Capitol Hill Recap: President Biden to Pitch Tax Increases to Congress

President Biden is expected to tell Congress his tax policy dreams.

What Went Down:

• President Biden’s address to Congress tonight will likely include urging tax increases on the wealthy and corporations.
• Is the tax bill on ice?
• Tax-writers vet Pillar One.
• Chief tax-writer outlines future tax plans.

Let’s Get To It:

SOTU

President Joe Biden will speak about his policy agenda to Congress tonight in his State of the Union Address. 

His agenda list is long, as most presidential agendas are. On taxes, Biden is expected to call for wealthier taxpayers and corporations to pay more in taxes.

From the White House’s fact sheet on the President’s tax agenda:

President Biden supports continuing tax cuts for families making less than $400,000, but opposes extending tax cuts or restoring tax breaks for those making more than $400,000 per year. And he believes that any extensions should be paid for by asking big corporations and the wealthy to pay their fair share.

As has been reported before in the Recap, the revenue raised by TCJA expirations are already baked into budget. For corporations and wealthy to pay for extending TCJA tax cuts for folks earning less than $400,000 there must be “new” tax increases that have not yet passed Congress.

The president also wants to increase the corporate income tax rate to 28 percent, from 21 percent, which would be a “new” tax increase. The 2017 tax reform bill permanently reduced this rate. Raising it, however, seems to have bipartisan support, although some may call for a 25 percent corporate tax rate instead of 28 percent.

Legislative outlook: Given that Congress is politically divided, it is unlikely that Biden’s tax agenda will become law this year.

More details on Biden’s tax proposals will likely be included in his budget request for fiscal year 2025. He will release his budget on Monday. The Treasury is expected to release its “Greenbook” after the budget is out. The “Greenbook” provides specific details on the president’s budget tax proposals.

Looking ahead, the biggest determination for which tax policies become law will be the outcome of the 2024 elections.

Tax Bill’s Fate:

D.C. folks are starting to wonder if the tax legislation that overwhelming passed the House in January is dead in the Senate.

The Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) passed the House on January 31^st with a 357 to 70 vote. Since then, it has remained stuck in the Senate.

As previously reported, the main problem is reportedly with the Child Tax Credit. Some Senators disapprove of what the House passed and want to modify it. Others contend that issues with the Child Tax Credit are a ruse, and that the real reason is the opposing party does not want to support legislation that could give the White House a “win.”

No matter the issue, the tax bill is stalled. And there are serious concerns that it won’t pass Congress – ever.

The legislation includes R&D expensing for domestic firms, expanding the 163(j)-interest deduction, upping Bonus Depreciation to 100%, modifying the Child Tax Credit, and other provisions.

Legislative Outlook: The prospect for passage seems to be dimming. However, there is a saying on Capitol Hill: “All bills are DOA until they pass.”

The tax bill has definitely fulfilled the ‘DOA’ part of the saying. Many are now waiting to see if it can fulfil the ‘passage’ part of the maxim.

Tax Hearing:

The House Ways and Means Tax Subcommittee held a hearing this week on the implementation of Pillar One – an OECD proposal that allows countries to tax companies that do business within their jurisdiction, but don’t have a physical location within their borders.

By no coincidence, the congressional Joint Committee on Taxation (JCT) recently released a report showing that if Pillar One would have been enacted in the U.S. in 2021 the Federal government would have lost a considerable amount of revenue.

From the JCT report:

The Joint Committee staff estimates that the single-year effect of Pillar One, had it been in effect in 2021, would have been a loss in U.S. Federal receipts of $1.4 billion. The Joint Committee staff also present a range of single-year effects, from a loss of $100 million to a loss of $4.4 billion reflecting different methods of determining the amount of final sales in the United States for in-scope MNEs [multinational enterprises].

Yes, the range of revenue loss is wide. It’s also all loss. The JCT’s projection does not include a revenue gain when implementing Pillar One. In short, tax revenue currently collected by the U.S. would be reassigned under Pillar One, which would allow another country to collect tax revenue lost by the U.S.

Legislative outlook: The U.S. has not enacted Pillar One, and given its revenue-generating paralysis it might not become law.

Views and Estimates Letter:

House committees send letters to the House Budget Committee called “Views and Estimates Letter[s].” These letters tell the budget panel what the committees will work on for the next fiscal year, which begins on October 1^st.

Taxes fall under the jurisdiction of the House Ways and Means Committee. In its letter to the Budget Committee, it stated the following:

“The Committee will examine policies that expand economic opportunity for all and grow America’s middle class.”

Translation: They want to extend all TCJA provisions that are scheduled to expire in 2025.

“The Committee will continue to review special provisions in the tax code, including credits included in the Inflation Reduction Act, which will cost over twice as much as originally projected.”

Translation: They will seek to repeal the energy tax incentives that were enacted in the Inflation Reduction Act.

“The Committee will also continue to examine improper payments made by the IRS and root out fraud within tax programs including the COVID-era employee retention tax credit, which, if unaddressed, would cost taxpayers up to $1 billion per day.”

Translation: If the ERC provision is struck from the current tax bill then they will try again at curbing it.

“The Committee will closely review full and fair administration of the tax laws by the IRS...”

Translation: The IRS will likely testify a lot in front of this committee.

Here’s the thing: This letter is signed by the committee’s current chairman. The upcoming election could change who chairs the committee, which means the committee’s priorities will likely change too; to wit, the letter passed out of committee along partisan lines.

Legislative outlook: A Views and Estimates Letter does not become law. It is merely a laundry list of policies that the chairman wants to accomplish. However, policies that are included in the letter could become law if they are included in legislation that is enacted.

Pardon if this recap missed a monumental moment, but we can recap it next time!

Adios amigos!