The Senate this week is expected to begin consideration of the $1.9 trillion ‘American Rescue Plan Act’ that was approved by a House vote of 219 to 212 in the early hours of February 27. The House-passed legislation includes tax relief and tax increase provisions that are estimated by the Joint Committee on Taxation (JCT) staff to reduce overall federal revenues by $590.7 billion over 10 years.
The House legislation reflects COVID relief measures proposed by President Biden, including additional $1,400 economic recovery impact payments to eligible individuals, funding for vaccine distribution, refundable tax credits, expanded unemployment benefits, and $350 billion in aid to state and local governments. Additional House tax provisions include an extension of the employee retention tax credit and a proposal repealing a long-delayed worldwide interest allocation election that was set to be effective in 2021.
Senate Democratic leaders hope to complete action on the American Rescue Plan legislation (H.R. 1319) under ‘budget reconciliation’ procedures before March 14, when current expanded unemployment benefits are set to expire. Senate changes to the House-passed bill are expected to include removing a provision increasing the federal minimum wage to $15 per hour that the Senate parliamentarian has ruled a violation of budget reconciliation rules. A final version of the legislation will have to be approved by both the House and Senate before it can be sent to the White House.
Action item: Assuming Congress quickly completes work on the American Rescue Plan legislation, President Joe Biden is expected to call for action on his ‘Build Back Better’ economic recovery plan in a mid-March address to a joint session of the House and Senate. Companies should be evaluating actions they may want to consider in anticipation of Congress using a second budget reconciliation bill to advance an economic recovery plan that may include significant tax increase proposals affecting corporations, investments, and individuals. Companies also should evaluate how provisions of the American Rescue plan -- including the extended employee retention tax credit and repeal of the worldwide interest allocation election -- may impact their businesses.
President Biden and the Democratic-controlled Congress have been successful thus far in using budget reconciliation procedures to advance significant legislation. Assuming Democrats remain united in the House and the Senate, taxpayers should be preparing not only for changes that are being considered as part of the American Rescue Plan legislation, but also for potential ‘Build Back Better’ economic recovery legislation with tax increases that could be included in a second reconciliation bill later this year.
The second reconciliation bill could propose increases in tax rates for corporations and high-income individuals, international tax law changes, and other revenue-raising measures. With potential tax-increasing legislation one step closer to consideration, taxpayers should model and plan for proposed changes and engage with policymakers now to communicate their potential impact on jobs and business operations.