TAX REFORM – ONE DOWN, NOW WHAT?
Dear Clients and Friends:
The Senate has passed President Joe Biden’s $550 billion infrastructure bill, which is expected to pass the House, but with conditions. The largest has to do with Congresswoman Pelosi’s condition that a $3.5 million social spending bill must be passed along with it. This condition took a major step forward today (Wednesday) with Senate passage of a $3.5 trillion budget framework, but the bill exposed division among Democrats. The outline passed the Senate over unified Republican opposition. Just hours after Democrats passed the budget blueprint on a party-line 50-49 vote, Senator Joe Manchin of West Virginia said he couldn’t support a social spending bill with a $3.5 trillion price tag. Senator Kyrsten Sinema, an Arizona Democrat, said the same. Only a single Democratic objection would be needed for the bill to stall in the Senate. Manchin cited inflation concerns from spending and massive debt, that would be harmful to middle income households, echoing the arguments of many Republicans that continued fiscal support from Washington will trigger inflation and undermine the economy. Labor Department data Wednesday showed the consumer price index in July increased 0.5% from June and 5.4% from a year ago, supporting the concerns. Neither Manchin nor Sinema has said how big a package they would support, but progressives in the House say $3.5 trillion is the minimum needed for health care, climate, and other programs, including universal pre-K for 3- and 4-year-olds, paid family leave, two years of tuition-free community college, and new dental, vision, and hearing benefits for Medicare beneficiaries. They desire to tax wealth to achieve these initiatives.
Part of the cost would be paid by rolling back the tax cuts for corporations and wealthy households that were former President Donald Trump’s signature legislative achievement. Senate Budget Chairman Bernie Sanders said the package would address “the long-neglected needs of working families and not just the 1% and wealthy campaign contributors.” That, he said, will ”restore the faith of the American people in the belief that we can have a government that works for all of us and not just a few.” Several proposals to tax the so-called “wealthy,” have been explained in prior alerts and can be found in this summary: https://www.jckempe.com/11319-2/
At this point clients are tending to move forward with planning to confront reform, with as much built-in flexibility as possible. Given the status of our government, our best guess is that reform will not be retroactive or concurrent with passage, but prospective to January 1, 2022. There is no certainty of this, and thus why clients are tending to position themselves to act and act quickly, with inherent flexibility. Given Manchin’s recent history with the infrastructure bill, probabilities suggest that he will support budget reconciliation that allows passage of these initiatives, in return for some political favor or compromise.
If you have any questions or comments, please feel free to contact us. We are pleased to be of service.
Very truly yours,