As most of you are probably aware, on May 28th, the White House released President Biden’s proposed 2022 Federal Budget. On the same day, U.S. Treasury released what is known as the Green Book, which details and scores the President’s various tax proposals. These documents, which incorporate elements of the President’s previously announced American Jobs Plan and American Families Plan, are the most detailed glimpses we have gotten thus into the nitty gritty of the President’s proposals.
Of course, as we’ve seen time and time again, a President’s budget proposal is just that – a proposal. Congress is free to entirely disregard it and go their own direction. However, particularly when the same party is in control of Congress and the White House, Congress is typically more inclined to pick and choose portions of the President’s budget to incorporate into the appropriations bills that will emerge in the coming months.
So what are some the big things that we will now be watching for as negotiations for FY2022 get underway?
Revenue raisers, revenue raisers and revenue raisers…
President Biden’s $6 trillion budget proposal includes significant investments in non-defense spending. Under the President’s proposal, the Departments of Commerce, Education, and Health and Human Services and the Environmental Protection Agency would each see their budgets increase by more than twenty-percent with the Department of Education seeing the highest bump at 40%. The budgets for the Department of Defense and Homeland Security would be kept essentially the same from FY2021 and no agency would see notable reductions to their budgets.
In turn, the President’s budget proposes to bring in $3.6 trillion in new tax revenue over the next 10 years through a number of tax changes, many of which would be highly contentious. If it were enacted as proposed (which simply will not happen), the proposal would result in a net tax revenue increase of $2.4 trillion (due to the extension and expansion of a number of tax credits such as the child tax credit). Even with this increase, it is estimated that the proposed budget would add $1 trillion to the federal deficit over the next decade.
The bottom line to all this is that – even if Congress were inclined to incorporate just some of the President’s proposed spending increases – the focus will be on where to come up with the money to (at least partially) pay for these increases.
On the strictly corporate side, the President’s budget proposes to increase the corporate tax rate to 28%. From what we’ve seen so far – this is a non-starter even amongst the President’s own party. Senator Joe Machin (D-WV), whose vote will be essential to passing any legislation, has indicated that he is not comfortable with a 28% corporate tax rate though he could support a 25% rate. The proposal would also raise revenue through a number of changes to the way that businesses with international earnings are taxed.
The proposal is silent on Section 199A deduction for owners of closely held businesses. While it is a good thing that Section 199A is not being targeted for immediate elimination, the provision is set to expire in 2026 – at which time, depending on where the corporate tax rate stands, these closely held businesses would be placed at a severe disadvantage to their corporate counterparts. TIA has advocated, and will continue to push, for making Section 199A permanent. Even though the budget proposal does not specifically mention limiting Section 199A, there is some thought that this option may still surface as a pay-for by limiting this valuable deduction only to individuals who make less than $400,000.
Interestingly, the proposed budget would not change the gift or estate tax thresholds. Unfortunately, the same cannot be said of the capital gains tax system. The President has proposed taxing capital gains on assets going through an estate, in other words death would become an event that would trigger capital gains. Presently, not only are assets going through an estate not subject to a capital gains tax but they get a new “stepped-up” basis to the assets then fair market value. Upon a careful review of the somewhat sketchy guidance on the proposal that has come out thus far, it even appears that contributing property to a partnership would trigger capital gains as would removing property from a partnership. Even though this change is billed as only affecting the ultra-wealthy, it has the potential to wreak havoc on many small businesses, farms and ranches by requiring the payment of substantial taxes upon the death of the owner. For the first time in our nation’s history, death could cause the same asset to be taxed by estate taxes and by income taxes (capital gains tax).
Some of you may have seen an article this week in ProPublica which has obtained data (allegedly leaked from the IRS) which shows how few taxes some of the wealthiest people in the United States pay. The article goes on to explain that one of the major reasons these individuals pay so little in taxes is that they continue to hold on to their capital assets so no tax is due even though their net worth continues to grow. This article seems to implicitly support President Biden’s proposal on taxing capital gains at death. While it may make sense to tax these gains for the wealthiest of all Americans, it certainly should not apply to small business owners, farmers and ranchers who year in and year out pay their fair share of taxes and then would get hit with an additional new capital gains tax at death or when removing assets from a partnership. At a minimum there should be a step up in basis of assets equal to the then current estate tax exemption. TIA will be working hard to educate members about the impact that new capital gains taxes would have on small businesses and advocating that small business owners, farmers and ranchers not be swept up in an effort to tax the ultra-wealthy.
Despite pressure, the proposed budget does not eliminate the $10k cap on deductions for state and local taxes. A number of Democrats, particularly from those states with high state and local tax rates, have been placing serious pressure on the White House to include the elimination of the SALT cap in any proposal as a condition of garnering their support.
Again, the President’s budget is just an initial shot across the bow when it comes to what ultimately might end up in the appropriations and related bills. However, now that these options have been laid on the table, it would be a mistake not to take them seriously. With the same party in control of both sides of Pennsylvania Avenue, there is a much greater chance of things moving, and quickly, than there has been in prior years. We encourage our members to keep us apprised of their priorities and concerns throughout.
Dear Chair Cantwell and Ranking Member Wicker:
As the Senate Committee on Commerce, Science, and Transportation considers S.2016, the Surface Transportation Investment Act, the more than 120 undersigned organizations write to express strong support for Amendment Young_1, offered by Senators Young, Tester, Sinema, Blackburn, Blunt, Capito, Cruz, Moran, Scott, and Lummis, which includes the text of the bipartisan DRIVE Safe Act (S.659). The amendment will address the nation’s growing truck driver shortage by promoting opportunity and enhanced safety training for emerging members of the transportation workforce, and we urge the amendment’s inclusion in the forthcoming safety title.
Although 49 states and the District of Columbia currently allow individuals under the age of 21 to obtain a commercial driver’s license and operate in intrastate commerce, these same individuals are prohibited from driving a truck across state lines until they turn 21. The DRIVE Safe Act would change this through a rigorous two-step apprenticeship program that creates a path for these drivers to enter the industry. As the name implies, however, the legislation’s first priority is safety. In order to qualify, candidates must complete at least 400 hours of additional training—more than what is required for any other CDL holder in the nation at this time. Only once these benchmarks are successfully met will the candidate be permitted to cross state lines.
As a testament to the safety considerations underpinning the DRIVE Safe Act, all qualified drivers who participate in the apprenticeship program established by the bill would only be allowed to drive trucks outfitted with the latest safety technology, including active braking collision mitigation systems, forward-facing event recording cameras, speed limiters set at 65 miles per hour or less, and automatic or automatic manual transmissions.
Professional drivers training within the program are also required to be accompanied by an experienced driver throughout the process. Furthermore, the DRIVE Safe Act would incentivize the increased adoption of vehicle safety technologies across trucking fleets by allowing motor carriers to access a broader pool of labor in exchange for additional investments in safety.
Seventy percent of the nation’s freight is carried by commercial trucks, and, while demand is projected to increase over the next decade, the threat posed by the driver shortage stands to disrupt the continuity of the supply chain. This is especially problematic as the nation and our economy recover from the tremendous impacts of the COVID-19 pandemic. According to a recent estimate, the trucking industry needs an additional 60,800 truck drivers immediately—a deficit that is expected to grow to more than 160,000 by 2028. In fact, when anticipated driver retirement numbers are combined with the expected growth in capacity, the trucking industry will need to hire roughly 1.1 million new drivers over the next decade, or an average of nearly 110,000 per year. The COVID-19 pandemic further exacerbated the truck driver shortage, and the temporary closures of state DMVs and truck driver training schools dried up the already fragile pipeline of new drivers entering the trucking industry. And as a result of the already-crippling driver shortage, companies in supply chains across the economy are facing higher transportation costs, leading to increased prices for consumers on everything from electronics to food.
The DRIVE Safe Act will help our nation’s freight continue to move while preserving and enhancing the safety of our highway system. It will help to fill desperately-needed jobs and provide younger Americans with the opportunity to enter a profession with a median salary of $54,585, plus health and retirement benefits. With the training regimen established by the bill, these will be some of the most highly skilled drivers on the road. They will receive training in addition to what is required today. Between the advanced safety equipment requirements and extensive training, the DRIVE Safe Act would advance the cause of improved truck safety for the next generation of drivers and the public more than any other recent action by Congress.
Thank you for your attention and thoughtful consideration of this important and timely amendment. We look forward to working with you to include the DRIVE Safe Act as an amendment to S.2016, the Surface Transportation Investment Act.
Sincerely,
TIA and other trade associations