The newly passed infrastructure bill is, at this moment, closely tied to the human infrastructure bill, which will seek to implement increasingly aggressive tax reform.
On August 10, the Senate voted to enact the Invest in America Act, a $1 trillion infrastructure bill that will set aside over $500 billion for new highways, bridges, waterways, transit, airports and internet services. The vote was a result of lengthy negotiations between President Joe Biden and key officials on both sides of the aisle, as the legislation passed with a bipartisan 69 to 30 vote. The bill also contains tax offsets that may impact corporate and individual taxpayers, which are highlighted below.
Key Tax Provisions
There are no new income taxes contained in this infrastructure bill. However, a far larger $3.5 trillion social-spending vehicle―known as the "human infrastructure" bill―does presently include significant proposed tax changes that the Democrats hope to pass on top of the physical infrastructure bill.
Nevertheless, one of the largest offsets (i.e., the most significant tax revenue generator) in the infrastructure bill is expected to stem from increased reporting requirements related to cryptocurrency. The Joint Committee on Taxation expects the measure to raise nearly $28 billion over the next 10 years. First, beginning in 2023, the bill would expand the reporting requirements for brokers relating to sales of digital assets, just as securities brokers have been subject to for decades with the required Form 1099-B, documenting and reporting investment gains and losses, among other investment-related activities. Further, the proposed law could also bring digital asset brokers in line with many other types of businesses, requiring them to report cash payments in excess of $10,000. It is important to note that a last minute attempt was made to clarify and expand the definition of what would constitute a “broker” under the Senate package, but an agreement could not be reached within the 30-hour window for amendments. It is quite possible that the scope of the term “broker” and who is subject to these expanded reporting requirements may be revisited before the bill is actually signed into law.
Additionally, the new legislation also proposes an early elimination of the employee retention tax credit, which would be effective September 30, 2021. Recovery startup businesses are excluded from this new provision and may still be eligible for the credit through the fourth quarter. Interestingly, the credit had just recently been extended through the end of 2021 in March with the passing of the American Rescue Plan Act of 2021. We wrote about this last-minute refund opportunity in a prior Alert.
Lastly, the infrastructure bill, which the Congressional Budget Office estimates will add $256 billion to the deficit over 10 years, would also reinstate or extend a number of excise taxes. Perhaps most notably, the bill will revive the superfund tax, which is an excise tax on dozens of superfund chemicals that was previously in effect from 1980 to 1995. The new tax will take effect on July 1, 2022, and is expected to double the rate of the previously imposed tax. The bill also will extend a number of transportation-related taxes, including those imposing tax on certain types of fuel, truck weight or tires.
New Law Closely Tied to Forthcoming 2022 Budget Reconciliation Bill
As noted above, the newly passed infrastructure bill is, at this moment, closely tied to the human infrastructure bill, which will seek to implement increasingly aggressive tax reform. While the infrastructure bill has passed the Senate, Democratic leaders in the House have stated that they would not vote on the infrastructure bill until an agreement is reached on the 2022 budget. The Senate also passed a resolution (with a partisan 50-49 vote) that would allow Democrats to sidestep the 60-vote supermajority typically required for the budget through a process called reconciliation. Thus, it is possible (if not probable) that more significant tax legislation will swiftly follow this infrastructure bill. Earlier this month, the Senate passed a framework for the 2022 budget including instructions to the Senate Finance Committee to achieve at least $1 billion in deficit reduction (net tax increases) including:
- Increasing paid family and medical leave;
- Expanding the Affordable Care Act;
- Expanding Medicare;
- Extending child, dependent care and earned income tax credits; and
- Relief for the state and local income tax deduction cap enacted under the Tax Cuts and Jobs Act of 2017.
The bill further instructed that these provisions would be offset by certain tax increases, including:
- Corporate and international tax rates;
- Tax “fairness” for high-income individuals; and
- Increasingly aggressive IRS tax enforcement.
As the reconciliation bill merely contained a framework from which legislation could be drafted, we widely expect the introduced legislation to include a number of the proposals contained in President Biden’s “Green Book” proposals released in May. A few of the numerous tax law changes that are likely to be proposed in the reconciliation bill include:
- Raising the corporate tax rate
- Raising the individual tax rate
- Raising the capital gains tax rate
- Reduction of estate tax exemption
Unless heavily invested in cryptocurrency, many taxpayers should not be significantly impacted by the newly passed infrastructure bill. However, pressure is being applied in the Senate to move forward with more substantial legislation and, with the passing of the resolution earlier this month, it appears as though significant change may be coming sooner rather than later. Therefore, there may be a shrinking window for high-net-worth individuals to take advantage of favorable circumstances established by the Tax Cuts and Jobs Act. The tax landscape is constantly changing. Stay tuned, stay flexible and stay in touch with us.
For More Information
If you would like more information about this topic or your own unique situation, please contact Sean R. Schoppy, John I. Frederick, Steven M. Packer or any of the practitioners in the Tax Accounting Group. For information about other pertinent tax topics, please visit our publications page.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.