TAX TAKE: Bipartisan Infrastructure Agreement Kicks Off Tenuous and Uncertain Path to Passage
On June 24, 2021, President Biden reached agreement with a bipartisan group of Senators on the $1.2 trillion Bipartisan Infrastructure Framework (the Framework), which makes investments in transportation, clean water and power, and universal broadband infrastructure. Importantly, this "traditional" infrastructure package is financed primarily with non-tax revenue offsets and does not include any of the dramatic tax increase proposals contained in the Treasury Department Greenbook. Consideration of the Framework, and its impact on a subsequent Democrat-only reconciliation bill, will play out over the next few months and we expect it to be a rollercoaster.
The initial reaction to the Framework demonstrates how tenuous its bipartisan support is. When the Framework was announced, President Biden, the Speaker of the House, and the Senate Majority Leader linked consideration of the Framework to the subsequent reconciliation bill – with President Biden explicitly stating that both proposals needed to move "in tandem" and Leader Schumer noting that "[o]ne can't be done without the other." Linking the two proposals was an effort to appease progressive Democrats who want assurances that their health care, paid family medical leave, and other "human resource" infrastructure priorities (along with significant tax increases) will be addressed in the reconciliation bill and be supported by moderate Democrats. However, the President predicating support for the Framework on the passage of the reconciliation bill caught Republican negotiators by surprise and President Biden ultimately reversed his position linking the two proposals. Balancing the concerns of progressive Democrats with the need to maintain Republican support of the Framework will be a continuing theme as Congress considers this proposal.
Aside from its linkage to the Framework, the reconciliation bill faces significant hurdles along its journey to consideration and enactment. There is still widespread disagreement as to the scope and content of the spending package, particularly the amount of the package that will be deficit-financed and the amount of the package that will be financed with tax increases. Progressive Democrats envision an extremely large spending package (with Senate Budget Committee Chairman Bernie Sanders (I-VT) articulating support for a $6 trillion package) utilizing the Greenbook tax increase proposals, whereas moderate Democrats are contemplating a smaller spending package and questioning the scope and magnitude of the Greenbook proposals. Senator Joe Manchin (D-WV), a key moderate swing vote in the Senate, has a long-standing position of increasing the corporate tax rate to 25 percent (as opposed to 28 percent as proposed in the Greenbook) and recently announced that he favored a less dramatic increase in the capital gains rate to 28 percent: "Right now, I never thought that the net corporate tax should have been 21 percent. I always felt that 25 was very fair and balanced. So I'm willing to go to 25. I think that basically capital gains should be at 28 percent, not at 21." Formulating a reconciliation bill that will appease the progressive and moderate wings of the Democratic party – both from a spending perspective and a revenue perspective – will be a challenging exercise that will play out well into the fall. #TaxTake
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