Like a vampire, the Wyden “mark-to-market” (or M2M) proposal rose from the dead over the weekend in what appeared to be a Hail Mary effort to replace large portions of the House tax hike plan at the last minute. Those parts were objected to by Senator Sinema, leaving negotiators with a large hole both in their revenue and their rhetoric.  Enter M2M.  Then Senator Manchin and Chairman Neal spoke up in opposition to the idea.  Exit M2M.

Before we get to the outlook, it’s important to focus first on just how bad an idea M2M is.  As we noted when Wyden rolled out his plan back in 2019, it would introduce a whole new concept of income and taxation into the Tax Code, a concept that has been considered and rejected many times in the past, and for good reason:

Taxing gains before they are realized, particularly with private companies, creates both valuation and liquidity issues — how do you determine the value of the asset and how do you ensure the taxpayer has the means to pay the tax?

To address all these issues, the Wyden plan takes up 107 pages of legislative text.  That’s a lot of text to tax 700 billionaires and it illustrates the complexity of what otherwise sounds simple in concept.  The Wyden proposal attempts to address these concerns by treating publicly-traded assets differently than private ones. Gains on public assets with liquid markets and transparent pricing would be taxed annually while gains on private assets would be taxed when there is a sale (or death), with a special formula used to calculate the tax. The goal of the formula is to balance out the treatment of public and private assets – the longer the private asset is held, the higher the tax.

Treating different assets differently creates its own challenges, however. Even with a formula-based tax, it is likely investors will prefer private investments with deferred taxation over public ones with immediate taxation.  How do you prevent gaming between the asset categories? What is the impact of the new tax on asset prices?  If the tax applies to existing gains, does it force a fire-sale of public stocks?  Is it constitutional?

That’s just the beginning.  Below are some links to analysis of M2M that raise these and many other concerns:

The plan would also impact way more than 700 billionaires, as once again Congress is targeting trusts and estates.  The headline says $1 billion in assets and $100 million in income, but the text released last night has significantly lower thresholds for trusts and estates – $100 million in assets and $10 million in income.  As some of the affected trusts have multiple beneficiaries, even those thresholds don’t define the total affected population.  A business owner with income well below $10 million could still get pulled into this “billionaires” tax.

As you can imagine, S-Corp and the Main Street Employers coalition were planning to raise holy hell about this in the coming days.  Now, with the opposition of Manchin and Neal, it appears we can focus our energy elsewhere.


In recent months, every Monday your S-Corp team wakes up thinking, “Wow, they just might get this thing done this week” but by Wednesday we have moved on to “There’s simply no way.”  Today is Wednesday and there is no way Democratic leaders will be able to cobble together a bill from all the remaining moving parts in the next couple days.

As one Democratic representative joked last night, “We are just missing two things: What exactly is going to be in the bill and how we’re going to pay for it.  Other than that, we are good to go.”  That’s not to say we haven’t seen movement.  They do seem to be closing in on an overall spending number and some specific items appear to be either in or out.  The “In” items include:

  • A 15-percent Book Tax for Corporations
  • SALT Relief
  • A Tax on Stock Repurchases
  • Changes to IRAs
  • NIIT Expansion to S Corporation and Partnership Profits
  • Increased IRS Funding


  • Individual, Corporate and Capital Gains Rate Increases
  • A Cap on 199A Deductions
  • Bank Account Reporting


  • Loss Limitation Rules
  • Grantor Trusts, Discounts, Unified Exemption
  • 3-Percent Surtax

To state the obvious, none of these lists are set in stone, particularly with the M2M proposal off the table.  Tax writers may need to revisit some of the discarded revenue raisers.

Meanwhile, the Corporate Minimum Tax in particular should come with a big asterisk attached.  As with the M2M, it sounds simple in concept but is really complicated in practice.  Finally, weekend reports on a SALT compromise suggest they will suspend the cap for two years on the front end and then tack on a couple extra years on the back end.  Sounds about right.

If negotiators do miss this week’s deadline, then expect these negotiations to be kicked into December along with all the other unfinished business before Congress, including the infrastructure package, the debt limit and funding the federal government.  Some say there’s a chance to see movement in November, but absent some sort of backstop forcing the two sides together, it’s hard to see how any significant concessions would be made in the coming weeks.

Which means folks should prepare for a giant train wreck, “fiscal cliff”- like scenario just before Christmas.  We could be wrong, but that seems to be where things are headed.