U.S. House Passes Budget Resolution
The U.S. House of Representatives on August 24 voted 220-212 in favor of a $3.5 trillion budget resolution that allows congressional committees to draft legislation that would expand Medicare, invest in education, and allocate funds to combating climate change, as well as enact other spending priorities of the Biden administration. The legislation is also likely to include tax increases to pay for the spending package.
The Senate has already passed the budget resolution, which was adopted on a 50-49 party-line vote on August 11. (For prior coverage, view our BDO alert). The resolution does not require President Biden’s signature; rather, it unlocks the reconciliation process so that Democrats can write tax-and-spending legislation that can be passed without Republican cooperation.
The legislative process now turns to the congressional committees that will transform the budget blueprint into a detailed package of measures to enact President Biden’s agenda. For example, Senate Finance Committee Chair Ron Wyden (D-Ore.) and fellow Democrats Sherrod Brown (D-Ohio) and Mark Warner (D-Va) released today a draft of a proposed overhaul of the U.S. international tax regime that they would like to see included in the budget reconciliation bill.
The draft legislation is expected to follow along the lines of the proposals outlined in the "Green Book," the 114-page document the Treasury Department issued on May 28 to provide details regarding the administration’s tax proposals. (For prior coverage, see our BDO alert). Among those proposals are an increase in the corporate tax rate from 21% to 28% and an increase in the top marginal individual income tax rate from 37% to 39.6% for taxable income over $509,300 for married individuals filing jointly ($254,650 for married individuals filing separately), $481,000 for head of household filers, and $452,700 for single filers. Another proposed change would tax long-term capital gains and qualified dividend income of taxpayers with adjusted gross income of more than $1 million at ordinary income tax rates.
On the international tax side, the draft legislation is expected to include proposals to reform the global intangible low-taxed income (GILTI) regime and increase the rate, repeal the foreign derived intangible income (FDII) provisions and replace the base erosion and anti-abuse tax (BEAT) with the more stringent SHIELD (Stopping Harmful Inversions and Ending Low-Taxed Developments) regime.
In keeping with the administration’s two-track approach to enacting its “Build Back Better” agenda, House Speaker Nancy Pelosi (D-Ca) issued a statement committing to pass the budget resolution’s sister legislation--a $1 trillion infrastructure package the Senate approved on August 10—by September 27.
The timing of legislative action on the two packages may pose a challenge to the Democrats’ plans, and congressional leaders will have to perform a delicate dance to ensure the support of their members—all 50 Democratic Senators, and virtually all House Democrats need to vote in favor of the legislative package to pass (assuming little to no Republican support). Progressive House Democrats favored passing the broader budget resolution before the bipartisan infrastructure package, whereas moderate Democrats insisted that the infrastructure deal be taken up first. This impasse threatened to derail the administration’s plans; the final vote dodged what would have been a setback for the administration.
Republicans oppose the budget resolution on the grounds that such large spending would trigger significant inflation and a surge in the federal deficit.
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