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Will Congress Turn Democratic Tax Hikes Into Bipartisan Tax Cuts?


A funny thing happened to the trillions of dollars of proposed tax increases on corporations and high-income households that were high on the agendas of President Biden and congressional Democrats just a year ago: They seem to have, at least for now, fallen into a deep Capitol Hill hole. And they’ve been replaced by, of all things, talk of billions of dollars of tax cuts for corporations and high-income households.

For example, the House is planning to vote next week on a pair of bipartisan bills chock full of savings-related tax breaks, many that would benefit the wealthy. And a bipartisan group of senators is pushing to restore an important tax break for business research costs.

Retirement savings

Let’s start with retirement. One bill, called the Securing a Strong Retirement Act or Secure 2.0, was cleared by the House Ways & Means Committee almost a year ago. The second, the Retirement Improvement and Savings Enhancement (RISE) Act was approved by the House Education and Labor Committee last November. Both have been awaiting House floor action ever since.

Secure 2.0 includes some valuable provisions such as mandating auto-enrollment in employer-based retirement plans and expanding the saver’s tax credit for low- and moderate-income workers who contribute to retirement plans.

But it also delays, yet again, required minimum distributions from such plans, this time from age 72 to age 75. The vast majority of retirees take distributions at younger ages, not because the law requires it, but because they need the money to live on. And tax-deferred retirement savings are intended to provide income in old age, not to be a tool for wealthy older adults to stash untaxed assets for their heirs.  

Another provision would increase so-called catch-up contributions from $6,500 to $10,000 for workers aged 60 or older. It goes without saying that those who can afford to make $10,000 in additional contributions to their retirement plans have high incomes.   

Sponsors hoped to include the measures in the omnibus 2022 spending bill Congress approved earlier this month, but they apparently were dropped at the last minute.

Now, the upcoming House vote could be a prelude to action in the Senate, where similar measures also have broad bipartisan support. It seems likely that the combined bills will find their way into some bigger package before this legislative season comes to an end in a few months.

Expensing research costs

At the same time, corporate lobbyists are pushing hard to restore generous tax breaks for research costs that expired at the end of last year. The 2017 Tax Cuts and Jobs Act repealed a provision in tax law that allowed firms to expense—or fully write off–those costs in the year they are incurred rather than over time. But the switch was delayed until after 2021.

As my TPC colleagues Thornton Matheson and Thomas Brosy have written, the ability to expense research costs especially benefits US-based manufacturers.

Now, businesses must write off those costs over at least five years. But late last year, the Ways & Means Committee agreed to a measure that would continue R&D expensing until 2025. But the proposal was added to the huge Build Back Better budget reconciliation bill that has been stalled in the Senate for months and appears to be going nowhere.   

Now, a bipartisan group of senators, led by Maggie Hassan (D-NH) and Todd Young (R-IN)  are pushing to restore R&D expensing. They say unless Congress does so quickly, R&D investment will decline and American jobs will be lost. Restoring expensing for four years would reduce corporate income taxes by about $125 billion through 2025. Yet it remains unclear how—or if– it would be financed.

What next?

If Biden’s spending and tax plans remain stalled, a possible vehicle for restoring R&D expensing is a bill aimed at helping US businesses compete with China. That measure easily passed the House in February and a similar version is pending in the Senate. Hassan and Young may try to slip the R&D change into that bill.

Democrats still are holding out hope that they can pass a stripped-down version of a social spending, climate, and tax bill in the next few months. And it still could include some significant tax increases, though far fewer than Biden first proposed.  

Whatever the merits of R&D expensing and more generous tax treatment of retirement savings for the wealthy, it is remarkable that these issues have grabbed the headlines while public talk of raising tax rates on corporations and high-income households has all but ended. It has been a long and winding legislative road since January, 2021.  

  

 

 

 



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