Prospects for action on President-elect Joe Biden’s tax proposals have increased significantly with Georgia Senate runoff election results putting Democrats on track to control the Senate as well as the House. Based on unofficial results, Democratic candidate Raphael Warnock is projected by the Associated Press to have defeated incumbent Senator Kelly Loeffler (R-GA) and Democratic candidate Jon Ossoff is leading former Senator David Perdue (R-GA). Democratic victories in the two Georgia races would result in a 50-50 Senate with the tie-breaking vote of Vice President-elect Kamala Harris giving Democrats a de facto 51-50 majority.
This result would allow Democrats to use the ‘budget reconciliation’ process in seeking to advance some of Biden’s tax proposals in 2021 with only Democratic votes. While Democrats appear to be on track to gain control of the Senate, the 2020 election results produced unexpected losses for House Democrats. In the House, a simple majority vote of 218 generally is needed to pass legislation. Democrats currently have a slim 222 to 211 majority; one New York House race is still undecided and a Louisiana House seat is vacant due to the recent death of Representative-elect Luke Letlow (R-LA). The scope of any tax increase proposals will be limited by the need to gain the near-unanimous support of House Democrats and all 50 Democratic Senators.
Key Biden business tax proposals include increasing the US corporate tax rate to 28% and rolling back income and estate tax reductions from the 2017 tax reform act for taxpayers with incomes above $400,000. See below for more details.
President-elect Biden recently stated that his first priority will be to address the COVID-19 pandemic and provide additional relief to individuals, businesses, and communities. Biden has said that the $920 billion COVID relief and recovery package enacted in December was a ‘down payment.’ Biden is expected to propose additional relief legislation that likely will include increased funding for vaccine distribution and an increase in individual recovery direct payments, along with other measures. The 2020 year-end legislation also included a significant ‘tax extenders’ package renewing business and individual provisions that had been set to expire at the end of 2020.
The results of the 2020 election cycle will have a significant impact on the direction of tax policy. Businesses and individuals will want to examine the proposed tax changes and their potential impact on job creation, cash flows, investments, and deals. Actions to consider include modeling the effects of the proposed legislation outlined above, considering steps that can be taken to lock in value in advance of possible tax law changes, managing risk, and assessing interaction with proposed changes outside the United States. Companies should also consider engagement with policymakers in Congress and the Biden administration.
For a PwC Insight on the 2020 year-end tax legislation, click here.
For a PwC Insight on individual tax considerations for Biden tax proposals, click here.
For a PwC Insight on business tax considerations for Biden tax proposals, click here.