The Biden administration’s tax proposals pose a triple threat to individually- and family-owned businesses.  They raise taxes on Main Street Employers when they earn income, when they sell the business, and when they pass the business on to their kids.  The business community is understandably alarmed at the prospect that these policies could be enacted, but exactly what are their prospects and what is the timing of potential action?  Here is the latest.

Later, Not Sooner 

Three announcements last week helped clarify the process, timing, and content of a potential tax and spending package in Congress:

  • First, Senate Majority Leader Chuck Schumer generated headlines in April when he announced the Senate Parliamentarian had effectively allowed for unlimited reconciliation bills in any given year. The news was deemed a “game changer,” as it dramatically expanded Schumer’s ability to pass legislation with a simple majority. The actual memo released last week, however, paints a far different picture.  It bars the majority party from using the budget reconciliation process “simply to avoid the regular legislative process,” among other limitations. That suggests Schumer has access to just one more reconciliation package this year, which means President Biden’s infrastructure and tax plans will need to be considered as one omnibus package, rather than multiple smaller and potentially less-controversial bills.
  • Second, Schumer also said that Senate consideration of a FY2022 budget resolution would wait until July. This announcement appears to update House Speaker Nancy Pelosi’s earlier July 4 deadline for moving an infrastructure bill, and it means that any actual tax policy would not be considered until after the long August recess – so September or October at the earliest.  While Schumer’s announcement was accompanied by rumors that the August recess would be cancelled, those rumors have occurred in the past, as has the August recess.  It is not easy to cancel the plans of 100 Senators.
  • Finally, last week House Agriculture Committee Chairman David Scott (D-GA) wrote to President Biden expressing his serious concerns with the Administration’s capital gains at death proposal, writing: “The potential for capital gains to be imposed on heirs at death of the landowner would impose a significant financial burden on these operations.” This letter follows similar concerns raised by other Democrats.  Senators Mark Warner (D-VA) and Bob Menendez (D-NJ), two key members of the Senate Finance Committee, both expressed concern over the provisions, as has Senator Jon Tester (D-MT). A letter signed by 13 House Democrats in May echoed these sentiments as well.

Taken together, these news items suggest we’re back to having a base-case of a single, massive reconciliation bill considered by Congress sometime after the August recess.  Gone are the chances of quick action and gone is the notion of multiple bills enacted under the rumored new understanding of how reconciliation works.  The news also raises the prospects that Congress fails to act entirely.  Piecing together one big bill will force Pelosi and Schumer to navigate the tricky landscape of conflicting policy priorities within their own conference.  Not an easy task and it reduces the chances that a large tax hike is enacted at all.

Capital Gains at Death Out, Estate Taxes & Carried Interest In

As to what tax policies might be included in a potential big bill, we have confidence that the Administration’s “capital gains tax at death” is all but dead itself, which also spells doom for their proposed hike in the capital gains rate.  President Biden called for a 43.4 percent top rate, the highest capital gains rate in the US since the 1920s, but without some sort of “anti-lock-in” policy, any capital gains rate above 28 percent will be scored as losing money for the US Treasury.  That’s a non-starter for tax writers.

This also means the resurrection of policies to raise estate taxes as well as possible changes in how carried interest is taxed.  When Congress was still considering the capital gains at death proposal coupled with the 43.4 percent top rate, there was no need to target the estate tax and no need to change carried interest taxation.  With a 28 percent rate, those tax hikes are back on the table.

Meanwhile, Biden’s proposal to beef up IRS enforcement and increase bank reporting requirements – which the administration says will raise $700 billion over the next decade – has its own problems. Increased appropriations don’t score under budget reconciliation, so any revenues resulting from the bigger IRS budget will not be available to offset spending or tax cuts in the big bill.  Whether the bank reporting requirements score is unclear, but what is clear is that they are highly controversial.  Coming on the heals of this week’s leak of several billionaires’ tax filings, it will be hard for the IRS to argue it has the ability to secure these new reports.

Bipartisan, Not Partisan? 

Finally, there’s the lingering question of whether a bipartisan deal will materialize. Such a deal would dramatically reduce the impetus for the larger infrastructure package and all but eliminate the threat of large tax hikes enacted later this year.

When talks first started, the negotiations felt perfunctory: Republicans had proposed around $600 billion in spending on “traditional” infrastructure, such as roads, bridges, and the power grid, while the White House called for a much broader $2.3 trillion package. But that gap has closed considerably in the past several weeks, and even though Biden has indicated he’s ready to move on, the extension of talks beyond a self-imposed Memorial Day deadline shows the administration might be getting nervous about its ability to move a bigger bill on a purely partisan basis.


Last week’s news provided increased clarity on the tax front.  The size of the potential infrastructure/tax bill is shrinking, the timing for its consideration is getting later — September at the earliest — and the odds Congress fails to move a bill at all and does nothing are growing.  So are the chances for a bipartisan package.  Meanwhile, the capital gains at death and 43.4 percent rate are off the table, but changes to the estate tax and carried interest are back in play.  As the business community continues to fight this package, that’s the latest.