Following the emergence of Joe Biden, as the 46th President of the United States of America, there have been speculations surrounding what Joe terms “The American Rescue Plan” with a focus on increasing taxes. While there has been a lot of public sentiment from various angles, this article highlights how the American Rescue Plan can be enacted into bills, despite not being highly noticeable.
Marc Gerson, a former majority tax counsel to the House Ways & Means Committee, once said, “There were a number of revenue-raisers added to satisfy revenue reconciliation that could be revisited in the future to generate additional revenue and one of those would be the expansion of the Code Section 162(m) limitation which is scheduled to go into effect in 2027, but that’s something that might be moved forward to generate more revenue, and then, there is the one-year extension to 2026 of excess business loss rules. These could be further extended into the future, so to some degree, the American Rescue Plan represents a harbinger of things to come with respect to revenue-raisers.”
Still, on this exposition, Adam Cohen, a partner at law firm Eversheds Sutherland, opines that an important feature of the amendments to Section 162(m) is that the extra top-five employees covered accommodate any employees of the organization and not restricted to only officers, as it is stated under the present Section 162(m).
He further explained that “This would mean that for companies with highly paid non-officers, the compensation paid to those individuals would be subject to the $1 million deduction disallowance.” Furthermore, he also made clear the examples of these companies, saying “Examples include companies with highly paid entertainment talent, employees with substantial commissions, or employees who have a high income in a particular year due to option exercise or nonqualified deferred compensation payouts.”
A “very significant” infrastructure plan, as well as a renewable energy package with a significant portion financed by the increments in tax, would be next on the Biden administration’s agenda, according to Gerson. Gerson also posits that “The infrastructure proposal and the Green Book will set the starting point for tax policy discussions for the year. There’s a lot to figure out both on the scope of spending and how to pay for it, including what tax increases will be necessary to pay for it. We’re in a little bit of a holding pattern, but I expect the spring will be busy as committee hearings are followed by the release of the Green Book in late April.” Grant Thornton’s Washington National Tax Office managing director, Dustin Stamper, also agreed to the view of Marc Gerson.
In furtherance of this view, Janet Yellen, United States Secretary of Treasury, “the Green Book will give us a clue into the administration’s top tax priorities. The passage of the American Rescue Plan opens the door for the Democrats to look at more transformational tax proposals. It will be their first opportunity to show how aggressive they want to be on their tax increase proposals. They’ve indicated that they want to go pretty big on things like climate change and infrastructure, and they’re not going to want to do all that with deficit funding, so revenue-raisers will be on the table. There’s been a lot of discussion about a corporate tax rate increase. Joe Manchin [D-West Virginia] has indicated he’s supportive of an increase to at least 25 percent. That kind of moderate buy-in is significant. Other low-hanging fruit will be increasing in the top marginal rate, the capital gains rate and other rates on investment income”.
She also reiterated further that “Congressional Democrats are also focused on international tax rules. We’re expecting in the next couple of weeks a pretty significant tax reform package from Senator Wyden [D-Oregon, chairman of the Senate Finance Committee]. But I think it’s important to keep in mind that whatever proposals for tax increases we’ll see will be dialed back from what we saw during the campaign, but that still leaves room for some significant tax increases.”
However, all of these views beg the question— how will this be effective, successful and beneficial for Americans?
Dustin Stamper highlights that “We’re still hopeful that they’re going to be reluctant to impose increases retroactively. It seems more likely, given the fragile economy that they’ll look to make changes prospectively.”
Marc also raises this awareness that businesses are keeping a close eye on trends and are readying themselves for tax hikes. He further mentioned the results of the Annual Tax Policy Forecast by the National Foreign Trade Council, where it was revealed that there is an increased concern about how the legislative agenda for tax is going to unfold.
He concludes by saying, “The dynamic and ever-changing political environment, combined with the threat of significant business tax increases, has given taxpayers a heightened sense of awareness of tax policy developments”. Everybody is watching, and doing so clearly.