2021 Federal Tax Legislation? A Review of the Current State of Play
2021 Federal Tax Legislation? A Review of the Current State of Play
As we’ve reported this year, the Biden Administration has made tax policy a legislative priority, and the Treasury Department’s Green Book released on May 28 provides additional details on these tax policy proposals. Congressional Democrats have also indicated their interest in tax legislation. The question is: Will we see federal tax legislation in the near future? To answer this question, we need to look at the Administration’s and Congress’ infrastructure legislative plans.
Over the past several weeks, President Biden has been negotiating an infrastructure package with members of both parties. Although a bipartisan agreement fizzled in July, new life seems to have been breathed into an agreement. During the week of July 26, 2021, the Senate reached bipartisan agreement on a $1 trillion package that includes roads, bridges, rail, airports, electric vehicles, clean water and broadband internet, with revenue offsets such as new cryptocurrency information reporting requirements and an excise tax on chemicals. On August 10, 2021, the Senate voted 69 to 30 to pass the bill.
House consideration of the package is expected after its August recess. Some progressive Democratic members of the House, however, have indicated that they may not vote in favor of this package unless a far larger second infrastructure package is ultimately approved.
This first infrastructure package is reportedly “paid for” outside income tax increases, which means that this infrastructure bill generally would not include the Administration’s tax proposals. There would likely be little to no Republican support for the package if the Administration’s tax priorities were included.
There does, however, continue to be strong interest by the Administration in moving forward with its tax policy priorities. That’s where a second infrastructure package comes in.
Infrastructure TwoA second infrastructure package, which has been referred to in the press as “human infrastructure,” is intended to address more intangible priorities, such as extension of the child care tax credit, healthcare, immigration and climate change. It is expected that the Administration’s and Congress’ tax policy priorities would be included in this bill. At this time, this estimated $3.5 trillion package does not enjoy bipartisan support. The package would be expected to pass the House, as House rules require only a simple majority for passage. Its path through the Senate, however, remains unclear.
In general, legislation needs only a simple majority to pass the Senate. Under current Senate rules, any senator may filibuster a piece of legislation, which amounts to unlimited speech and debate and, if unstopped, can effectively derail legislation. However, if 60 senators agree, they may vote to invoke “cloture,” which will end the filibuster and move the legislation to a substantive vote. (Cloture was invoked for Infrastructure One by a 67-33 vote.) It is expected that a second infrastructure bill would not pick up any Republican Senate votes, and there likely would be a Republican filibuster. Without any Republican support, cloture would be virtually impossible.
There is, though, a procedural option available in the Senate to bypass the filibuster/cloture rules. Under the “budget reconciliation” process, legislation can pass the Senate with a simple majority without the threat of filibuster. While the budget reconciliation process also applies in the House, because there is no filibuster threat, the House does not need the procedure to advance legislation to a simple majority vote.
Reconciliation bills must involve spending, revenue or debt. There is a limit to the number of bills that may pass the Senate under budget reconciliation each year. The American Rescue Plan enacted in March 2021 utilized the budget reconciliation process to pass the Senate. The Senate parliamentarian has indicated that additional reconciliation bills may pass the Senate this year. Despite further availability of the budget reconciliation process in the Senate this year, passage of Infrastructure Two is not a foregone conclusion.
For a bill to pass the Senate under the budget reconciliation process, it needs only to garner a simple majority of votes, which, with the current Senate makeup, means 50 Democrats voting in favor, plus a 51st vote cast by Vice President Harris. There are, however, moderate Democratic senators who have indicated in recent weeks that they may not be willing to use the budget reconciliation process to advance any further legislation, at least in the short term.
Nonetheless, on August 11, 2021, the Senate approved a budget resolution on party lines; this budget resolution will serve as the framework with which Infrastructure Two will be considered on its merits. House Speaker Pelosi previously indicated that the House will not vote on a first infrastructure bill until the Senate takes procedural steps regarding Infrastructure Two, so this crucial step makes the future of both packages brighter in both chambers of Congress.
To read more, see BDO’s article U.S. Senate Approves Bipartisan Infrastructure Bill and Advances Budget Reconciliation Process.
Likelihood of a 2021 Tax Bill?
Infrastructure Two is expected to be the vehicle in which tax policy priorities are included. With passage of the budget resolution in the Senate, this step certainly makes the prospects of ultimate passage much better. What remains unclear is what the underlying provisions will look like, as there remains some discomfort on the part of some moderate senators with its $3.5 trillion price tag.
All eyes are focused on two moderate Democratic senators: Kyrsten Sinema of Arizona and Joe Manchin of West Virginia. While Senator Sinema has been instrumental in helping to reach a bipartisan deal on Infrastructure One, she indicated the week of July 26, 2021 that she does not currently support the price tag of the second bill. Senator Manchin has also indicated displeasure with the bill’s cost. Without the support of both senators, a second bill would likely stall.
There is still plenty of time on the legislative calendar for negotiation and minds to change. Some issues members of Congress will consider are the price tag of any second infrastructure bill, whether they want to be the sole detractor within their party and whether there may be opportunity to address the policy issues in future legislation.
Timing of a Possible Tax Bill?
While Congress is out for its August recess, the House is expected to return the week of August 23, 2021 to consider the budget resolution. Although Congress is expected to take up consideration of Infrastructure Two in the fall, whether it ultimately passes and what provisions it will contain is unclear. Senators Sinema and Manchin are two to watch over the next several weeks.
What Would be Included in a Possible Tax Bill?
The Green Book is a good starting point to understand the Administration’s tax policy priorities. Congress will have its priorities as well. If we do see tax legislation, some major provisions that can be expected to be included in a bill include increases in the corporate tax rate, individual tax rates and capital gains rates, as well as estate tax changes and changes to international tax policy.
How BDO Can Help
BDO can keep you up to date on proposed tax changes and what they could mean for you and your business. BDO Tax professionals are available to help analyze tax legislation and proposals and model their tax impacts, as well as provide comprehensive tax planning and reporting services.