Tax Notes reporter Jonathan Curry reviews President Biden’s tax policy campaign promises after one year in office and where those proposals, including the Build Back Better Act, stand today.
This transcript has been edited for length and clarity.
David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: promises to policy.
This January marked the end of President Biden's first year in office. With Democrats controlling the White House and both houses of Congress, it seemed like the Biden administration would have a clear path to pass the president's main campaign promises, including several tax items and priorities.
Although we saw some important tax changes under the American Rescue Plan Act, enacted early on, the president's signature proposals have all but ground to a halt in Congress. With the uncertainty surrounding the Build Back Better legislation, we decided that now is a good time to look at the Biden administration's initial tax policy promises and where those proposals stand today.
Here to talk more about this is Tax Notes reporter Jonathan Curry. Jonathan, welcome back to the podcast.
Jonathan Curry: Hey, Dave. Great to be back here.
David D. Stewart: Could you give listeners a recap of President Biden's big tax policy promises?
Jonathan Curry: Sure. If you remember, he had a lot of proposals. If you were to go to his website back when he was campaigning, it was pages and pages of different tax proposals.
To go over the headliners: He wanted to raise the corporate tax rate to 28 percent, up from 21 percent. He wanted to impose a new tax: a corporate minimum tax on book income. He wanted to raise the individual income tax rate back up to 39.6 percent, kind of reverting it back to pre-Tax Cuts and Jobs Act-era tax rates. He wanted to cap itemized deductions above a $400,000 income threshold, and you're going to hear about that $400,000 income threshold a lot.
He also had a lot of things near the high-income front. He wanted to tax long-term capital gains the same as income, so that 39.6 percent that would only apply on those making more than $1 million. He also had a big proposal to end the tax free step-up and basis at death, again, above a $1 million threshold.
Other things he had on his website were to raise the payroll tax rate on those making more than $400,000. Although that was never going to happen, just due to do the complex procedural rules in Congress. You can't touch the payroll tax rate in the reconciliation procedures that they're working under.
Some of the other big ones he had were he wanted to expand the child tax credit and the child independent care credit. He also wanted to reform global intangible low-taxed income by doubling the rate and making it a country-by-country calculation rather than by blending it.
That's just some of the big things. There was still a lot of other little tweaks and reforms and things on the margins.
David D. Stewart: Now that we've covered what was promised, let's talk about what's actually happened with those promises. Starting with the American Rescue Plan Act, which was widely viewed as a win for President Biden, how did that legislation fit in with the tax proposals from the campaign?
Jonathan Curry: That was a big bill for sure. It was $1.9 trillion overall, and it did have a tax component, although it was definitely not the main part of it. That tax component was very much family-oriented.
If you remember, Biden did want to expand the child tax credit. He got that. He had a big temporary increase in the size of that credit for 2021. Plus it was made fully refundable, and half of the year's credits were distributed in monthly payments from July through December.
The child independent care credit was also boosted, again just for one year. The earned income tax credit was also expanded for a limited time.
If you didn't pick up on it, a lot of this was just for one year. It was just for 2021.
The bill did move pretty quickly. It was actually faster than I expected, but so much of it was just temporary relief. I think it was pretty clearly intended to be a down payment. Get this into law, get people used to it, and then there'll be more support for it as they're already feeling the benefits of a bigger child tax credit. We saw that. Later proposals in the Build Back Better plan tried to expand on these.
I do think it's worth with noting that this was kind of just the easy stuff though. On the tax front, it was really just offering purely tax relief. There weren't tax hikes that would generate pushback.
In terms of following through on his tax promises, given the huge amount that he had promised, this was just a tiny piece of it.
David D. Stewart: Turning to the rest of the policy promises, such as not raising taxes on anyone earning less than $400,000 a year, how have the rest of those plans panned out?
Jonathan Curry: The $400,000 pledge has come up a lot. I think, by and large, he's still sticking to that with a few caveats. He's still not pushing to tinker with your middle class income tax rates or anything like that. But the House version of the bill that came out would've included a proposal to double the federal tobacco tax, which, if you're anyone buying cigarettes, no matter how much income you have, technically your taxes are going to go up.
There were some scenarios where, for example, let's say a taxpayer doesn't make $400,000 every year, but they might have a lot of income in one year. Maybe you sell a house or you come into a big inheritance of some sort. Under his proposal, you might technically fall short of the pledge if the tax-free step-up and basis was ended. But that proposal doesn't look to be on the table anyway.
On the whole, I think Biden has still stuck to that pledge, even if it has led to some pretty kind of wonky ways to make the policies fit his promise.
David D. Stewart: Turning to the other major piece of legislation that was discussed last year, the Build Back Better Act. We saw it go through many iterations from introduction until today. Where do things stand now?
Jonathan Curry: Things are at a standstill. There was a ton of hustle on this late last year and they just couldn't get it done.
Biden and other congressional leaders had talked about pushing it to early January, and then a little bit later, and then a little bit later, and now they're talking about trying to pass a bill of some sort by the time Biden gives his State of the Union speech on March 1. That's less than a month from now.
What do they plan to pass by March 1? Who knows? The one thing we can say for sure is that it's going to be a lot smaller than what Biden had envisioned by magnitudes at this point.
Sens. Kyrsten Sinema, D-Ariz., and Joe Manchin III, D-W.Va., haven't been nearly as eager to pass a bill, so really it all comes down to: What are they OK with passing? Honestly, I'm still surprised we don't know the answer to that yet.
Manchin keeps saying he hasn't heard from the president about how to move forward. White House Press Secretary Jen Psaki is always saying that she won't comment on private conversations, but we're always in touch with senior staff and whatnot. According to the White House, they're moving forward. According to Manchin, they're not. I don't know. They're a little bit at a standstill is probably the best way to put it right now.
I do remember last October, the White House made a big announcement about how they've come up with a framework that all Democrats can agree with, including Manchin and Sinema. But clearly that's been thrown out the window at this point.
David D. Stewart: How does the current iteration of this bill compare with what was originally set out?
Jonathan Curry: I guess that depends on what you mean by current iteration. If you mean the House and Senate versions of the Build Back Better plan, they had big differences from what Biden initially set out to do, but they're still substantial pieces of legislation.
Biden's initial tax proposals really seemed like they were intended to reform the tax code overall. They wanted to do a lot on the international tax front. They wanted to change how things are taxed, how the uber wealthy are taxed. They wanted to change corporate taxation to make sure that they're paying their fair share, and things like that.
Over time I feel like we've seen it turn into more pay-fors for the spending side. There are some reforms in there. But overall it seems more like, "How much revenue do we need? Let's try to get to that."
David D. Stewart: There's been a lot of discussion about what must be in the bill for it to pass. What are some of the must-have elements that are currently out there?
Jonathan Curry: That's a good question. If you had asked me a few weeks ago, I would've said that extending the expanded child tax credit was a core provision of the bill and there's no way they would ever back away from it. The White House loved to talk about it, especially the monthly payment portion of it, which they would claim lifted millions of families out of poverty. That's a huge win for the administration from the policy side.
But Manchin said he was opposed to that provision. He didn't like the idea of extending something because Biden had proposed to extend it for a little bit longer. But Manchin is under the impression that it's just a temporary thing that everyone knows is going to be made permanent at some point, and that hides the true cost of it.
Making it permanent would in fact have cost a lot of revenue. The cost of it was something like $1.5 trillion over 10 years. Something had to give, and it looks for now like the White House gave in.
From a practical standpoint, the Biden administration really does need to include the international tax provisions to bring the GILTI tax regime into compliance with the pillar 2 global minimum tax agreement. I just don't really see any way around that.
That global minimum tax could take effect as early as next year. It would be embarrassing on the international stage if the U.S., which has helped lead and spearhead these negotiations, can't even hold up its end of the bargain. In addition, it would also be a nightmare for businesses that try to comply with a mismatched domestic and international tax regime. Even though I don't hear President Biden talking about it very much, I definitely think that that's something that his administration really wants to see in this package.
David D. Stewart: Turning to Biden's promises, both domestically and internationally, on climate change, the Build Back Better Act had energy tax credits and other things to address climate change. Do we expect to see any of these tax credits included in the final bill?
Jonathan Curry: I think so. The climate portion of the bill, which is made up of more than $300 billion in mostly tax incentives, doesn't seem to have been terribly controversial among Democrats.
They've dropped some of the more punitive tax policies that were meant to steer the industry away from fossil fuels, but so far they've kept the incentive portion that survived largely through the House and the Senate versions of the bill; the Senate version being put out by the Senate Finance Committee. It was never actually voted on.
I don't see a lot of pushback from Manchin specifically on that and except for not wanting to punish fossil fuel industries. I would expect to see these survive if there is a bill.
David D. Stewart: We saw a lot of discussion in the second half of 2021 on this bill, but we haven't really heard anything this year. What's been delaying further action?
Jonathan Curry: Yeah, that's definitely been a surprise. Back in late December when things came to a halt, they were like, "Well, we'll pick it back up first thing in the new year." And they haven't.
I think it comes down to there's been other priorities. There was a big push to try to pass a voting rights bill that took up some time in the legislative calendar and consumed the public mind for a few weeks. That eventually fell apart.
There's also President Biden's need to announce a new nominee for the Supreme Court. That's something, again, that takes up public attention.
Those are tangible things that have crowded out the attention to Build Back Better. But I think intangibly, the big issue they're facing is momentum.
There was a huge push to get this passed by the end of last year. December 31, or really Christmas, was an informal deadline, and they just hit a wall. Now it's a new year, and rather than working toward a deadline and building up more momentum, it seems more like they're just working to try to get it done before they completely run out of steam ahead of the midterm elections.
I'm not a political analyst per se, but I do think once we hit those midterm elections it's a good bet Democrats will lose their majority in one or both chambers of Congress. That's just historically what happens and Biden's poll numbers aren't exactly fabulous right now to try to forestall that.
David D. Stewart: You mentioned Biden's upcoming State of the Union address. Do we expect to hear more about tax policy there?
Jonathan Curry: They'd certainly like to pass this bill before the State of the Union, so I'm sure Biden's preference would be to take a victory lap during his speech and all the wonderful things he signed into law. Assuming that doesn't happen though, I have no doubt you'll hear him reiterate his tax policy.
But frankly, I don't expect more than a few sound bites. He wants to make sure the rich and the big profitable corporations pay their fair share. He'll probably pitch his child tax credit expansion, if it's still on the table in some form by then.
But in terms of selling this package to the public, I don't really think the tax policies are totally what's steering the ship.
David D. Stewart: Looking outside of Build Back Better, do we expect any other big tax changes this year from the administration? Or is this going to be a quiet year going into the midterms?
Jonathan Curry: Now, if you had asked me last year, when it looked like there was going to be a big Build Back Better package passed, I would've said not much because he would've already done so much on the tax front that it seemed like that would tide them over for quite a long time.
But since the Build Back Better package is getting slimmer seemingly every single day, anything that's not included, I wouldn't be surprised to see them save it for later.
President Biden has said as much. He said recently during a press conference with reporters, "Just because I can't get it passed now, doesn't mean we won't pass it later. It just needs to wait a little bit longer."
If he can't get things like the child tax credit expansion right now, I wouldn't be surprised to see him still push for it in separate legislation.
David D. Stewart: All right. Well, Jonathan, this has been great. Thank you for being here.
Jonathan Curry: My pleasure.