Taxation & Representation, October 5, 2021
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Taxation & Representation, October 5, 2021

Brownstein Tax Blog Post, October 5, 202


Where In the Tax World Are Manchin and Sinema? The contents and scope of the Build Back Better Act—the budget reconciliation measure through which congressional Democrats are attempting to enact most of President Joe Biden’s “human infrastructure” legislative agenda—depend largely on two moderate Senate Democrats: Joe Manchin (WV) and Kyrsten Sinema (AZ). This duo will have a significant influence on the future of the package, so understanding their priorities is important. Below is an overview of where the two stand, with an emphasis on tax policy.
memo outlining Sen. Manchin’s top priorities circulated last week. Signed July 28 by both Manchin and Senate Majority Leader Chuck Schumer (D-NY), it stated that Manchin’s preferred topline cost for the budget reconciliation measure was $1.5 trillion, that debate could not begin any earlier than Oct. 1 and that no reconciliation funds could be disbursed until all previous COVID-19 funding had been spent.
His top spending priorities related to families and health and climate:

  • Families and Health: Manchin wants to ensure new spending is formulaic and needs-based. He also wants targeted spending caps on existing programs, although the specific programs went unnamed.

  • Climate: Manchin wants to prevent the repeal of fossil tax credits if solar and wind energy tax credits are included in the package. He also wants to apply the vehicle and fuel tax credits to vehicles other than electric vehicles. The agreement, for instance, said that “they must include hydrogen.”

Finally, on offsets, the memo includes the following conditions:

  • Deficit Reduction: Any revenue above $1.5 trillion shall be used to reduce the deficit

  • Corporate Tax Rate: 25%

  • Corporate Domestic Minimum Tax: 15%

  • Top Ordinary Income Rate: 39.6%

  • Capital Gains: 28%

  • Carried Interest: Eliminate

The memo also indicates Manchin wants to address the tax gap and incorporate dynamic growth as a pay-for.
Like Manchin, Sen. Sinema has also been negotiating with Democratic leadership. During one of her several meetings at the White House, she has reportedly presented multiple proposals to the administration outlining her top priorities. While these proposals remain confidential, she has been discussing her top objectives with Senate colleagues. For instance, she has said she does not support certain tax increases:

  • Individual Taxes: No increases on individual tax rates
  • Corporate Tax Rate: 21% —she will not accept an increase in the corporate rate


Setback and Progress on Infrastructure and Reconciliation. The bipartisan infrastructure framework, the Infrastructure Investment and Jobs Act (IIJA), and the budget reconciliation package, the Build Back Better (BBB) Act, both failed to receive a floor vote last week. Despite the continued stalemate between Democratic progressives and moderates, the two camps appear to be inching closer to a clear path forward.
Speaker Nancy Pelosi (D-CA) originally told the more moderate wing of the House Democratic conference that the IIJA would be placed on the floor Monday, Sept. 27. However, without sufficient support from progressives, Pelosi did not bring the bill to the floor for a vote, instead passing a short-term extension of the surface transportation reauthorization bill through Oct. 31.
On Friday, Oct. 1, President Biden met with lawmakers and urged them to accept a topline figure of closer to $2 trillion, rather than $3.5 trillion. Progressives have indicated a willingness to come down on the topline number, but have made clear that the IIJA and the BBB are intertwined, and one is unlikely to pass without the other.
Looking ahead, the new deadline for movement on the dual track is Sunday, Oct. 31 when surface transportation reauthorization will expire. To underscore this point, Senate Majority Leader Chuck Schumer (D-NY) circulated a Dear Colleague letter on Monday, Oct. 4, in which he said the “new legislative goal must be to enact [the IIJA] and the Build Back Better Act before the new expiration date at the end of October.” He insisted on urgency: “Due to the time it will take the House and Senate committees to draft the final legislation of a Reconciliation agreement and vet it with the Senate parliamentarian to ensure it maintains its ‘privileged’ status in our chamber, it is crucial that the House, Senate and President come to a final agreement on the details of the BBB Act as soon as possible, preferably within a matter of days, not weeks.”
Debt Ceiling. Treasury Secretary Janet Yellen has warned lawmakers that the Treasury Department will reach the debt limit on Monday, Oct. 18, without congressional action. Facing this deadline, Sen. Schumer, in his Oct. 4 Dear Colleague letter, wrote, “Let me be clear about the task ahead of us: we must get a bill to the President’s desk dealing with the debt limit by the end of the week. Period. We do not have the luxury of waiting until October 18th.”
Despite the looming deadline, Senate Republicans have warned Democrats for months they will need to raise the limit without Republican support through budget reconciliation. Senate Minority Leader Mitch McConnell (R-KY) reiterated this point in a letter to President Biden on Monday, Oct. 4, writing that Senate Republicans would not join Democrats in raising the debt ceiling. In the letter, McConnell said, “We have no list of demands. For two and a half months, we have simply warned that since your party wishes to govern alone, it must handle the debt limit alone as well.” Because Democrats will not have support from Republicans, McConnell explained that Democrats will need to raise the debt limit through budget reconciliation, saying that “Senate Democrats have every necessary tool to pass a standalone debt limit increase through reconciliation and enough time to do it before late October.”
According to Senate Parliamentarian Elizabeth MacDonough, McConnell is correct. MacDonough reportedly told lawmakers last week that Democrats could raise the debt limit through reconciliation. Moreover, MacDonough reportedly ruled that raising the debt limit through reconciliation could move on a separate track from the existing package, allowing the BBB to retain its privileged status. If Democrats pursue this route, they would have to endure two additional vote-a-ramas and a process that could take about two weeks, although that timeframe is disputed by some Democrats, who say the vote-a-ramas could extend that estimate.


Pillar One to Require Senate Ratification? In testimony before the Senate Banking Committee last week, Yellen said Congress may need to approve Pillar One of the global tax agreement being negotiated by countries through the Organization for Economic Cooperation and Development (OECD). In response to questioning from Senate Banking Committee Ranking Member Pat Toomey (R-PA), who asked if Pillar One would require “a treaty and therefore Senate ratification in order to implement it,” Yellen said. “There are a number of ways in which Congress could implement it but certainly ratification of the treaty would be one.” She later added that “certainly Congress has to authorize the transfer of taxing rights that’s contemplated in Pillar One.”

If the Senate is required to ratify an agreement on Pillar One as a treaty, two-thirds of the Senate—or 67 members—must vote in favor. Reaching that threshold could prove difficult, however, particularly if Republicans oppose the effort. Toomey, for example, recently said reaching 67 affirmative votes is “unlikely to happen.”

The OECD Inclusive Framework continues to meet this week with the objective of reaching an agreement on both Pillar One and Pillar Two in time for the G-20 meetings later this month.


  • Banking Approves Treasury Department Nominees. The Senate Banking Committee approved the following Treasury Department nominees earlier today: Brian Nelson to be undersecretary for terrorism and financial crimes, Elizabeth Rosenberg to be assistant secretary for terrorist financing, and Alexia Latortue and Graham Steele to be assistant secretaries.

  • TIGTA Announces 2022 Audit Plan. The Treasury Inspector General for Tax Administration (TIGTA) released its audit priorities for fiscal year 2022 last week. TIGTA identified the following categories of IRS operations on which it will focus next year: COVID-19 response, compliance and enforcement, IT and cybersecurity, operational support, tax exempt and government entities, tax processing and taxpayer service.


  • AICPA Outlines Tax Priorities. The American Institute of Certified Public Accountants (AICPA) sent a letter on Friday to the chairs and ranking members of the Senate Finance Committee and House Ways and Means Committee outlining their tax priorities for the budget reconciliation measure. In the letter, AICPA supported the individual tax provisions, the international provisions, the employer-provided dependent care assistance exclusion and the temporary rule allowing certain S corporations to reorganize as partnerships tax-free. AICPA also raised concerns with the provisions related to the deduction for qualified business income, trusts and estates, and the limitation on deduction of excess employee remuneration, among others.

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