As Washington heads toward summer, all thoughts are not on beach vacations and in-person concerts. Washington is focused on the potential for a broad transportation legislative package and how we will pay for it. These important revenue-raising measures could make or break the President’s ambitious plans on transportation, family-medical leave, universal daycare, and much more.
- June and July will be critical months in Washington for structuring the federal transportation and tax packages.
- President Biden and Congressional Democrats are walking a tightrope of revenue-raising vs. policy ambitions.
- If Democrats use budget reconciliation to pass a transportation bill, additional legislation may be necessary to address many of MEMA’s policy priorities.
What I Am Watching For
- The President is off to the UK on June 9th. Will negotiations continue in his absence? Will liberal Democrats begin to push the expensive, progressive agenda more publicly?
- The vote in the Senate on the competitiveness legislation will be an indication if there is an appetite to pass bills addressing popular policy priorities.
- Will Senator Joe Manchin (R-WV) announce any further concerns or objections in the tax arena?
Where Are We on Revenue Measures?
We got a glimpse at the potential revenue-raising measures when Biden released his proposed budget for the 2022 fiscal year. The budget proposals equaling over $4 trillion in costs were also outlined in general in three plans: “Made in America Tax Plan”, “American Jobs Plan” and the “American Family Plan”.
Corporate and international revenue-raising proposals include:
- Increasing the statutory corporate rate to 28%
- Imposing a 15% minimum tax on global book income of certain large corporations
- Reducing to 25% the deduction for “global intangible low-taxed income” (GILTI), eliminating the “qualified business asset investment” (QBAI) exemption, and imposing a jurisdiction-by-jurisdiction calculation
- Repealing the deduction for “foreign-derived intangible income” (FDII)
- Replacing the “base erosion anti-abuse tax” (BEAT) with a new “SHIELD” regime that would deny U.S. tax deductions for payments to foreign related parties subject to a “low effective tax rate”
- Limiting the ability of domestic corporations to expatriate by tightening the anti-inversion rules
- Restricting the deduction of interest by a financial reporting group attributable to disproportionate U.S. borrowing
- Expanding the application of section 265 to disallow deductions attributable to income exempt from tax or taxed at a preferred rate
- Denying certain deductions related to offshoring jobs
- Increasing the IRS enforcement budget
- Reforming the taxation of foreign fossil fuel income
- Repealing fossil fuel subsidies
- Limiting foreign tax credits from sales of hybrid entities
- Reinstating Superfund taxes
This is in addition to raising the top marginal income tax rate.
As we have seen with other issues, these are only proposals. Republicans have made it clear that they have no wish to revisit President Trump’s very popular tax reform package. And even though the G-7 countries agreed over the weekend to set a minimum 15 percent global corporate tax threshold, the Biden administration has a long way to go before that will be implemented in the U.S.
There is also an important tax provision that we need Congress to pass this year. MEMA is joining with other business groups to pass legislation that will continue to permit the full immediate tax deductibility for R&D expenses. If Congress fails to pass legislation by the end of this year this important law will change, and companies will be required to deduct R&D expenses over five years. MEMA is working hard as part of the NAM led R&D Coalition to get legislation over the finish line to preserve this vital R & D deduction. If you want to join us in this important work, please contact Bill Frymoyer (firstname.lastname@example.org).
But What Does That Have to Do with Transportation Policy and Why Should We Care?
Transportation reauthorization has been labeled the “American Jobs Plan” by the administration. As first proposed, the plan exceeded a price tag of $2 trillion. Yet, last week, the President presented changes to the plan that would reduce the cost to about $1 trillion – still a significant cost to the American taxpayer. In addition, he has proposed to finance at least part of his infrastructure package with a 15 percent minimum tax on corporations, to win over Republicans who are refusing to consider his proposal to raise the corporate tax rate to 28 percent.
However, White House press secretary Jen Psaki said Biden has “absolutely not” wavered in his belief that Congress should raise the corporate tax rate, adding it is a critical way to “pay for a range of the bold proposals that he has put forward.”
“But he also took a look at these proposals, and … all of the tax proposals that he has put forward over time, to find a way where there should be pay-fors that based on their bottom lines, many of the Republican negotiators should be able to agree to,” Psaki said.
Even with the potential concession on taxes, the White House’s roughly $1 trillion plan still amounts to four times as much as Republicans have been willing to spend to improve the country’s roads, bridges, pipes, ports, and internet connections. Republican leaders have endorsed roughly $257 billion in new spending while maintaining an unwavering opposition to any tax hikes to finance infrastructure reform.
Instead, GOP leaders have called on the White House to repurpose unspent COVID relief aid now that the pandemic is improving. The White House has expressed only a limited appetite for reprogramming existing stimulus dollars, perhaps around $70 billion to $75 billion.
What Stands in the Balance?
As I have often said, this industry depends on transportation reauthorization to address a wide range of critical issues including safety policy. If the White House and the Republicans cannot reach an agreement on a funding package for transportation, the Democrats could decide to move legislation through a process known as budget reconciliation. Budget reconciliation requires only a simple majority in the Senate – not the problematic 60 votes threshold needed for most legislation. Legislation like that will most likely address many of the Biden administration’s policy objectives – not just transportation funding. But keep in mind, the White House will need every Democratic Senator to vote in favor of this package.
If the Democrats elect to use budget reconciliation, many critical transportation issues will not be able to be addressed in that legislation. Senate Democrats have indicated that separate legislation might be crafted to address popular legislative priorities and your MEMA team is planning for all eventualities.
Our legislative process stands at a crucial decision point. We must engage to make sure our issues are addressed. In addition, we must work with a wide range of business partners to structure tax decisions in a manner that will continue to make the U.S. competitive.