Legislative Update
House and Senate. Both chambers are in recess this week. However, the House Judiciary Committee will meet on Thursday to mark up eight bills related to gun violence. The legislative package includes measures that would raise the age for buying semi-automatic rifles from 18 to 21; ban the import, sale, or possession of large capacity magazines; and establish requirements for the storage of firearms on residential premises. The full House plans to vote on the bills next week, but there is no expectation that 60 Senators will support the measures.
Reconciliation Revenue Raisers. In the ongoing Democratic effort to craft a reconciliation bill, Senate Majority Leader Chuck Schumer and Senator Joe Manchin (D-W.Va.) have held recent conversations that Manchin describes as “encouraging, to a certain extent.” While the two Senators engage at the 30,000-foot level, their staffs are reportedly working on details of the package.
Integral to an eventual reconciliation bill are the revenue raisers needed to pay for a Manchin priority of deficit reduction and Democratic priorities such as clean energy incentives. A logical starting point for discussion of revenue raisers would be the House-passed Build Back Better Act, which included $800 billion over 10 years from changes to corporate and international tax provisions and $640 billion in increases targeted at “high-income individuals.”
The largest BBB revenue raiser, which would bring in $319 billion, is the 15% minimum tax on corporate book income for corporations with three-year average income over $1 billion. The tax would be imposed on a company’s financial statement income and was not part of the reconciliation measure approved in September by the Ways and Means Committee.
The Ways and Means version would have increased the corporate tax rate to 26.5%. However, in October, Senator Kyrsten Sinema (D-Ariz.) said she opposed any increases to the corporate, individual, and capital gains tax rates. Consequently, those proposals were dropped and, on the corporate side, the book minimum tax was added to the bill that the House passed on Nov. 19. Senator Manchin, meanwhile, has continued to support an increase in the corporate rate to 25% but last week indicated he could settle for the 15% book minimum tax. It remains to be seen, though, whether there will be changes to the minimum tax proposal as Senators look more closely at the details.
While the largest single pot of BBB money is on the corporate side, the next three top revenue raisers are on the individual side: (1) $252 billion from applying the current 3.8% Net Investment Income Tax to active business income for pass-through firms. The principal effect of the proposal is that S corporation shareholders, limited partners, and LLC members over a certain income threshold would potentially be subject to the NIIT; (2) $228 billion from imposing a 5% surcharge on individual income in excess of $10 million and an additional 3% surtax on income over $25 million. The surcharge also applies to estates and trusts but with lower thresholds; and (3) $160 billion from making permanent the TCJA provision that limits the extent to which a non-corporate business can uses losses to offset other income.
Returning to the international and corporate proposals, BBB included changes to the Global Intangible Low-Taxed Income (GILTI) regime that would bring in $144 billion. These changes include raising the GILTI tax rate to 15% from 10.5% and requiring that GILTI be calculated on a country-by-country basis. Still another significant revenue raiser is the 1% excise tax on stock buybacks that is pegged as worth $124 billion.
Whether there will actually be a reconciliation bill that can win the support of all 50 Democratic Senators is still the trillion-dollar (or less) question. After calling his talks with Schumer “encouraging,” Manchin also added, “there could be truly nothing. That’s all I can tell you.”
Both chambers are in session this week, but action will pick up dramatically when they return in December from the Thanksgiving break.
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