Senate Approves Infrastructure Bill & Advances Budget Reconciliation Process
Earlier this month, the U.S. Senate voted to advance two legislative packages that would result in combined spending of approximately $4.5 trillion in both traditional infrastructure projects and an expansive array of initiatives encompassing healthcare, education and climate change.
On Tuesday, August 10, the Senate voted 69 to 30 in favor of a roughly $1 trillion infrastructure package. The 2,700-page “Infrastructure One” bill would fund investment in improvements to the country’s roads, bridges, highways and Internet connections. Then early Wednesday morning, the Senate approved, on a party line 50-49 vote, a $3.5 trillion budget resolution—“Infrastructure Two”—that could enable sweeping changes to a broad range of laws to secure enactment of the Biden administration’s “Build Back Better” agenda. The Senate’s adoption of the budget resolution sets the stage for the budget reconciliation process; legislation passed under these procedures generally cannot be filibustered, so that only a simple majority is required for Senate passage.
The budget resolution now heads to the House, which is expected to return from recess the week of August 23 to consider the measure.
Infrastructure One – Tax-Related Provisions
The Infrastructure One package, the “Infrastructure Investment and Jobs Act,” does not include major corporate or individual tax proposals, but it does contain some tax provisions that would raise $50 billion in net revenue. For example, the legislation includes a provision that would amend Internal Revenue Code (IRC) Section 6045 to expand information reporting requirements to include brokers or any person who is responsible for regularly providing any service effectuating transfers of digital assets, including cryptocurrency, on behalf of another person. The measure would also add digital assets to current rules that require businesses to report cash payments over $10,000. This provision would apply to returns required to be filed after Dec. 31, 2023.
The cryptocurrency provisions in the Infrastructure One bill ran into some headwinds in the Senate over attempts to amend the definition of “broker.” Several amendments were introduced, but none were passed, and the bill now heads to the House for consideration. But the issue may not have been put to rest, as press reports indicate that both Republican and Democratic House members support amending the definition, which they deem to be too broad.
The Infrastructure One bill also includes a provision that would amend IRC Section 3134 to terminate the employee retention credit on October 1, 2021, three months earlier than the current Jan. 1, 2022 end date. The provision would apply to calendar quarters beginning after Sep. 30, 2021.
Another revenue raiser included is a provision that would modify the IRC Section 430(h)(2)(C)(iv) table of applicable minimum and maximum percentages with respect to certain pension plans, known as “pension smoothing,” which is estimated to raise approximately $2.9 billion over a 10-year period by reducing the level of deductible employer pension contributions required under the pension funding rules. These amendments would apply to plan years beginning after Dec. 31, 2021.
The bill would also reinstate and modify some expired Superfund excise taxes imposed on the production of specified chemicals.
Approval of the budget resolution by both the House and the Senate would allow Senate Democrats to use the budget reconciliation process to advance their tax policy agenda without Republican support.
While the Infrastructure One package generally avoids consideration of the administration’s tax policy priorities, the broader Infrastructure Two bill is to be fully offset by a combination of new tax revenues, health care savings and long-term economic growth. In addition, the agreed-to framework would prohibit new taxes on families making less than $400,000 per year and on small businesses and family farms.
Policy priorities included in the Infrastructure Two package include:
- Paid family and medical leave
- ACA expansion extension and filling the Medicaid coverage gap
- Expanding Medicare to include dental, vision, hearing benefits and lowering the eligibility age
- Addressing health care provider shortages (graduate medical education)
- Child tax credit, earned income tax credit and child and dependent care tax credit extension
- Long-term care for seniors and persons with disabilities
- Clean energy, manufacturing and transportation tax incentives
- Pro-worker incentives and worker support
- Health equity (maternal, behavioral and racial justice health investments)
- Housing incentives
- State and local tax cap relief
In a memorandum issued August 9, Senate Democrats called for the following measures to offset the cost of these provisions:
- Corporate and international tax reform
- “Tax fairness” for high-income individuals
- Enhanced IRS tax enforcement
- Health care savings
- Carbon polluter import fee
The memorandum explains that the Finance Committee’s reconciliation product will account for both substantial portions of the investments contemplated by the $3.5 trillion package but also nearly all of the stated offsets.
It is expected that further action on both bills will be taken in the fall when both the House and Senate return from August recess. To discuss and potential impacts these changes could have on your personal or business tax situation, please connect with a member of MFA’s Tax Team.
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