Democratic Budget Breakdown: August 12, 2021

The Democratic Senate approved a $3.5 trillion budget resolution 50-49 on August 11, 2021. The measure now moves to the House which is scheduled to consider it early the week of August 23rd. Committees will then begin the process of submitting reconciliation instructions to the respective House and Senate Budget Committees. Based on materials provided by Democratic leaders and the Administration, here’s a breakdown of what is in the budget and how it will be paid for. 

FY2022 Budget Resolution Toplines 

FAMILIES: the major families plan programs proposed by Biden are funded in the HELP and Finance instructions. 

  • Establishes Universal Pre-K for 3- and 4-year-olds and a new child care benefit for working families 
  • Makes Community College tuition-free for 2 years 
  • Extends the largest tax cut for families with children ever (CTC/EITC/CDCTC) 
  • Increases the Pell grant award and makes investments in HBCUs, MSIs, HSIs, TCUs, and ANNHIs 
  • Creates the first-ever federal Paid Family and Medical Leave benefit 

CLIMATE: puts the U.S. on track to meet President Biden’s 80% electricity and 50% economy-wide carbon reductions through the Agriculture, Banking, ENR, EPW, Finance, Commerce, HSGAC, and Indian Affairs instructions. 

  • Creates a new Clean Electricity Payment Program 
  • Provides clean energy, manufacturing, and transportation tax incentives and grants 
  • Imposes new polluter fees (methane and carbon imports) 
  • Invests in climate smart agriculture and forest management investments for farmers and rural communities 
  • Creates coastal and ocean resiliency programs 
  • Makes drought, wildfire, and Interior Department investments 
  • Provides new consumer rebates for home electrification and weatherization 
  • Provides Environmental justice and climate resilience 
  • Electrifies the federal vehicle fleet and buildings 

INFRASTRUCTURE AND JOBS: invests in game-changing infrastructure projects and jobs programs not included in the BIF through the Banking, Commerce, EPW, Finance, HELP, HSGAC, Judiciary, Indian Affairs, Small Business and Veterans Affairs instructions. 

  • Historic level of investments in public housing, green and sustainable housing, housing production and affordability 
  • Establishes the first-ever Civilian Climate Corps 
  • Invests in workforce development and job training programs to connect workers to good-paying jobs 
  • Provides green cards to millions of immigrant workers and families 
  • Funds smart technology for safe and efficient borders for trade, travel and migration 
  • Largest ever one-time investment in Native American infrastructure projects 
  • Rehabilitates aging Veterans Administration buildings and hospitals 
  • New economic development investments to revitalize communities and transform regions for new innovative jobs 
  • Invests in research and development and strengthens U.S. manufacturing supply chains 
  • Expands access to capital and markets for small businesses 

HEALTH CARE: builds on Democrats’ goal of providing universal health care to all Americans in the Finance and HELP instructions. 

  • Adds a new Dental, Vision, and Hearing Benefit to the Medicare program 
  • Extends the recent expansion of the Affordable Care Act in the ARP 
  • Invests in in-home and community-based services to help seniors, persons with disabilities and home care workers 
  • Creates a new federal health program for Americans in the “Medicaid gap” 
  • Reduces prescription drug costs for patients and saves taxpayers hundreds of billions 

Committee Instructions

Committee Senate House
Agriculture $135B $89B
Banking/Financial Services $332B $339B
Commerce/Energy and Commerce $83B $487B
Energy/Natural Resources $198B $26B
EPW/T&I $67B $60B
Finance/Ways and Means $1.8T $1.8T
HELP/Ed and Labor $726B $780B
Homeland $37B $500B
Oversight and Reform n/a $8B
Indian Affairs $21B n/a
Judiciary $108B $108B
Small Business $25B $18B
Veteran Affairs $18B $18B

 

PAY-FORS

Senate Finance Committee Chair Ron Wyden (D-OR) has introduced several frameworks and pieces of legislation that could be part of the Senate’s revenue provisions. They include his:

  • International Tax Overhaul 
    • Wyden and Sens. Sherrod Brown (D-OH) and Mark Warner (D-VA) touted their international taxation framework, which would overhaul Global Intangible Low-Taxed Income (GILTI), Foreign Derived Intangible Income (FDII) and the Base Erosion and Anti-abuse Tax (BEAT). The framework calls for:
      • GILTI
        • Ends the incentives to offshore factories
        • Increases the GILTI rate
        • Move GILTI to a country-by-country system
        • Add an incentive to offshore research and management jobs
      • FDII
        • Repeal the incentive to offshore factories
        • Provide the FDII benefit to companies that continually invest in innovation in the U.S.
        • Equalize the FDII and GILTI rates
      • BEAT
        • Provide full value to domestic business tax credits
        • Increase the BEAT rate on base erosion payments 
  • Pass-Through Deduction 
    • Wyden introduced S. 2387, the Small Business Tax Fairness Act, which would expand eligibility for middle-income business owners by removing industry-specific qualifications, simplify the deduction calculation for small businesses and phase out the deduction for individuals earning above $400,000.
  • Carried Interest 
    • Wyden and Sen. Sheldon Whitehouse (R-RI) introduced S. 2617, the Ending the Carried Interest Loophole Act, which would tax individuals who acquire a carried interest upon receipt of the interest and require private equity, hedge fund and real estate managers to recognize a deemed compensation amount annually, taxed at ordinary rates and subject to self-employment taxes.
  • Derivatives 
    • Wyden introduced S. 2621, the Modernization of Derivatives Tax Act, which would require mark-to-market and ordinary tax treatment for all derivatives, targeting taxpayers who use derivatives to avoid taxes, and modernize the tax rules for derivatives.

Earlier this year, the Treasury Department released the General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals (“Greenbook”), outlining several tax provisions. Many of these provisions will be on the table regarding pay-fors to the budget resolution. They include to:

  • Raise the Corporate Income Tax Rate to 28 Percent
  • Revise the Global Minimum Tax Regime, Disallow Deductions Attributable to Exempt Income, and Limit Inversions
  • Reform Taxation of Foreign Fossil Fuel Income
  • Repeal the Deduction for Foreign-Derived Intangible Income (FDII)
  • Replace the Base Erosion Anti-Abuse Tax (BEAT) with the Stopping Harmful Inversions and Ending Low-Tax Developments (SHIELD) Rule
  • Limit Foreign Tax Credits from Sales of Hybrid Entities
  • Restrict Deductions of Excessive Interest of Members of Financial Reporting Groups for Disproportionate Borrowing in the United States
  • Impose a 15 Percent Minimum Tax on Book Earnings of Large Corporations
  • Provide Tax Incentives for Locating Jobs and Business Activity in the United States and Remove Tax Deductions for Shipping Jobs Overseas
  • Expand the Low-Income Housing Tax Credit
  • Provide Neighborhood Homes Investment Tax Credit
  • Make Permanent the New Markets Tax Credit (NMTC)
  • Eliminate Fossil Fuel Tax Preferences
  • Extend and Enhance Renewable and Alternative Energy Incentives
  • Provide Tax Credit for Electricity Transmission Investments
  • Provide Allocated Credit for Electricity Generation from Existing Nuclear Power Facilities
  • Establish New Tax Credits for Qualifying Advanced Energy Manufacturing
  • Establish Tax Credits for Heavy- and Medium-Duty Zero Emissions Vehicles
  • Provide Tax Incentives for Sustainable Aviation Fuel
  • Provide a Production Tax Credit for Low-Carbon Hydrogen
  • Provide a Disaster Mitigation Tax Credit
  • Expand and Enhance the Carbon Oxide Sequestration Credit
  • Increase the Top Marginal Income Tax Rate for High Earners
  • Reform the Taxation of Capital Income
  • Rationalize Net Investment Income and Self-Employment Contributions Act Taxes
  • Make Permanent the American Rescue Plan Expansion of Premium Tax Credits
  • Make Permanent the Expansion of the Earned Income Tax Credit (EITC) for Workers Without Qualifying Children
  • Make Permanent American Rescue Plan Changes to the Child and Dependent Care Tax Credit
  • Extend the Child Tax Credit Increase Through 2025 and Make Permanent Full Refundability
  • Increase the Employer-Provided Childcare Tax Credit for Businesses
  • Tax Carried (Profits) Interests as Ordinary Income
  • Repeal Deferral of Gain from Like-Kind Exchanges
  • Make Permanent Excess Business Loss Limitation of Noncorporate Taxpayers
  • Provide the IRS the Resources to Address Sophisticated Tax Evasion Through Sustained, Multi-Year Mandatory Appropriation
  • Introduce Comprehensive Financial Account Reporting to Improve Tax Compliance
  • Increase Oversight of Paid Tax Return Preparers
  • Enhance Accuracy of Tax Information
  • Address Taxpayer Noncompliance with Listed Transactions
  • Modify Tax Administration Rules
  • Authorize Limited Sharing of Business Tax Return Information to Measure the Economy More Accurately

Treasury and the Biden administration’s tax plans follow 6 major principles:

  • Collecting sufficient revenue to fund critical investments;
  • Building a fairer tax system that rewards labor;
  • Reducing profit shifting and eliminating incentives to offshore investment;
  • Ending the race to the bottom;
  • Requiring all corporations to pay their fair share; and
  • Building a resilient economy to compete.