Analysis of early versions and expectations of a new Biden Administration proposed tax system is setting off alarm bells with regard to the potential negative impacts it may have on the country’s economic recovery and potential growth.  The President’s views on taxing policy received very little coverage or scrutiny during the campaign and has remained largely in the background over the first month of this new administration, which has been dominated by his Executive Orders.  Any changes will have to survive likely filibusters in the Senate, meaning a 60-vote consent to move forward, but that is not entirely “bullet proof” given the Democrats willingness to end-run the traditional and widely accepted procedural system that has earned the upper chamber the distinction of being the “most deliberative body in the world.”

Key Findings:

(1) Several changes to the corporate income tax, including raising the rate from 21 percent to 28 percent and imposing a 15 percent minimum tax on corporations with $100+ million in book income. These proposals are being considered to raise revenue for new spending programs and would repeal changes to the corporate tax made by the Tax Cuts and Jobs Act (TCJA) in late 2017.

(2) An increase in the federal corporate tax rate to 28 percent would raise the U.S. federal-state combined tax rate to 32.34 percent, highest in the OECD and among Group of Seven (G7) countries, harming U.S. economic competitiveness and increasing the cost of investment in America. The Tax Foundation estimates that this would reduce long-run economic output by 0.8 percent, eliminate 159,000 jobs, and reduce wages by 0.7 percent. Workers across the income scale would bear much of the tax increase. For example, the bottom 20 percent of earners would on average see a 1.45 percent drop in after-tax income in the long run.

(3) A minimum tax on the book income of large corporations would target gaps between financial and taxable income that generally exist because the rules for taxation differ from standards for reporting income to shareholders. Such a minimum tax would likely introduce additional complexity and distortions into the tax code and generate relatively little tax revenue, in part because firms have a degree of flexibility in reporting book income. The tax would potentially undermine current-law investment incentives as well as those proposed by President Biden, such as the “Made in America” tax credit.
(SEE, Chart on OECD Tax Levels, and The Tax Foundation’s report for details:

https://taxfoundation.org/biden-corporate-income-tax-rate/#Key )

In an example of the dictum: “never let a crisis go to waste” the Democrat majority in the House of Representatives have passed and sent to the Senate an enormous $1.9 Trillion dollar package filled with longstanding left items that have little or nothing to do with direct aid or support for needs resulting from the pandemic or ensuing shutdowns. Much of the spending is not even going to be expended in 2021, notwithstanding the fact it is being passed under the moniker of “emergency relief.”  These details, including an increase in the minimum wage to $15/hour, has run into trouble in the evenly divided Senate.  (SEE, National Journal tables explaining key elements of the package).

A business coalition lead by the U.S. Chamber, including CIRT among other design/construction organizations, sent a letter to members of Congress calling for timely, targeted, and temporary federal liability relief related to COVID-19.  The purpose was to have a broad cross-section of organizations join together to demonstrate how vital this critical matter is to U.S. businesses of all sizes and industry segments. The coalition urged Congress to take bipartisan action on this issue as part of any future relief measures.  [See, Coalition Letter for details]

CIRT joined business groups calling upon the Trump administration to stop a new effort to scrutinize large businesses that took emergency payroll loans during the pandemic, warning that officials were asking inappropriate questions that appeared biased against borrowers. At issue are "loan necessity" questionnaires that the Small Business Administration has proposed that gathers information from businesses that took Paycheck Protection Program loans worth $2 million or more. The nine-page forms, which the SBA issued with little public explanation, sought details from borrowers beyond what they provided in initial loan applications, including information on quarterly revenue, capital expenditures, dividend payments and whether any employees earned more than $250,000.

Eighty groups including CIRT, the U.S. Chamber of Commerce, the American Bankers Association, and the National Association of Manufacturers warned the SBA and the Treasury Department that the questionnaires introduced a "confusing and burdensome" process for borrowers and PPP lenders. A similar letter was sent to the US House and Senate leadership pointing out the problems associated with the proposed procedures. The broad pushback from the business community is the latest flashpoint over the “Paycheck Protection Program,” which issued $525 billion of emergency loans to more than 5 million businesses as a way to keep workers connected to their jobs. The loans can be forgiven if businesses agree to maintain payroll. In the new questionnaires, the SBA said it was examining the loans “to maximize program integrity and protect taxpayer resources" and to review the "good-faith certification that economic uncertainty made your loan request necessary to support your ongoing operations.” But business groups — representing lenders that issued the loans and the borrowers that received them — say the SBA is using criteria beyond what was required by Congress to evaluate whether larger companies needed the money; pointing out that: submission of revenue and liquidity data "appears to signal a bias against PPP borrowers that managed to survive or remain profitable despite the Covid-19 pandemic." They said the legislation that established the program in March did not include liquidity or revenue tests and so "those considerations are inapplicable and inappropriate as it relates to the forgiveness of any currently outstanding PPP loan." Instead, the business associations said the agencies should ask borrowers for a "narrative statement" with documentation to support their decision to seek the loans.

[For details, see the coalition letters to the Administration as well as U.S. House and Senate Leaders].

It’s an understatement to say it has been an unusual year for legislation with the pandemic and presidential politics; however, Congress averted a government-wide shut down by passing a stopgap spending package and sending it on to the President for signature before the October 1st deadline.  Not only did the “Continuing Resolution” (CR) contain government funding through December 11th, more importantly for the design/construction industry it also included funds for the federal highway and transit programs for a full year. The one-year extension is crucial to states and communities that need funding certainty to plan and advance critical surface transportation projects. The new law will also provide $13.6 billion to support the Highway Trust Fund which underpins both highway and transit projects.  Notwithstanding this critical spending commitment, CIRT continues urge longer-term steps to address policy and funding needs over a multi-year timeframe for highways and transit projects.  

CIRT was invited to participate and play a role in a recent webinar hosted by the law firm of Crowell & Moring that addressed the matter of infrastructure needs and various legislative vehicles that may be crafted over the next year to address this matter.  To hear the webinar entitled: "Infrastructure Panel — U.S. Infrastructure in 2020 and Beyond: As Congress turns its sights to rebuilding U.S. infrastructure, what should stakeholders expect?” in its entirety use this link / email:

WEBCAST LINK:  https://event.on24.com/wcc/r/2590787/B5515C75D7FDEBA31D906471868AA981?mode=login&email=jane@cirt.org

EMAIL: jane@cirt.org

To download the slides / charts, click HERE.

CIRT joined with a cross-section of business associations and organizations in a survey identifying the groups top priorities for the next COVID-19 response bill. The survey asked trade groups to rank sixteen policies on a five-star scale along the following lines (with a score of 3 being essentially the mid-point):

The polices listed in the survey are largely limited to those directly affecting businesses and the workers they employ. These policies were included in the House-passed HEROES Act, the proposed Senate Republican Phase IV bill, and the Administration’s stated priorities. They lean primarily to tax policy, but not entirely.

Sixty-two organizations responded, providing what appears to be well-rounded answer to the critical question of what’s important to employers as Congress continues to grapple with COVID-19; see results below.

The top priority from the survey is for Congress to “provide employers with liability protection” if they reopen their businesses while taking reasonable precautions to protect their employees. This policy scored an almost perfect 4.7, suggesting that the business community has shifted its focus from helping employers and workers during the shutdown to taking the steps necessary to reopen the economy.

The other policies that scored 4 or better focused on the Paycheck Protection Program. Of the myriad of policies enacted to respond to the COVID-19 shutdown, no program has been as widely utilized as the Paycheck Protection Program (PPP). Despite several missteps, the program provided more than $500 billion in needed capital to over five million businesses.

For the next COVID-19 bill, the business trade strongly support restoring the tax deductibility of PPP loan forgiveness. This was clearly Congresses’ intent when it enacted the program, and its simply inexplicable that the Treasury Department continues to oppose this policy in the current environment. Business trades also support extending the PPP program’s authorization and making its benefits more accessible.

CIRT joined an effort of business organizations lead by NFIB opposed to the Crapo-Brown amendment requiring “beneficial ownership” reporting requirements to the National Defense Authorization Act (NDAA). The amendment requires small businesses with 20 or fewer employees and $5 million or less in gross receipts to report personally-identifiable information of “beneficial ownership” (individuals who own 25% or more of an entity or individuals who directly or indirectly exercise substantial control of an entity) to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Although aimed at smaller entities the proposed new requirements, that are substantially similar to the H.R. 2513, the Corporate Transparency Act of 2019 which passed the House in October and S. 2563, the ILLICIT CASH Act, which has yet to receive consideration in the Senate; set a bad “precedent” with respect to more intrusive and burdensome mandates.  

The amendment intends to combat money laundering, but imposes a duplicative reporting burden on businesses as they try to recover from an unprecedented economic and public health crises. Small business owners already submit this information to financial institutions, where it is protected by a subpoena. It also risks small business owner privacy as local, state, tribal, and federal law enforcement agencies would have access to this information through requests, eliminating the subpoena protection. Essentially, this amendment intends to shift the reporting burden from financial institutions to small businesses and eliminates privacy protections. [For details see Coalition Letter].

CIRT joined a broad based cross-section of businesses to express strong support and appreciation for the provisions enacted in the CARES Act relating to net operating losses (NOLs).  The letter to leaders of the Senate Finance Committee observed how beneficial these changes were at a challenging time for many industries, providing them critical liquidity for operations. But it also raised alarm bells pointing out that: “We are concerned that some in Congress are seeking to reverse these changes and would urge you to leave them in place.”  As noted in CIRT’s story on (04/24/2020) regarding this topic: the ability to carryback NOLs is a critical component of a well-operating income tax system; having long been a bipartisan tool utilized by lawmakers routinely applied during times of economic distress.  [For details see Letter to Senate Finance Committee].

CIRT has joined a cross-section of businesses in supporting bipartisan legislation to improve and enhance the ERTC program.  To this end, a bill has been offered by Reps. Stephanie Murphy and John Katko called: the JOBS Credit Act (H.R. 6776) to address this matter.  Building on the ERTC provision included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136 (Section 2301)), the JOBS Credit Act would include a number of policy enhancements, such as:

• An expansion of the credit percentage from 50 percent to 80 percent of qualified wages;
• An increase of the per-employee limitation from $10,000 for all calendar quarters to $15,000 per calendar quarter (and an aggregate of $45,000 for all calendar quarters);
• A phased-in credit, which will allow employers with more than a 20 percent decline in gross receipts to be eligible for a portion of the credit; and
• Improved coordination between the ERTC and the Paycheck Protection Program so employers can be eligible for both programs, but with guardrails in place to prevent “double dipping.”

Background:
The CARES Act created an Employee Retention Tax Credit (ERTC) to help provide liquidity to employers trying to cope with the impact of government shut-down orders and declining revenue. The ERTC was a welcome aid for employers attempting to retain their workforce or hoping to be able to rehire furloughed employees when able to so; however, the initial ERTC provision was limited in the amount of credit provided, employer eligibility for the credit, and ability to use the ETRC and the PPP.

For details see the Coalition Letter.