On Thursday, October 21 President Biden acknowledged that he didn’t have sufficient Democratic backing for his proposed increases in the individual, corporate and capital gains tax rates. As we’ve mentioned, the Democratic Caucus needs unanimous support in the Senate to pass legislation but there are two key obstacles in negotiations.
- West Virginia Senator Joe Manchin has continued to push for a package much less in scope than originally planned, which has forced the party to reduce the top-line number of the package
- Arizona Senator Kyrsten Sinema has indicated she will not vote yes on a bill containing increases to the tax rates outlined in the original plans
Last week the party began scaling back the package, and now appears to be shifting gears and looking for other ways to raise revenue.
Democratic Senate negotiators are homing in on a proposal, which was not previously included in President Biden’s agenda; dubbed the “Billionaires’ Tax”. This proposal would subject taxpayers with over $1B in assets, or three consecutive years of $100M or more in income, to tax on unrealized capital gains.
Under the emerging proposal, tradable assets such as stock and bonds would be subject to capital gains tax on unrealized appreciation of the assets (known as marked to market). Similarly, deductions for unrealized losses would also be recognized annually. Non-traded asses such as real-estate holdings, artwork, and ownership in closely held businesses would be subject to a “deferral recapture amount”. Tax on such assets would not be paid until the asset was sold, but billionaires would have to pay interest on the taxes deferred during the time the asset was held before being sold. This plan is expected to hit less than 1,000 taxpayers. We expect to see specific rules to help prevent billionaires from shielding their assets from current taxation.
Other revenue raisers under discussion include increased Internal Revenue Service enforcement, implementation of a minimum “book tax”, which could require corporations to pay at least a 15% tax rate on the profits they report to shareholders on their financial statements, and an “overseas harmonization” of taxes, the latter of which few details have been released. Sunday, October 24 on CNN’s “State of the Union”, House Speaker Nancy Pelosi said, “We have 90% of the bill agreed to and written, we just have some of the last decisions to be made.”
While many priorities are expected to be included in the package, they will be implemented for a shorter duration than originally proposed, which will limit the top-line proposal. However, other items, such as free community college, are not expected to make it in the final bill.
President Biden is pressuring the party to come to an agreement before he leaves for the G-20 Summit in Rome later this week, followed by the Glasgow Global Climate Conference on November 1. He has expressed his desire to have the framework completed before the Glasgow Global Climate Conference to provide leverage to negotiate similar climate commitments from other countries at the meeting. Senator Manchin (WV) said on Monday, October 25 that a framework “should” be possible by the end of this week.
What is becoming clearer is that neither the scope of the package nor the massive tax increases will be as broad as originally planned. It is widely anticipated this next week will be pivotal to the negotiations. We will continue to provide updates as the news progresses. If you have any questions, please contact us.
