Tax Policy Timelines, Tax Impact of the Infrastructure Act, and Debt Limit Roadblocks
Tax Policy:
November 22: Democrats Push to Narrow Gaps in Cross-Border Corporate Tax Rates as Biden’s Agenda Advances
Democrats are close to passing significant changes to international corporate taxation, moving toward a system that would reduce the gaps between nations' tax rates and-if it all works as planned-making taxes a less important consideration for where companies put investments, profits, and headquarters.
The Democratic plan, which builds on the 2017 GOP tax law, would help push tax rates into a narrower band, reducing companies' opportunities to exploit gaps across borders. "The playing field is still tilted," said Marty Sullivan, chief economist at Tax Analysts, the nonprofit publisher of Tax Notes.
U.S. companies choosing where to put investments and profits would face a smaller spread of tax rates in various countries because they would likely have a 15% minimum tax no matter where they go. The U.S. piece stems from Ms. Yellen's push for a global floor on tax rates and Sen. Kyrsten Sinema's insistence on a domestic ceiling on tax rates. Because of Ms. Sinema, Democrats are leaving in place the 21% corporate tax rate that Republicans established in 2017.
The House bill would increase the minimum tax on U.S. companies' foreign profits to 15% from 10.5%, impose that tax on earnings in each country and shrink an exemption for tangible assets abroad. But Democrats are also proposing to relax some rules that companies have complained about, giving them more ability to use losses and tax credits and removing rules that raised effective tax rates on companies operating in high-tax foreign countries.
Federal Reserve News:
November 22: Biden to Nominate Jerome Powell for Second Term as Federal Reserve Chairman
President Biden said he would nominate Federal Reserve Chairman Jerome Powell to a second term leading the central bank, opting for continuity in U.S. economic policy despite pushback from some Democrats who wanted someone tougher on bank regulations and climate change.
Mr. Biden said he would also nominate Fed governor Lael Brainard as vice chairwoman of the central bank's board of governors. "Put directly: at this moment both of enormous potential and enormous uncertainty for our economy, we need stability and independence at the Federal Reserve. Jay has proven the independence that I value in a Fed chair," Mr. Biden said at the White House on Monday.
There is already one vacancy on the Fed's seven-member board of governors, and Fed Vice Chairman Richard Clarida's term as governor will expire in January. Mr. Powell unveiled in 2020 a substantial shift in the way the central bank conducts interest-rate policy when he announced the Fed would set aside its practice of raising rates to pre-empt inflationary pressures and instead leave rates lower for longer to spur a faster recovery following downturns.
The reopening of the economy and a $1.9 trillion federal spending boost signed by Mr. Biden in March, on top of trillions of relief spending in 2020, fueled a larger-than-anticipated surge in consumer prices, which rose 4.4% in September from a year earlier, according to the Fed's preferred gauge. Ms. Warren told Mr. Powell at a Sept. 28 hearing that she would oppose his nomination because of the Fed's record of reducing regulations on banks in recent years.
Build Back Better Act:
November 17: Infrastructure Spending Law and Build Back Better Act Bill Timelines and Policies
Updated Timeline
Nov. 15: Infrastructure Investment and Jobs Act was signed by President Biden.
Nov. 18-19: U.S. House vote expected on Build Back Better Act.
Dec. 15: Federal government funding expires.
Infrastructure Investment and Jobs Act, known as the bipartisan infrastructure bill
Over the next 10 years, this law includes approximately $550 billion in new infrastructure spending. Traditional and green infrastructure are both included, such as highway construction and maintenance, waterway improvements, broadband expansion, and lead pipes replacements throughout the country. The bill was signed into law by President Biden on Monday, Nov. 15.
For many small businesses, the details of this law’s offsets are important because it will shorten the duration of Employee Retention Tax Credit (ERTC, also known as the ERC). The ERTC was originally scheduled to expire as of Dec. 31, 2021, but the Infrastructure Investment and Jobs Act retroactively shortens this pandemic-recovery tax credit program by one calendar quarter. ERTC eligibility has been disallowed for the fourth quarter of 2021 and now expires as of Sept. 30, 2021. The IRS is expected to issue further guidance for businesses on the details of this change.
Build Back Better Act
Substantial changes have occurred on the Build Back Better Act in recent weeks. Small businesses have fewer tax increases to worry about, but some problematic issues remain. Mainly, it will impose a 3.8% surtax on active business income above $400,000 ($500,000 for joint filers), known as the Small Business Surtax.
Mandates remaining in the Build Back Better Act include:
A scaled-down Paid Family and Medical Leave Program beginning Jan. 1, 2024.
Applies to all businesses and employees.
Requires up to 4 weeks of leave per year instead of 12 weeks.
Administered and paid by the Social Security Administration.
Partial employer reimbursement.
Employees self-attested they provided employers 7-days’ notice.
Increased penalties and penalty exposure for businesses.
FLSA, OSHA, NLRA penalties increased up to $20,740.
The Affordable Care Act is expanded for businesses with more than 50 full-time employees.
Affordability definition lowers from 9.5%-8.5% of employee income
November 18: House Democrats ready to Build Back Better
The House is hours away from a planned vote on 's sweeping social services and climate bill. House Democrats are planning to vote Thursday evening. House Majority Leader, who formally sets the floor schedule, announced the plan Thursday afternoon, just hours after the Speaker had signaled an intent to race the bill to the floor by day's end.
Senate Majority Leader and Senate GOP Leader met on Thursday as they look for an off-ramp from a looming fight over the debt ceiling. A Senate confirmation hearing for President Biden's pick to lead the top banking regulator erupted Thursday into a fight over her youth in the former Soviet Union and its relevance to her nomination.
During a Thursday hearing on Saule Omarova's nomination to lead the Office of the Comptroller of the Currency, Democrats on the Senate Banking Committee blasted Republicans for raising questions about her loyalties to the U.S. and capitalism. Good to Know. For the second time in a month, the White House on Thursday urged large businesses.
Spending Bill:
November 20: With Back Channels to Manchin and Sinema, Pelosi Found a Path to a Deal
In a moment captured by C-SPAN cameras that went viral, Ms. Pelosi appeared to grow agitated as Mr. Manchin, according to sources apprised of the call, told her that he could not accept more than $1.5 trillion - and was prepared to provide a document clearly laying out his parameters for the package, benchmarks that House Democrats had been clamoring to see.
Mr. Manchin's insistence on holding down the cost of the package threw a wrench into Ms. Pelosi's plan to quickly advance the monumental social policy bill, sending it instead through a series of tortuous twists and turns until Friday morning, when she finally managed to pass it.
While her main responsibility was wrangling the House, Ms. Pelosi devoted considerable time to Mr. Manchin and Ms. Sinema, both of whom hold the power to scuttle the deal in the evenly divided Senate if they balk.
The tray, which is warmly inscribed in appreciation for Ms. Pelosi's fund-raising work on delivering a Democratic Senate majority in 1987, was a reminder for Mr. Manchin of the speaker's past relationship with his predecessor.
As for Mr. Manchin, Ms. Pelosi intensified her outreach to him following a Sept. 16 video conference call she had with Mr. Biden and Mr. Schumer. During that particular call, according to people with direct knowledge of it, Mr. Biden told the two congressional leaders that he had been encouraged by his discussions with Ms. Sinema and Mr. Manchin, though they agreed it might be to their benefit to have Ms. Pelosi talk to Mr. Manchin as well.
As attention now pivots to the Senate, Ms. Pelosi said Mr. Manchin should embrace the reductions he had already won in the social spending plan rather than pursue additional ones.
November 19: House Readies Friday Vote On Spending Package After GOP's McCarthy Delays Process Late Into The Night
House Democrats plan to vote Friday on a sprawling, more than $2 trillion package to overhaul the country's health care, education, climate, immigration, and tax laws, pushing back their initial plans after Republicans mobilized to briefly obstruct a central piece of President Biden's economic agenda.
Their timetable hit an unexpected snag after House Minority Leader Kevin McCarthy took to the chamber floor beginning in the evening.
Back on the House floor McCarthy sounded an even more emboldened note. Top White House aides later briefed moderates on Capitol Hill to further make the case that the package would not add to the deficit.
"At the close of the debate, all that remains is to take up the vote - so that we can pass this legislation and achieve President Biden's vision to build back better," House Speaker Nancy Pelosi told members of her caucus earlier Thursday evening.
Eventually, a successful House vote on the spending package would send the bill next to the Senate, where the chamber's majority leader, Sen. Charles E. Schumer has said he hopes to conclude consideration of the bill before Christmas.
Pegging the cost at $2.4 trillion, the Committee for a Responsible Federal Budget released an analysis Thursday that showed the bill could add to the deficit over 10 years, based on data furnished by the CBO. But the official congressional scorekeeper did not factor into its calculations the full amount of savings that the White House anticipates from the package.
November 19: House passes Biden’s economic plan, Senate fate uncertain
President Joe Biden's signature plan to expand the social safety net, address climate change, and rewrite tax policies passed the House Friday morning as Speaker Nancy Pelosi united fractious Democrats to send the legislation to the Senate, where its fate remains uncertain.
The 220-213 vote followed months of intra-party squabbling.
The CBO found that it would increase the deficit by $367 billion over a decade proved acceptable to enough holdouts for the bill to pass.
Maine Representative Jared Golden was the only Democrat to vote no, along with all Republicans.
Republicans point to data showing the biggest jump in year-over-year inflation in 30 years in arguing against the bill.
Manchin and Sinema will largely determine whether the Senate can pass the Biden bill before the end of 2022 and how much further it is trimmed back.
Manchin has objected to the four weeks of guaranteed paid family leave in the House bill, as well as an immigration proposal granting deportation relief for some undocumented immigrants and a new Medicare hearing-aid benefit.
November 19: What’s in the House-passed tax and spending bill backed by Biden
Here's where the bill, which passed the House without any GOP support, stands and what is likely to change: The bill imposes a 15% minimum corporate levy on companies that have traditionally been able to pay little-to-no taxes because they were eligible for a long list of credits and deductions.
The 21% corporate rate is left untouched, maintaining a key part of President Donald Trump's 2017 tax law. A millionaire surtax would place a 5% levy on individual incomes in excess of $10 million and an additional 3% tax on those over $25 million.
There's a 3.8% investment income tax for high earners who own businesses and a limit on how business owners can use losses to reduce their taxes. Democrats hoped to pull in an additional $400 billion in new revenue from cracking down on tax cheats and increasing compliance.
Some $300 billion - by far the largest component of the climate spending in the package - would go to expanding a slew of tax credits for renewable power, electric vehicles, biofuels, and energy efficiency. Under the bill, a $7,500 consumer tax credit would be made refundable and expanded by $4,500 for cars assembled domestically by plants represented by unions.
November 18: Social Policy Bill Will Add to Deficit, C.B.O. Says; Democrats Delay Vote
The nonpartisan Congressional Budget Office said on Thursday that President Biden’s sprawling climate change and social policy package would increase the federal budget deficit by $160 billion over the next 10 years. That determination was at odds with Mr. Biden’s pledge to fully pay for the $1.85 trillion legislation but was unlikely to stop House Democrats from approving the bill.
The budget office's analysis found that the bill's tax cuts and spending programs were almost - but not entirely - offset by new revenue and spending cuts.
Senator Ron Wyden, Democrat of Oregon and the chairman of the Senate Finance Committee, dismissed the budget office's analysis of how much the I.R.S. could catch from tax cheats and said that he agreed with the Treasury Department's rosier projection.
The single biggest source of revenue stems from a new 15 percent tax that would apply to corporations that report more than $1 billion in profits to shareholders but not the I.R.S. The budget office found that a tax on so-called book income would raise about $319 billion over 10 years.
The bill's tax increases are permanent, while many of its tax cuts and spending programs are set to be temporary, a move that Republicans have criticized as a budget gimmick intended to keep the overall cost down.
If a future Congress chose to extend those spending programs and tax cuts or to make them permanent and did not offset them with further tax increases, the bill would add significantly to deficits after a decade.
Biden's Social Policy Bill at a GlanceCard 1 of 6. Republicans have accused Democrats of gaming the budget rules by providing child care and health care tax credits and universal preschool that would expire but which Democrats hope will be made permanent.
Liberals like Senator Bernie Sanders, the Vermont independent who is the chairman of the Budget Committee, and at least one centrist Democrat, Representative Jared Golden of Maine, have raised strong objections to that tax measure, which would amount to a major tax cut for wealthy homeowners who itemize their deductions.
Infrastructure Bill:
November 16: The tax impact of the infrastructure act
The act, first passed by the Senate in August, was passed by the House on Nov. 5, 2021, with an estimated cost of $1.2 trillion. The act expands cryptocurrency reporting requirements in an effort to stem underreporting of cryptocurrency transactions. These provisions have raised some concerns that the reporting requirements are so broad that they apply to people who generate cryptocurrency and to people who do not have the information needed to comply with the reporting requirements.
The relaxation of minimum funding requirements for employer-sponsored retirement plans is further extended, adding to tax revenue projections as funding requirements are decreased.
"This was a concern when it passed. There was pressure to pass it without amending it. So they're leaving it to the IRS with these problems. There may still be hope that Congress will narrow the definition in a subsequent bill, but it takes a while for Congress to do something. However the requirement doesn't apply until 2023 returns, so they have until 2024 to thrash things out." And some are reading it so that the definition of broker might mean that cryptocurrency will be treated as a security.
"But after the Virginia elections, Biden worked the phones and said, 'Let's get something passed to show that we can govern.' But now that the revenue estimates are coming out, it's not clear what the Senate will do." "They don't have to pass a reconciliation bill," he noted.
"They're entitled to one reconciliation a year. They didn't use it in 2020 - the American Rescue Plan used up the 2020 allotment - so if Build Back Better is not passed in 2021 it can still pass in 2022.".
Debt Ceiling:
November 21: Schumer-McConnell dial down the debt ceiling drama
Senate Majority Leader and Senate Minority Leader are dialing down the drama as they try to find an escape hatch from another high-stakes fight over the debt ceiling. Schumer's fiery floor speech after 11 Republicans helped advance the short-term debt hike in October, while ultimately voting against the bill, initially appeared to have nixed any chance of an agreement on the upcoming debt fight.
Asked about Democrats wanting the debt ceiling to be bipartisan, McConnell sidestepped, instead predicting that "We'll figure out how to avoid default. We always do." Trying to come up with a path forward on the debt ceiling has payoffs for both: Schumer is facing a packed year-end schedule that would be complicated by a protracted debt fight, with funding the government, a massive defense policy bill, and 's climate and social spending plan also on the to-do list.
McConnell faced fierce backlash from conservatives in his own caucus for his strategy during the debt ceiling fight earlier this year. Trump's constant drum beat against McConnell this week on the debt ceiling was quickly picked up by Sen., one of Trump's closest Senate allies, tweeting Friday, "I agree with President Trump that it's imperative that Senate Republicans do not aid and abet the raising of the debt ceiling.”
While GOP senators have floated that there are options on the table for how the debt ceiling gets raised, they don't believe 10 members of their caucus will vote a second time to help advance a debt ceiling bill.
November 16: Yellen warns lawmakers that the U.S. could breach its debt limit by Dec. 15.
Treasury Secretary Janet L. Yellen warned lawmakers on Tuesday that the United States would be unable to pay its bills soon after Dec. 15 and urged Congress to take swift action to lift the nation's borrowing cap. She added: "To ensure the full faith and credit of the United States, it is critical that Congress raise or suspend the debt limit as soon as possible."
Last month, after approaching the first default in American history, Congress raised the statutory debt limit by $480 billion, an amount the Treasury Department estimated would allow the government to continue borrowing through early December.
Ms. Yellen has acknowledged that Democrats have the ability to address the debt limit without. Republicans support by using a budgetary procedure called reconciliation. She has said it would be preferable for the debt limit to be raised on a bipartisan basis - which has long been the tradition given the government must meet financial obligations that both Republicans and Democrats have incurred.
Last month, Ms. Yellen said at a congressional hearing that she supported eliminating the debt limit, which she believes is "Destructive" and poses unnecessary risks to the economy. Ms. Yellen noted that government cash flows were subject to "Unavoidable variability" and that she would keep lawmakers apprised as the debt limit deadline changes.
For Fun:
November 20: Ten Thanksgiving Fun Facts
Although there are several accounts as to where the first Thanksgiving celebration took place, the most well-known version describes the inaugural Thanksgiving as a three-day pilgrim celebration that took place in 1621 at the Plymouth Colony.
Every year since 1947, a ceremony is known as "The National Thanksgiving Turkey Presentation" has been conducted at The White House a few days before Thanksgiving.
Thanksgiving day is the busiest travel day of the year.
While there is no official reason why turkey is the quintessential main dish used in Thanksgiving dinners, it was likely the most plentiful type of meat in Plymouth Colony in 1621. We've carried on the tradition of eating turkey for Thanksgiving dinner ever since.
According to the National Turkey Federation, over 95% of Americans eat turkey on Thanksgiving. Around 280 million turkeys are sold during the weeks leading up to the holiday.
Turkeys' wishbones are commonly used in a good-luck tradition on Thanksgiving. This tradition dates back to the Etruscan civilization circa 322 B.C. The Romans brought the tradition with them when they conquered England, and the English colonists then proceeded to carry the tradition to America.
In the United States, football is a major part of many families’ Thanksgiving celebrations. This tradition dates back to the first-ever football game between Yale and Princeton, which was held on Thanksgiving Day in 1876. Since then, watching football has become synonymous with Thanksgiving. It’s interesting to think that one football game played in 1876 would have such a lasting impact on a seemingly unrelated holiday.