of House Democrats on Sunday circulated a draft plan that would raise $2.9 trillion in new taxes and revenue predominantly targeted toward wealthy Americans, corporations and investors, as party lawmakers continued to spar in public over the size and scope of their new tax-and-spending package."
The new proposal includes many measures Democrats are widely expected to embrace, such as increasing the top tax rate on Americans earning over $435,000 from 37 percent to 39.6 percent. It also calls for a new corporate tax rate of 26.5 percent for large profitable businesses, up from the current rate of 21 percent but lower than President Biden’s original proposal of 28 percent. Some smaller firms would see their taxes stay the same or even cut under the plan.
Democrats also floated a tiered system for the corporate tax rate: Only firms with incomes above $5 million would pay the new 26.5 percent rate. Businesses that earn between that benchmark and $400,000 would see their taxes stay at 21 percent, and those with less than $400,000 in revenue would actually see a tax cut to 18 percent…
Two people familiar with the matter, who spoke on the condition of anonymity to describe tax policy changes that have not yet been finalized.
Only Democrats are expected to support this bill, but that doesn't put this legislation on a glidepath to enactment. Democrats in both chambers are divided over this bill - and passing it will require nearly all of them to support it. Democrats can lose up to three votes before the legislation fails to pass (that includes both chambers).
Senate, House Democrats split over taxes in $3.5T package – Alexander Bolton, The Hill. "A rift is starting to emerge between the chairmen of the two tax-writing committees on Capitol Hill over the size and details of Democratic plans to pay for President Biden’s broad economic agenda. Senate Finance Committee Chairman Ron Wyden (D-Ore.) and House Ways and Means Committee Chairman Richard Neal (D-Mass.) are taking different approaches to laying out the funding mechanisms designed to fuel a $3.5 trillion Democratic-only bill."
Neal indicated Thursday evening that the House Democratic plan will raise substantially less than the $3.5 trillion needed to cover the full cost of the reconciliation package.
Manchin, Sanders set for clash over Biden spending package – Jordain Carney and Aris Folley, The Hill. “Sens. Joe Manchin (D-W.Va.) and Bernie Sanders (I-Vt.) are hurtling toward a showdown over President Biden's $3.5 trillion spending plan as they draw red lines around their legislative priorities."
The two veteran lawmakers are at opposite ends of the Senate Democratic Caucus, with no close working relationship and some high-profile public splits in their past...
'They really do mirror each other in terms of representing different ends of the Democratic coalition. ... They're kind of avatars of like the two wings of the Democratic Party,' said Democratic strategist Joel Payne.
Asked about the relationship between the two, a former Manchin aide added: 'There is no relationship. ... They do not talk.'
Democrats Attempt Appeal to Moderates by Slimming Biden Tax Plan – Kaustuv Basu, Billy House and Erik Wasson, Bloomberg ($). “House Democrats have drafted a package of tax increases that falls short of President Joe Biden’s ambition, an acknowledgment of how politically precarious the White House’s $3.5 trillion economic agenda is for party moderates.”
The package of proposals, estimated to raise more than $2 trillion, are slimmed down to appeal to business-minded Democrats, many of whom hail from swing districts. And Democratic leaders, who need the party’s full support to push Biden’s agenda through Congress, will almost certainly pare them down further in the weeks ahead.
Reducing the bill from $3.5 trillion to $2 trillion may not be enough for some Democrats.
Manchin nixes Biden’s $3.5T budget plan, urges $1.5T instead – Hope Yin, Associated Press. “As congressional Democrats speed ahead this week in pursuit of President Joe Biden’s $3.5 trillion plan for social and environmental spending, a Democratic senator vital to the bill’s fate says the cost will need to be slashed to $1 trillion to $1.5 trillion to win his support. Sen. Joe Manchin, D-W.Va., also cautioned there was ‘no way’ Congress will meet the late September goal from House Speaker Nancy Pelosi, D-Calif., for passage given his current wide differences with liberal Democrats on how much to spend and how to pay for it.”
‘I cannot support $3.5 trillion,’ Manchin said Sunday… ‘We should be looking at everything, and we’re not. We don’t have the need to rush into this and get it done within one week because there’s some deadline we’re meeting, or someone’s going to fall through the cracks.’
Next steps for the tax/revenue portion of the Democrats' legislation:
Final Tax Bill Pages to Be Released in Two Tranches, Neal Says – Doug Sword, Tax Notes ($). “House Ways and Means Committee Chair Richard E. Neal, D-Mass., said he expects to roll out in two portions through September 13 the rest of his panel’s share of a $3.5 trillion package of tax increases, tax cuts, and new spending.”
Neal said he expects to convene his committee September 14 and 15 for a revenue-heavy markup with the aim of paying for most of the $3.5 trillion package. The markup is expected to include hundreds of billions of dollars in tax cuts, largely in the form of an extension of an enhanced child tax credit. To give members at least two days to absorb the material, Neal said the first set of tax subtitles will likely be released by September 11 and the second set by September 13.
Biden Inheritance-Tax Plan Poised to Be Scaled Back in Congress – Colin Wilhelm, Bloomberg ($). “A key Biden administration proposal to collect more tax revenue from wealthy individuals appears poised to be watered down by lawmakers, and may even be removed entirely from the Democrats’ tax and social spending agenda, according to people familiar with the matter. Democrats in the House and Senate are moving toward scaling back or potentially dropping President Joe Biden’s proposal to significantly limit the tax exemption known as step-up-in-basis for assets passed on at death to heirs, the people said on condition of anonymity because the talks are private.”
Biden had proposed raising the capital gains tax rate for top earners to 39.6% from 20%. If Democrats drop the plan to treat death as a taxable event for capital gains for individuals with real-estate and other asset appreciation over $1 million, then a capital gains rate above 28% would likely cost the federal government money.
Build America Bonds, Advance Refundings Revived by House Panel – Joe Mysak, Bloomberg ($). “Build America Bonds are back. So is the ability to refinance debt that comes due years later on a tax-exempt basis. There’s also an increase, to $30 million from $10 million, in the amount of bonds that can be sold by small issuers and for which banks can deduct their cost of carry. And Native American tribes will find it easier to borrow in the municipal market, while companies will get a new tax credit for wages paid in U.S. possessions.”
These are among the proposals affecting the municipal bond market in the text of a bill released late Friday by the House Ways and Means Committee, which on Tuesday will resume discussion of the Build Back Better Act, its portion of President Joe Biden’s $3.5 trillion economic agenda.
The bill is here.
Biden’s Child Tax Credit Plan Backed by House Democrats – Kaustuv Basu, Alexander Ruoff and Erik Wasson, Bloomberg ($). “House Democrats are seeking to extend the recently expanded child tax credit through 2025, endorsing a key component of President Joe Biden’s social safety net plan. The language is included in bill text released late Friday by the House Ways and Means Committee, which will continue debating its portion of Biden’s $3.5 trillion economic agenda next week."
The committee’s expansive proposal would also extend energy credits and allow the government to negotiate prices with drugmakers, among other changes.
EV Tax-Credit Plan Draws Ire From Non-Union Toyota, Tesla – Yueqi Yang, Bloomberg ($). “A proposal by U.S. House Democratic lawmakers to give union-made electric vehicles higher subsidies drew criticism from non-unionized automakers, including Toyota Motor Corp., Tesla Inc. and Rivian Automotive Inc."
Under the 10-year proposal unveiled late Friday, union-built EVs will get an additional $4,500 tax incentive, a measure that would favor the three traditional Detroit carmakers -- General Motors Co., Ford Motor Co. and Stellantis NV -- whose factory workers are represented by the United Auto Workers. That sweetener would be on top of a $7,500 base incentive that would be available for EVs.
Manchin Sees Delay in Congress for Vote on Biden’s Agenda – Yueqi Yang and Rich Miller, Bloomberg ($). “Senator Joe Manchin cast doubt on the timeline for pushing President Joe Biden’s economic agenda through Congress, suggesting that a late September target for a House vote on infrastructure spending is unrealistic. Manchin, a Democrat whose vote is crucial in the evenly split U.S. Senate, renewed his objections to a $3.5 trillion plan that includes tax hikes and increases in social spending. He said he can’t support the price tag, doesn’t see the urgency and is concerned about inflation and the impact of higher corporate taxes on U.S. competitiveness.”
With House Democrats seeking to move the package forward in tandem with a bipartisan $550 billion infrastructure bill that the Senate has passed, the West Virginia senator said he doesn’t see the lower chamber meeting a Sept. 27 deadline by Speaker Nancy Pelosi for a vote on the infrastructure plan.
Sen. Manchin gets a lot of press about his opposition to a $3.5 trillion bill, but he is not the only congressional Democrat who feels this way:
White House Works to Keep Moderate Democrats’ Backing for Agenda as GOP Focuses on Inflation – Kate Davidson and Catherine Lucey, Wall Street Journal ($). “With negotiations over a $3.5 trillion antipoverty bill heating up among Democrats, the White House is trying to ensure that inflation fears don’t drive moderates away from supporting the plan as Republicans argue the proposal will accelerate a surge in prices. The Biden administration acknowledges that rising prices are a problem in the short term. But in memos and blog posts aimed at Democrats in Congress, administration officials contend that the plan to pump funding into education, healthcare and the environment is a long-term investment, spent slowly over the next decade and mostly paid for through tax increases, that will ultimately lower prices and increase productivity. It isn’t clear that all Democrats in the narrowly divided Congress are listening.”
Rep. Jim Costa, a centrist House Democrat from California, said he did have some worries about inflation, particularly as Congress considers another large spending package. When asked if inflation concerns could be a reason to pare back spending in the coming $3.5 trillion package, he said, ‘It could.’
Lawsuit Aims to Disrupt California’s Corporate Income Tax System – Laura Mahoney, Bloomberg ($). “The rules California has used for a decade to funnel more than $7 billion a year in corporate income taxes into the state are at risk of being upended. One Technologies LLC, a Texas company that sells consumer credit report service, is asking a California Courtto invalidate a 2012 ballot measure that established income tax rules for more than 100,000 corporations that sell goods or services in the state.
The challenge, which hinges on how parts of the measure were bundled together, would reduce state tax revenue, make California rules out of sync with most other states, and potentially jeopardize the legality of other tax measures. It also could put in-state companies at a disadvantage to out-of-state companies that could more easily cut their tax bills without locating offices or employees in the state.
'It’s the worst of both worlds from a tax perspective,' said Jared Walczak, vice president of state projects for the conservative Tax Foundation. 'The state would lose revenue without creating a competitive advantage.'
Online Sales Tax Data Bill Heads to California Governor’s Desk – Laura Mahoney, Bloomberg ($). “A bill on Gov. Gavin Newsom’s desk would help California quantify how tax-sharing agreements between cities and online retailers are concentrating sales tax revenue in a few cities at the expense of others. Senators gave the bill (S.B. 792) a final vote of 31-4 to accept amendments made in the Assembly and sent it to the governor on the last day of the 2021 session Friday, two hours after it passed the Assembly. The bill first passed the Senate in June. The Democratic governor hasn’t taken a position on the bill and has until Oct. 10 to sign or veto it.”
Louisiana Postpones Tax Overhaul Vote Following Hurricane Ida – Michael Bologna, Bloomberg ($). “Louisiana voters will have to wait another month to weigh in on two constitutional amendments overhauling the tax code after the state postponed the election date to allow local officials to respond to the devastation caused by Hurricane Ida. Gov. John Bel Edwards (D) signed an executive order Thursday moving the date of the election from Oct. 9 to Nov. 13. Voters will be asked to approve Amendment 1, creating the State and Local Streamlined Sales and Use Tax Commission, and Amendment 2, capping the top individual income tax rate at 4.75% and eliminating the state deduction for federal income taxes paid.”
‘This will allow our staff and local partners more time to properly prepare for a statewide election while ensuring the integrity of our election processes and that our voters’ traditional voting habits are as undisturbed as possible,’ Secretary of State Kyle Ardoin said in a statement.
Pillar 1's Future in United States Remains Uncertain – Amanda Athanasiou, Tax Notes ($). “Full U.S. adoption of pillar 1 of the OECD’s global tax reform plan will require bipartisan support, and the absence of domestic adaptations could be problematic for U.S.-based companies, a former U.S. Treasury official said.”
‘Without bipartisan support, full adoption of pillar 1 seems out of reach,’ Brian Jenn of McDermott Will & Emery said September 9 during the 10th Annual Pacific Rim Tax Conference in Redwood City, California. Jenn formerly was deputy international tax counsel for the Department of Treasury.
Awesome story! It’s Uncle Sam Day! Get this: “Sam Wilson, a meatpacker from New York, supplied barrels of meat to soldiers during the war of 1812. To identify the meat for shipment, Wilson prominently stamped 'U.S.' on the barrels. It wasn’t long before the soldiers dubbed the grub a delivery from Uncle Sam. As such nicknames tend to do, its popularity spread.”
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.