By John KinsellaAre higher taxes on the horizon?
Many Americans—including bankers—are asking that question. With both the presidency and Congress now in Democratic hands, many campaign tax proposals are now much more likely to be enacted. President Biden’s campaign tax proposals include increases in the corporate rate to 28% and the individual top rate to 39.6%, a phase-out of the 199A deduction for S Corporation shareholders, a corporate minimum tax, partial elimination of capital gains tax rate preferences, a wealth tax redesign and a bank tax, just to name a few.
Given the very slim margin of control in both houses of Congress, and especially the Senate (where the balance of power sits at 50-50, with Vice President Kamala Harris breaking tie votes), it is likely that any material tax legislation will be accomplished through a “reconciliation” process. This procedure allows House-passed legislation meeting certain criteria to be approved by the Senate with a simple majority, as opposed having to adhere to the normal 60-vote filibuster rule.
Congress is currently considering an additional COVID-19 relief package and will likely use the reconciliation process to pass the legislation in the absence of bipartisan support. At the time this article was prepared, it appears that the tax proposals listed above are unlikely to be included in the COVID-19 reconciliation package.
That said, most believe that a second reconciliation package will be prepared later this year and will include many components of President Biden’s “Build Back Better” plan. This plan includes a variety of initiatives requiring significant expenditures. Some or all of the tax increase initiatives listed above will likely be included in the overall plan to provide revenue offsets. The timing of the legislation is uncertain, and it will likely take a significant amount of time and effort to debate and prepare legislation for consideration in Congress. In addition, Treasury Secretary Janet Yellen and other leaders have indicated that pandemic relief and stability is the first priority, and the Build Back Better plan will follow later.
There is considerable concern and interest among ABA members and others regarding potential effective dates for tax rate and other changes. While it is always possible to have a retroactive tax change, most agree that this would be an unusual situation.
ABA is working with members to identify key member priorities with respect to potential tax changes and preparing information for advocacy as appropriate. It will likely be a busy year with respect to tax matters!
John Kinsella is VP for tax policy at ABA.