Taxation & Representation, October 26, 2021
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Taxation & Representation, October 26, 2021

Brownstein Tax Blog Post, October 26, 2021


Negotiations Update. After months of negotiation, Democrats appear close to an agreement between the White House, progressives and influential moderate Sens. Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ) on budget reconciliation, also known as the Build Back Better Act. In recent weeks, President Joe Biden has increased his engagement behind closed doors, but last Thursday, he provided an update on key tax provisions during a televised town hall:

  • He expects the corporate tax rate to remain unchanged at 21%.
  • He left the door open for a potential minimum corporate tax rate.
  • He opposed work requirements for the Child Tax Credit (CTC).

Sinema and Manchin must support budget reconciliation for it to pass through the Senate, providing both lawmakers with outsized leverage in negotiations.

Sinema spoke last week with House Ways and Means Committee Chair Richard Neal (D-MA) about the tax components of the deal. Sinema has reportedly agreed to “each of President Biden’s four proposed revenue categories—international, domestic corporate, high net worth individuals and tax enforcement—providing sufficient revenue to fully pay for a budget reconciliation package in the range currently being discussed.” Lawmakers have generally discussed a range of $1.9 trillion to $2.2 trillion, although some, like Senate Budget Committee Chair Bernie Sanders (I-VT), have called for at least $3.5 trillion while others, such as Manchin, prefer it to be closer to $1.5 trillion. 

At the same time, however, Sinema has made clear she will not support the package if it increases the corporate and marginal individual tax rate and raises capital gains. The removal of these provisions could force Democrats to find other ways to raise enough revenue to offset spending in the package. Sinema reportedly remains open to the following:

  • Tightening the net on foreign earnings
  • Increasing IRS tax enforcement
  • Implementing a mark-to-market regime, which would impose annual taxes on the unrealized gains of wealthy taxpayers
  • An excise tax on stock buybacks
  • A corporate Alternative Minimum Tax (AMT) or a book profits minimum tax on businesses with income above a certain threshold

Sinema’s position on the last two provisions is still unknown. Ultimately, as negotiations continue, she will likely have to accept some of the newer options on the table or a small increase to the corporate rate. While she has been reluctant to support a corporate tax rate above 21%, she could ultimately accept a rate increase to secure an agreement on her other demands. For now, negotiations remain incredibly fluid on this front.

Manchin most recently spoke with President Biden and Senate Majority Leader Chuck Schumer (D-NY) on Sunday morning. Reports indicate that Manchin appears to be softening his position of a $1.5 trillion topline ceiling and could be willing to accept something closer to $1.75 trillion to $2 trillion. However, as of mid-day on Monday, Manchin maintained his $1.5 trillion figure.

While subject to change, House Speaker Nancy Pelosi (D-CA) is aiming for movement this week on both the budget reconciliation framework and the bipartisan infrastructure bill, the Infrastructure Investment and Jobs Act. However, she told members today that the House will not vote on the bipartisan infrastructure bill until the Senate provides a reconciliation deal “in writing.”

The White House is pressing for the framework agreement and the passage of an infrastructure bill to happen prior to this weekend’s climate summit in Glasgow, Scotland, so that President Biden’s climate envoy, John Kerry, can tout some success to his international colleagues. And while Congress can move quickly when it needs to, many things in this situation would need to quickly fall into place over the next 24 hours, and this short timeline will be challenging to meet for a fractious Democratic Congress.


Tax Policies Targeted. Tax policy has been at the forefront of discussions between the various Democratic factions negotiating the budget reconciliation package. After moderate lawmakers signaled their opposition to increasing corporate and individual tax rates, Democrats were forced to consider alternatives. In addition to pay-fors, disagreement remains on some of the other tax provisions. Below is an overview of the latest discussions related to tax policy in the package:

  • Mark-to-Market. Both Sens. Kyrsten Sinema and Joe Manchin have indicated their support for raising revenue by targeting the unsold assets of ultra-wealthy taxpayers. Reports suggest that both senators are taking a closer look at ideas like mark-to-market and a wealth tax, although details are not entirely clear. Senate Finance Committee Chair Ron Wyden (D-OR) plans to release his market-to-market proposal tomorrow, which would tax the unrealized gains of wealthy taxpayers above a certain threshold. House Ways and Means Committee Chair Richard Neal (D-MA), however, is reluctant to support the effort, suggesting there will not be enough time to fully vet the complex proposal.
  • Wealth Tax. Sinema is also working with Sen. Elizabeth Warren (D-MA) on a wealth tax proposal. Warren proposed a wealth tax during her 2020 presidential run, which would have applied to all assets held by the wealthy. By contrast, current discussions between Warren and Sinema are reportedly focused on unrealized capital gains and a one-time tax on gains to date.

    It is unclear whether Democrats will ultimately choose the Wyden mark-to-market proposal, the Sinema-Warren product or some combination of the two.
  • Stock Buybacks. Lawmakers have considered a 2% tax on stock buybacks. Neal, however, has opposed this, despite support from the White House, Senate Majority Leader Chuck Schumer and Senate Finance Committee Democrats.
  • Corporate AMT/Book Minimum. Although opposition from Sinema has effectively sacked Democratic hopes of raising the corporate tax rate, lawmakers are considering other options. The leading proposals under discussion are a corporate alternative minimum tax and a book minimum tax. Earlier this evening, Wyden, Warren and Sen. Angus King (I-ME) released a corporate minimum tax proposal. Sinema releases a tweet in support shortly after the proposal was released.
  • IRS Tax Compliance. Sinema and other moderate lawmakers support increased tax compliance and enforcement provisions. Although the administration’s bank information reporting proposal was left out of the House package, after further deliberations, congressional lawmakers and the administration reached an agreement in which the transaction threshold would be increased from $600 to $10,000, and wage deposits and federal payment programs would be exempt. There is also another carve-out for significant purchases.

    In a fact sheet issued by the Treasury Department last week, the administration explained that financial institutions would be required to include only two additional data points to information they already send to the IRS: the total amount of funds deposited into the account and the total amount withdrawn over the course of a year. The release also made clear that information would reflect aggregate information, as opposed to individual transactions, as some have suggested.

    Earlier today, however, Manchin said he opposed bank reporting requirements regardless of the threshold, telling reporters that “no one should be in anyone’s bank account.”
  • International Tax. While Sinema has indicated she supports a 15% Global Intangible Low-Taxed Income rate, she has stressed that it be an “honest” 15% and not an ultimately higher rate that would result because of a haircut on foreign tax credits.

    Sinema has also expressed concern about country-by-country reporting and has opposed the interest limitation for international financial reporting groups included in the House version. 
  • Child Tax Credit. Manchin has pressured lawmakers to add work requirements and other means testing for beneficiaries of the CTC. In response, the White House has proposed a one-year extension of credit.
  • State and Local Tax Deduction. Lawmakers are eyeing a suspension of the $10,000 state and local tax (SALT) deduction for two years.

    Over the weekend, Pelosi signaled that international taxes, the “billionaire tax” and IRS enforcement could be part of the final package, if rate increases are removed from the package.


GAO Reviews IRS IT. The Government Accountability Office (GAO) released a report last week reviewing the information technology (IT) systems on which the IRS relies to collect taxes and issue refunds.

As part of the study, GAO summarized the status of IT investments and determined IRS progress in implementing its IT modernization plan. To accomplish this, GAO reviewed three IRS investments in development with the Enterprise Case Management, Customer Account Data Engine 2 (CADE 2) and Web Applications, and two in operations and maintenance with Individual Master File (IMF) and End User Systems and Services. The IRS reported that most of these met their performance goals for 2019 and 2020 but took particular issue with CADE 2.

CADE 2 is a program intended to modernize tax processing by replacing the IMF program, the IRS data source of individual tax account data. In addition to the IRS lowering expectations for CADE 2’s replacement of the IMF program, the report said that CADE 2’s “longer term performance and outlook are troubling.” Key project milestones have slipped for nine years, and CADE 2 is now expected to replace core functions of IMF, rather than entirely replace the aging system.


  • Tax Receipts Reach Record High. According to Treasury Department statistics, federal revenues increased by $626 billion, or 18%, last year, the biggest one-year increase since 1977. Corporations contributed the most to the increase, comprising 75% of the increase. As a result, federal revenues have exceeded $4 trillion for the first time.


  • PWBM CTC Projection. The University of Pennsylvania Wharton Budget Model released a revenue estimate yesterday of the extension of the Child Tax Credit included in the House Ways and Means Committee section of the Build Back Better Act. The estimate found that that one extension would cost $545 billion over a decade.

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