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President Biden unveiled details of his budget plans in late April, along with his two infrastructure plans. The Treasury Department also released its long-awaited âGeneral Explanations of Administration Revenue Proposalsâ – also known as the Green Paper – at the end of May. It turns out that the nickname “Sleepy Joe” was inaccurate, at least judging from his first 100 days in office. In fact, Biden makes a few of his predecessors look sleepy in comparison. However, as the middle of the year approaches, things have slowed down as the Biden administration seeks a bipartisan agreement on the nature and extent of infrastructure bills.
New nicknames for a new approach?
What should we be looking for as Joe Biden âOn-the-Goâ takes on âRepublicans Ramblin ‘â and ultimately âMighty Middlingâ Joe Manchin in the battle for infrastructure spending? Here are six things to keep in mind as the battle unfolds in Washington this summer:
- The proposals go through the legislative process. Biden’s narrowest possible margin in the Senate means any proposal will have to get the approval of all 50 Democratic senators for Vice President Harris to have a chance to vote for the tiebreaker. Moderate Democrats like Joe Manchin and Kyrsten Sinema have their say in what happens in the Senate. In addition, senators such as Mark Warner and Jon Tester have already raised objections to some of the proposals. It’s inevitable, a filibuster-proof majority is out of reach and invoices will have to go through the budget reconciliation process.
- The proposals go through the legislative process. In the spirit of Fight Clubsecond rule, it is worth emphasizing this fact again. These proposals are likely to be moderate, as the bills subject to budget reconciliation are temporary and intended to have no impact outside a given budget window. Judging by the current stalemate surrounding the traditional infrastructure of the U.S. Jobs Plan, the most politically controversial social programs proposed in the U.S. Family Plan – and its corresponding tax policy – could have a hard time.
- The long-term capital gains loss (LTCG) treatment for taxpayers with adjusted gross income (AGI) greater than $ 1 million seems unlikely to go unchecked. That said, the LTCG rate could increase to a compromised rate for the rich. Tax policy experts suggest that the income-maximizing capital gains tax rate and negotiations could end at around 25% to 30%.
- The loss of LTCG treatment is notably different from other major tax provisions, in that the Green Paper provides for a date of entry into force at the end of April, making it effectively retroactive. The Green Paper states: âThis proposal would be effective for gains to be recognized after the announcement date. The last retroactive tax increase was in 1993, and it was an income tax increase, not a capital gains tax increase. Look for a significant step back from legislators on this subject; some have suggested that it was included as a bargaining chip from which to work. Nonetheless, if passed, a retroactive tax increase would exclude the possibility of accelerating earnings at preferential rates under the current tax system.
- The removal of the cost mark-up is at stake. There is, however, a long list of special rules, including exemptions and exceptions for family businesses, trusts and partnerships. Some have already pointed out that the combined impact of capital gains on death and inheritance taxes would suggest an effective tax rate of 60%, if not more. On the contrary, the Green Paper mentions the deductibility of capital gains paid on death to inheritance taxes, but the mechanics and limits are unclear. To that end, inheritance tax changes in the form of cuts in exemptions and increases in tax rates – on candidate Biden’s agenda – are not part of the Green Paper’s budget. The proposal to abolish the mark-up expands the tax base for which taxes on death are due by applying a lower exemption amount ($ 1 million for individuals, $ 2 million for couples) without changing taxation estates.
- The recently released and well-known IRS files of some of the richest Americans have reignited the debate over the disparity in tax outcomes in the United States. While this long-standing feature may not have come as a surprise to everyone, the report pointed out that the U.S. tax system focuses on income rather than wealth. While a formal wealth tax is not part of President Biden’s current proposals (despite his treatment of capital gains for employees over $ 1 million), is it a twist that could change the provision? of the main voters of our elected legislator?
The bottom line
There remains the important question of when these proposals could or would be put to the vote. Debate, posture and pivoting are all well underway. Between the American Jobs Plan and the American Families Plan, there’s a lot to cover ahead of the congressional vacation that begins August 6. Expect the end of July when things start to boil; It is possible that a compromise will be reached by then, but many experts believe a vote in September or beyond is more likely. Otherwise, if bipartisan negotiations fail, the administration could move quickly on budget reconciliation, assuming the objections and reservations of moderate Democrats are taken into account. The COVID-19 stimulus legislation passed earlier this year shows that a resolution could be pushed through the reconciliation process in three to four weeks.