Authored by Paul Dillon, Michelle Hobbs, Mike Schiavo and Kasey Pittman
On July 28, 2021, the Senate voted 67-32 to invoke cloture on the roughly $1 trillion bipartisan infrastructure bill, titled the Infrastructure Investment and Jobs Act, allowing debate on the bill to commence. Prior to the vote, Senators received a 57-page summary of the bill; the proposed legislative text has not yet been released.
The bipartisan bill is significantly different from the original $2.6 trillion infrastructure outline proposed by President Joe Biden. Many tax provisions initially discussed as part of the plan are not contained in the Senate framework. That does not necessarily mean those that are not included have been abandoned. Instead, the revenue offsets incorporated into this package are likely the only ones that garnered sufficient bipartisan support for passage. More significant changes to the tax code and revisions to the Tax Cuts and Jobs Act (TCJA) are likely to be addressed in the larger $3.5 trillion reconciliation bill Democrats are currently negotiating and drafting.
The bipartisan infrastructure bill contains three tax provisions: one expense and two “pay-for” provisions.
Sec. 48C, qualifying advanced energy project credit (expense) – The infrastructure bill includes $8 billion in new appropriations for Sec. 48C credits. This credit is available as a 30% investment tax credit to manufacturers and other industrial users to retool, expand or build new facilities that make or recycle energy-related products or to reduce their process-related greenhouse gas emissions. Half of these funds are set aside for use in communities where coal mines and power plants have closed or that have not previously received the credit.
Cryptocurrency (pay for) – Included in the bill’s outline is a new reporting requirement for digital assets, including cryptocurrency. The definition of a broker will be expanded to include those who operate trading platforms for crypto and other digital assets, thereby requiring such transactions to be disclosed to the IRS. The Joint Committee on Taxation estimated that proper reporting of digital assets to the IRS will bring in approximately $28 billion in revenue.
Extending interest rate smoothing for defined benefit pension plans (pay for) – Pension smoothing, a practice originally introduced as a “pay-for” in a 2012 infrastructure bill, allows sponsors of defined benefit plans to apply higher interest rates in assessing future liabilities. This allows for a lower estimate of future liabilities and leads to a reduced annual contribution to pension plans (resulting in a smaller income tax deduction). Absent an extension, this provision expires in the 2020 plan year. The extension of this provision is projected to bring in $2.9 billion in revenue.
Once the legislative text of the agreement is released, it will be subject to extensive debate as well as potential amendments in the Senate. It is also possible the House could revise the bill following any passage by the Senate.
Looking forward, the infrastructure bill could pass the Senate as early as next week. The bill would then move to the House of Representatives, where it will likely meet resistance. The Speaker of the House, Nancy Pelosi, has publicly commented she will not bring the bipartisan infrastructure bill to the floor for a vote until it can be accompanied by the $3.5 trillion reconciliation bill.
The $3.5 trillion reconciliation bill framework is being actively negotiated among Senate Democrats. Given the minimal support from Republicans, this bill is intended to pass the Senate using the budget reconciliation process. This means only 50 votes are needed (not the 60 needed to break a filibuster) with Vice President Kamala Harris casting the tie-breaking vote.
The reconciliation package will likely be hotly debated between the progressive and moderate wings of the Democratic Party. On Wednesday, Sen. Kyrsten Sinema (D-Arizona) publicly stated she did not support the bill with its current price, indicating that while she may vote for the budget resolution in order to allow the reconciliation process to begin, she hopes to scale back spending. Conversely, progressives in the House are likely to push for the larger package in exchange for support on the bipartisan plan. The Democratic margin in the House is also slim so negotiating a final package will likely be difficult.
The contents of the reconciliation package is currently unknown; however, we anticipate many of the administration’s tax proposals, as analyzed in the Treasury Department’s Green Book that was released in April, to be included.
For additional information about these potential changes, please see our previous tax alerts on the spending plans and the Treasury’s Green Book analysis. It is critical to note the above is likely to be subject to extensive negotiations and debate as this process continues.
We encourage you to connect with your Baker Tilly advisor regarding how any of the above may affect your tax situation.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.