Source: RSM US LLP.  PBMares is a member of RSM US Alliance. 

TAX ALERT | July 27, 2022

 

Executive Summary

Tax increases affecting large corporations and private equity firms are part of a new, rebranded budget reconciliation framework that Senate Democrats will consider after Sen. Joe Manchin of West Virginia agreed on July 27 to support it. It’s a stark turnaround for the prospect of significant tax changes, which seemed much less likely after Manchin decided on July 14 to withdraw his support for any legislation that included climate or tax provisions.

Summer Senate twist

In a remarkable twist of events, even by Washington standards, Manchin announced on July 27 that he has reached an agreement with Senate Majority Leader Chuck Schumer (D-N.Y.) that would secure his vote in favor of the so-called Inflation Reduction Act of 2022. The legislation is a rebranded and expanded version of a revised budget reconciliation agreement that was agreed to just two weeks ago after Manchin announced his opposition to any tax or climate provisions.

The overall tenor of the package—seeking to address inflation by reducing future deficits, helping consumers meet the rising costs of health care, and making investments in energy security and climate change solutions—falls squarely within Manchin’s comfort zone. His support for the tax provisions in the latest agreement, however slimmed down, appears to have taken many on Capitol Hill, including his own colleagues, by surprise.

The agreement would raise $739 billion over the next 10 years and generally includes:

  • A 15% corporate minimum book tax—estimated to raise $313 billion. (This is not to be confused with the 15% global minimum tax proposal as part of the OECD Pillar 2 agreement.)
  • Carried interest modification (including extending the holding period for certain taxpayers from three years to five years) – estimated to raise $14 billion
  • Enhanced IRS tax enforcement efforts—estimated to raise $124 billion
  • Projected savings from the prescription drug pricing measure—estimated to generate $288 billion in savings.

The proposed legislation would spend $369 billion on energy and climate change initiatives and $64 billion on Affordable Care Act health care credits, leaving $306 billion for future deficit reduction. The measure could be headed to the Senate floor sometime during the week of Aug. 1.

Obstacles ahead include:

  • The full support of every Democrat in the Senate. In the hours after the agreement was announced, Sen. Kyrsten Sinema of Arizona, another moderate who has opposed certain tax provisions in previous reconciliation frameworks, indicated she needed to review the legislation.
  • The support of most, if not all, of Democrats in the House, where margins are slim.
  • The calendar—it is unclear how quickly this legislation can move through the Senate and the House. An effort will most likely be made to complete this legislation before Congress leaves for its August recess.
  • The Senate Parliamentarian—the Parliamentarian will need to determine that the agreement conforms to the requirements of budget reconciliation.
  • Budget scoring pursuant to budget reconciliation requirements performed by the Joint Committee on Taxation and the Congressional Budget Office.

It is important to keep in mind that while this development certainly changes the political dynamic, the situation is fluid and is likely to change over the next several days and, possibly, weeks. The only thing certain: Congress has until Sept. 30 to act under the rules of reconciliation, which only require 50 votes for the Democrats to pass this legislation in the Senate.

 


This article was written by Dave Kautter, Fred Gordon and originally appeared on 2022-07-27.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/tax-alerts/2022/senate-summer-twist-sen-manchin-announces-support.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

 

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.