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Yellow Alert: Broker Implications in Biden’s Democratic Agreement on Spending and Taxes

October 28, 2021

Broker Implications in Biden’s Democratic Agreement
on Spending and Taxes

The White House today announced a $1.75 trillion legislative framework, marking a major development on the social spending “Build Back Better” package. The details are beginning to emerge this morning and though we‘re cautious about claiming victory before seeing the final text, we’re optimistic that our advocacy efforts succeeded on several major broker priorities.

That said, the path is not completely clear, given progressive pushback.

For more information on what’s included and how the package will be funded, see the White House’s Build Back Better Fact Sheet.

Today’s move was aimed to assure House passage of the bipartisan “hard” infrastructure bill in short order. At this writing, given House progressive Members’ reluctance to pass the infrastructure bill in the absence of stronger assurances of social priorities, there is the possibility of congressional action but no Presidential signing ceremony until later. We do, however, expect the House and Senate to consider the social spending/reconciliation bill in the coming weeks.

Here’s what we know about our top legislative priorities.

Tax Implications

  • 199a/Pass through: it appears that the efforts to limit the availability of the pass through deduction have been abandoned. This was a major priority of ours.
  • ESOP/IRA Reform: Congress’s top tax writers tell us the reforms are rewritten to avoid penalizing regular business practices in their effort to target tax avoidance schemes of top earners. That said, the provision is not included as a pay-for in any of today’s public documents.
  • Capital Gains: The rate is unchanged with the current rate remaining.
  • Corporate tax rate: No corporate tax rate increase is mentioned, but the framework describes a 15% minimum tax on corporations with over $1 billion in profits reported to shareholders, and a 1% surcharge on stock buybacks.
  • Foreign profits and corporations: The framework describes a 15% country-by-country minimum tax on foreign profits of U.S. corporations and a penalty rate on foreign corporations based in countries that do not abide by the minimum tax rules.
  • Tax increases for the wealthy: The framework describes a 5% surtax on individuals with income above $10 million and an additional 3% surtax on income above $25 million. It also describes closing “loopholes” relating to the 3.8% net investment income tax.
  • IRS funding: The framework describes additional funding for IRS enforcement, which “will be focused on pursuing those with the highest incomes; not Americans with income less than $400,000.”

 

Health & Benefits Implications

  • Efforts to have CMS negotiate Medicare prescription drug prices have collapsed. In an earlier House Ways & Means markup of the legislation, Democrats had expected savings (over 10 years) of $700 billion from Medicare drug negotiations. The Council’s view was that we did not oppose price negotiation, but we wanted any savings to be available to private plans. While the legislation purported to do so, it was our expectation that such a provision likely would have not survived a “Byrd Bath” under Senate reconciliation rules. This could have resulted in yet another cost shift to private health plans.
  • Medicare Expansion: expanding hearing benefits is the only provision that remains in the package. Dental and vision benefits have been cut.
  • Affordable Care Act Premium Tax Credits: Expanded ACA premium tax credits will be extended through 2025. Tax credits will be made available to about four million uninsured individuals in states that have not expanded Medicaid.
Clearly, the package has been significantly curtailed due to the objections raised by Sens. Kyrsten Sinema and Joe Manchin. We are grateful for their stance in opposition to several provisions that could have negatively impacted brokerage taxation.

The devil will be in the details. In particular, we expect to see a continuation of debate on the extent and implementation of global minimum tax provisions. Other provisions aimed at higher-wealth taxpayers could have spillover impact.

More information and analysis will be forthcoming. In the meantime, please feel free to reach out to The Council’s Joel Wood, Joel Kopperud or Blaire Bartlett.