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Taxes

Capitol Hill Check-In: Tax Priorities In 2021

Tax Notes reporters Jad Chamseddine and Alexis Gravely speculate on upcoming tax changes and developments on Capitol Hill this year.

This post has been edited for length and clarity.

David Stewart: Welcome to the podcast. I’m David Stewart, editor in chief of Tax Notes Today International. This week: Capitol Hill check-in. On January 20 Joe Biden was sworn in as president of the United States for the next four years. Later that day, Vice President Kamala Harris swore in two Democratic senators from Georgia as well as her replacement from California, setting up the Democratic Party’s control of the House, Senate, and White House for the first time in a decade.

Here to talk about what that means for tax policy and legislation are Tax Notes Capitol Hill reporters Jad Chamseddine and Alexis Gravely. Jad, Alexis, welcome back to the podcast.

Jad Chamseddine: Thanks for having me.

Alexis Gravely: Glad to be back.

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David Stewart: Since it’s on everyone’s mind, let’s talk about the coronavirus pandemic first. Congress passed some coronavirus relief in December, which included the $600 support payments among other measures. What’s the latest you’re hearing on COVID-19 relief?

Alexis Gravely: A couple of weeks ago, President Biden released his $1.9 trillion plan for the next relief package. There’s the $1,400 stimulus checks, an extension of the refundable tax credits for employers who are providing paid leave, and an expansion of the child tax credit and earned income tax credit.

But this is only a starting point. There’s no actual bill and there are a lot of details that will have to be hammered out both among Democrats and between Democrats and Republicans. We’ll have to wait and see what’s different by the time they’re actually poised to pass something.

As far as timing, it’s hard to say. The Senate is about to begin former President Trump’s impeachment trial, and they still have to confirm some of Biden’s cabinet nominees, so that going to take up some time. Republicans aren’t really interested in passing another relief package right now anyway because Congress passed $900 billion in relief last month and they don’t see the need to have something big so soon after that.

But President Biden is signaling at this point that he wants something to pass with bipartisan support rather than trying to work around Republicans using budget reconciliation. It’s going to take time for them to try to find middle ground. If that doesn’t happen, Democrats are going to have to pivot and go to budget reconciliation.

But Sen. Ron Wyden, D-Ore., is the incoming chair for Senate Finance Committee and one of his big priorities is unemployment insurance and the pandemic unemployment insurance benefits, which run out around mid-March. He told reporters that’s sort of the benchmark for him that they need to pass something before those benefits run out in March.

David Stewart: This is the first time in 10 years that Democrats will be in control of both houses of Congress as well as the White House. What players are we expecting to see on the scene in charge of the taxwriting committees?

Jad Chamseddine: As Alexis said, Wyden is going to be the incoming Senate Finance Committee chair. He’ll probably get that title once they officially have a power-sharing agreement between Republicans and Democrats as to how many people are going to be on each committee.

The ranking member is going to be Sen. Mike Crapo, R-Idaho. He’s been on the Finance Committee. He was the chair of the Senate Banking Committee before and he had worked with Sen. Sherrod Brown, D-Ohio, who’s also on the Finance Committee.

We don’t really know much about Crapo’s tax policy areas. He’s been coy on discussing these issues. At least in the beginning, it was until Georgia was decided. We haven’t really spoken with him since, but we know that he has a good working relationship with Democrats. He helped pass a bill that exposes shell companies last year. We know at least there are some issues that he likes to work with Democrats.

On that note, we don’t necessarily know where he’s going to be working with Wyden on, perhaps some of the more aggressive tax policies that Democrats are going to be pursuing in the next couple of years at least.

On the House side, we have the same players. It’s going to be Sen. Richard E. Neal, D-Mass., heading the House Ways and Means Committee and Sen. Kevin Brady, R-Texas, as the ranking member. They’ve been working together now for a few years.

Brady was the chair when the Tax Cuts and Jobs Act passed and Neal was the ranking member at the time, so they’ve worked together for a while now. They have a good working relationship, especially when it comes to things like retirement security. They’ve passed a bill before on that, and they’re probably likely going to pass another bill on improving retirement security in the next couple of years.

David Stewart: What are some of the tax priorities that you’re expecting them to take on?

Jad Chamseddine: Obviously we’re going to be looking at Democrats because they are in control. You’re going to see a lot more, I would say, aggressive tax policies from Democrats. We know that a priority for Neal is going to be expanding the EITC and the child tax credit. It’s one of his main priorities.

He told me last summer he’s going to beef that up if that’s the last thing he’s going to do while chair. I don’t know where he’s going, probably nowhere, but that’s definitely a priority for him and many, many Democrats.

We know that Brown and Sen. Michael Bennet, D-Colo., who ran for president and also is on the Finance Committee, have been working on proposal on this for many years now. This is definitely going to be an issue that Democrats are going to be improving upon, especially with what we saw with the pandemic and low-income households being affected badly by this. We know that this is what Democrats are going to try to improve over the next two years.

We know that they’re going to try to roll back some TCJA policies. We don’t necessarily know where that’s going to be because it’s not entirely clear whether they want to increase the corporate tax rate and by how much.

Over the past couple of years I’ve spoken with many Democrats who were not entirely sure where they fall upon that. It’s fair to say that they all believe that they’re not going back to the pre-TCJA percentages in the 30s.

Another issue is international taxation. We know that Wyden has hammered that home and Rep. Lloyd Doggett, D-Texas, on the Ways and Means Committee has been a big proponent. They feel that the international tax code has not been written in favor of domestic companies that still allows corporations to send jobs overseas and for better tax breaks. They want to stymie that in the next couple of years.

The reason I say two years is because we obviously don’t know what’s going to happen in 2022. Democrats may lose the Senate and so they’re looking at the short window of two years. We know that Treasury Secretary Janet Yellen said during her confirmation that they don’t want to increase corporate taxes or taxes on families during the pandemic, as we don’t know obviously when the pandemic is going to end officially.

But we can probably say within the next year there’s not going to be any changes to tax rates. And probably we may see in 2022 some sort of talking about increasing those rates.

David Stewart: Now, one of the biggest legislative victories of President Trump’s tenure was the TCJA, which Democrats have vowed to dismantle it. Are we seeing any legislative proposals to do that?

Jad Chamseddine: Besides the corporate tax rates issue, there hasn’t been many proposals that have come about that are taken seriously by lawmakers that are going to dismantle the TCJA. We know that many Democrats have said that they’re not interested in going back and taking apart the TCJA, but they do want to have fixes. The corporate tax is obviously is very high on that range.

We’ve heard that the estate tax exemption could be lowered. It could drop back down and we’ve had proposals from Sen. Bernie Sanders, I-Vt., and some of the more progressives that they want to see that exemption even lower further down to around the $3 million mark to capture a wider base. That way it could get more money and be a big revenue raiser as well for some of the other policies that they want to pursue like the child tax credit and the EITC just to pay for it.

That’s a big issue for them that you’re already talking about rich people keeping their money in trusts for all eternity and having their children feed off of that for the rest of their lives and their grandchildren’s lives. That’s sort of putting a small stop to that. We’re going to see Republicans obviously cry foul because they’ve wanted to get rid of the estate tax for the past 20 years or so. Those are big priorities.

I think one of the main priorities for Democrats in the next couple of years, probably in the next year and we may even see this in a pandemic relief bill, is getting rid of the state and local tax deduction cap. We know that this is a touchy issue with some Democrats because it’s seen as a bailout for some of the wealthier coastal elites as they’re called.

But it is a big issue for Democrats from New York, New Jersey, and California. Obviously Senate Majority Leader Charles E. Schumer, D-N.Y., is one of those that wants to get rid of the SALT cap and now that he’s majority leader, you may see that included in a reconciliation bill of some sort. It is a big issue. It’s going to continue to be a big issue.

I’ve spoken with a few lawmakers that have said they need to decide soon whether this is going to be a big priority for them or whether they’re going to wait another year before they stuff that into another tax reconciliation bill that we could see in 2022. But it is definitely something that there’s going to be some jockeying over in the next few months or so.

David Stewart: We’re talking about a Senate that is 50-50 split with the tie-breaker vote from the vice president. Realistically, how much can get done in a Senate with a bare majority?

Alexis Gravely: With the filibuster you need 60 votes to pass legislation, so with the slim majority Democrats can’t just pass everything on their own. They’re going to need some Republican senators to support whatever it is they’re trying to get done.

There’s been some talk about Democrats abolishing the filibuster to get around that 60-vote threshold, but for obvious reasons that’s controversial and it’s seeming less likely now because more moderate Democrats like Joe Manchin of West Virginia and Kyrsten Sinema of Arizona have come out and said that they would not vote to get rid of the filibuster.

The other option is budget reconciliation, which can be a complex process, but it can push legislation through with only a simple majority. That’s how the TCJA was passed in 2017. But there are a lot of rules that come with budget reconciliation and it can’t be used often.

For example, everything in the bill has to have some effect on the budget. Any extraneous provisions would have to be excluded, and it can increase the deficit beyond the 10-year budget window or include anything that would affect the Social Security program.

There are other rules in addition to those, but once you get past all the rules, whatever the bill is, it would still have to garner broad support because Democrats are operating on such a slim majority that they can’t really lose any votes. It depends on what they’re trying to get done as to how much they can do. Obviously some things can get more bipartisan support than others, but right now it’s certainly not looking like things will be smooth sailing for Biden’s or the Democrats’ legislative agenda.

David Stewart: Now although President Trump no longer holds office, the controversy over disclosure of his tax returns and financial information doesn’t seem to have gone away. Jad, could you update us on that?

Jad Chamseddine: Obviously there have been a lot of lawsuits to get to Trump’s tax returns one way or the other. There’s one currently ongoing in New York and that’s probably the closest they’ve gotten so far to getting the tax returns. Whether those tax returns are going to made public is a whole other issue.

The one in New York is a criminal procedure seeing as to whether Trump has used money, evaded certain laws, or cheated on his business taxes in a certain way.

The one that we’ve been interested in is one that pits the Ways and Means Committee, the House in general, against the Treasury Department. Now when the Democrats got the majority in the House in 2019, they launched a suit to force the Treasury Department to hand over Trump’s tax returns so they can review six years of tax returns to see whether he’s been audited correctly by the IRS and to oversee the president’s tax returns and the vice president’s tax returns. They used section 6103(f) of the code.

Obviously the Treasury Department said, “You’re not getting his tax returns,” at the time. Steven Mnuchin was in charge at the Treasury at the time and backed by the Department of Justice. That lawsuit has stalled for years. There’s been issues about standing. There’s an issue whether the House can bring a suit like that, and it hasn’t really moved anywhere.

What we’re seeing now is the president’s personal lawyer wanted to know whether the House is going to bring another suit and whether they’re going to re-up their suit to force the Treasury Department to release the president’s tax returns to the Ways and Means Committee. They also want to know whether the Justice Department is going to change its position in the matter.

We obviously don’t know what’s going to happen. We don’t know whether the Treasury Department is going to relent and give Neal the tax returns. But at the same time, the rule also allows for any taxwriting head to demand the tax returns from Treasury Department. Now that Wyden is going to become Senate Finance Committee chair, he also has the power to demand the tax returns from Treasury.

Now you have two chairs that can demand the tax returns from Treasury. And on top of that, from the experts that we’ve spoken with, the public doesn’t need to know nor does Trump whether the tax returns have been given to the chairs.

Another thing obviously at this point is even if they give the tax returns to the Ways and Means Committee or the Senate Finance Committee, it doesn’t mean the public is going to know what’s in there. That would require a vote in the House to see whether they can publish some parts of Trump’s tax returns.

If they find fault with them or that the IRS sort of turned a blind eye or Treasury was pressured by Trump while he was in office to not go after him on some of the problems with his tax returns, that’s going to be a whole other issue that we could see play out in the next year or so.

David Stewart: Before we wrap up, I do want to ask you a bit about what it’s like reporting on the Hill these days between the coronavirus and in the post-January 6 insurrection period. What is it like doing your job?

Jad Chamseddine: It’s been interesting. First came the coronavirus and I think no one really knew how to navigate it at the beginning. You sort of have to keep your distance from the lawmakers when you’re interviewing them. You form semicircles when a lawmaker would talk to you compared to the previous days when it was a huddle and a sort of free-for-all. You mobbed them.

And so now I think you have more respect for the space, for each other’s space to a certain degree. Asking questions in masks is also sometimes tough because you’re walking and talking and sometimes you don’t necessarily hear the answers that they’re giving. That’s been tough.

Every once in a while, you’d have a senator or House lawmaker get the coronavirus and then you have to make sure that you didn’t talk to them beforehand. That happened to me when Sen. Rand Paul, R-Ky., got the coronavirus and I spoke to him probably the day before he told everybody that he had the coronavirus.

I had to isolate for a couple of weeks and then came in after the insurrection. I think now what you’re seeing is a large presence by the National Guard around the building.

Alexis Gravely: Yeah. There’s a lot of fencing outside as well. There’s several different layers. When I went up this week, I had a really hard time trying to figure out how to get out of the Hill because it’s very restricted as far as entering and exiting. It was easy to get lost before. It is even easier now.

David Stewart: Well, we really appreciate what you do, especially with what you’re dealing with these days. Jad, Alexis, thank you for being here.

Jad Chamseddine: Thank you for having me.

Alexis Gravely: Thanks for having us.

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