FEDERAL LEGISLATIVE UPDATE AND OUTLOOK FOR 2021

By Hank Gutman

President Biden signed the “American Rescue Plan Act of 2021” on March 11. It did not contain any of his campaign proposals relating to high income and high net worth individuals. Now the Treasury Department is preparing a formal version of the tax proposals that the President will present to the Congress. That document (previously known as the “Green Book”) will likely contain refinements of the campaign proposals and perhaps some “new starters.” It is expected to be released sometime in April. The Joint Committee on Taxation may also prepare an analysis of the proposals. The Outlook for Legislation. If the “regular order” were followed, the House Ways and Means and Senate Finance Committees would hold hearings on the President’s proposals and thereafter the Committees would consider the contents of a “stand alone” tax bill. Under that scenario a tax bill would move through the Congress independent of other legislation and subject to the normal procedural rules.

However, that is not likely to happen. Given the constraints imposed by the Congressional Budget Act and the Senate filibuster rules the “reconciliation” process that was just used to pass the American Rescue Plan is the only viable path to get the tax proposals considered. However, the reconciliation process may be used use only once in a budget period. Consequently, it will be available for only one more piece of legislation for the remainder of this Congressional session. It is not likely that the reconciliation process would be used for stand-alone tax legislation. The President has other legislative proposals that have a higher priority and to which Congress will now likely turn. Infrastructure legislation is one. Additional economic stimulus could be another. However, it is likely that any additional Presidential legislative priority will carry a significant revenue cost and it is in that context — as revenue offsets — that the tax proposals will come into play. We will just have to watch and wait. Retroactivity. Both Treasury Secretary Yellin and Acting Assistant Secretary for Tax Policy Mazur have indicated that tax changes will not be proposed with retroactive effect. Retroactivity, however, can have a number of different definitions. I will assume that retroactivity refers to legislation that is effective before the earlier of date of committee action or introduction of the bill. It is unlikely that income tax rate changes would be made retroactive, due principally to the computational complications, particularly tracking when income is received and deductible expenses incurred, that arise if a date other the beginning of a calendar year is selected.

However, those computational complications do not arise in the transfer tax. It does not complicate tax administration to make such changes effective upon the earlier of date of committee action or the introduction of legislation. This is an issue that will have to be carefully monitored. Personnel. The President has just nominated Professor Lily Batchelder of NYU to be Treasury Assistant Secretary for Tax Policy, the highest tax position in the Administration. Lily is highly regarded and exceptionally well qualified. After a start at Skadden she served as Majority Chief Tax Counsel for Senate Finance Committee from 2010 to 2014. From 2014 to 2015 she served as Deputy Director of the National Economic Council and Deputy Assistant to President Obama. Her scholarship has focused principally on individual income and wealth tax issues and she has proposed a comprehensive inheritance tax to replace the current transfer tax system. Another personnel matter to note is the appointment of Elizabeth Warren to the Finance Committee, after which she promptly introduced legislation to implement a wealth tax. Her tax positions regarding the use of the tax system to address wealth and income inequality were made clear in her Presidential campaign.