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Current Developments Relating to President Biden’s Infrastructure and Social Spending Proposals

International Tax OfferLast May I posted a blog discussing the outlook for President Biden’s $2.3 trillion infrastructure plan.  Since then, there have been several significant developments:  a failed attempt at infrastructure negotiations with the GOP Senate caucus, a so-far-successful, infrastructure proposal advanced by a bi-partisan group of Senate Democrats and Republicans, and an apparent agreement among Senate Democrats for a $3.5 trillion budget increase (all amounts discussed in this blog are over 10 years), that would include the proposals of the American Families Plan and that would be advanced under the Reconciliation rules.  

For the Reconciliation Budget to be enacted will require 100% Senate Democratic unity and almost the same unity in the House.  The bi-partisan infrastructure proposal and the Reconciliation Budget are currently on “dual tracks,” according to Chuck Schumer, the Senate Majority Leader.  I discuss each of these in turn.

The Bi-Partisan Infrastructure Proposal

The bi-partisan infrastructure bill proposal is currently unwritten but is expected to be a $1.2 trillion bill consisting of various “hard” infrastructure projects, such as roads and bridges, public transit, water, broadband, electric power, airports, ports and waterways, and the like, according to the White House1.  Around one-half of $1.2 trillion is “new” spending.  “Soft” infrastructure proposals, such as increased wages and benefits for home care workers, are not included in this package, and have been shifted to the Senate Democrats’ Reconciliation Budget proposal.  For various political reasons, some (or all) of the Republicans who have thus far agreed to the proposal may back out during the legislative process.  If the proposal fails to gather the necessary GOP Senate support of 10 votes, it is expected that the Democrats will flip the infrastructure bill into the Reconciliation Budget process.  Senate votes to move both processes forward are expected to test both Republican and Democratic Senators during the week of July 19th.   

There are no new tax raising provisions expected in this bill, except for the additional funding of the IRS to close the “tax gap,” and Republicans may force that provision to be shifted to the Reconciliation Budget proposal discussed below.  The international and corporate tax proposals that would have funded President Biden’s initial American Jobs Plan infrastructure bill will be shifted to the Reconciliation Budget proposal.

The $3.5 Trillion Reconciliation Budget Proposal

The $3.5 trillion budget legislation proposed by the Senate Democrats includes provisions related to climate change, health care, and family services programs, and Medicare expansion programs for vision, hearing and dental benefits.  Although the budget proposal currently provides no details regarding funding revenue, much can be gleaned from President Biden’s previous proposals.  In addition to the international and corporate tax proposals placed on the on the table under the American Jobs Act, in the aggregate amount of $2 trillion (according to the Treasury Greenbook),2 there are a number of significant domestic tax proposals, including increased funding for the IRS that is expected to increase tax collection, aggregating over $1.5 trillion (according to the Treasury Greenbook).3  Many of these domestic revenue increase and spending proposals were included in President Biden’s American Families Plan.

American Families Plan Spending

The American Families Plan contains spending proposals for education, including free universal pre-school for three- and four-year old children, two years of free community college, and increases in Federal scholarship support; significant child care support; paid family and medical leave; nutrition; and unemployment insurance.  It also contains over $800 billion in increased individual and employer healthcare tax credits, the earned income tax credit, child tax credits, and child care tax credits.

Domestic Tax Increase Proposals

Several domestic tax increases are proposed in the American Families Plan.  The top tax rate bracket for individuals would be increased to 39.6% (the same as it was for 2017 and prior years), from the current 37%.  The tax rate benefit for qualified dividends and long-term capital gains would be repealed for households making over $1 million of income (so it would be 39.6%).  Hedge fund partners would lose the so-called loophole for carried interest (i.e., capital gains).  Tax deferred real property exchanges would be completely repealed.  The limitation on excess business losses would be permanently extended.  Higher income taxpayers would no longer be able to avoid the 3.8% Medicare tax.  However, tax increases on small business, family farms and individuals with annual income under $400,000 would be expressly prohibited. 

Perhaps the most controversial individual provision is that transfers of appreciated property by gift or death would be treated as income tax realization events.  Capital gains income would be recognized if gain is in excess of $1 million.  This proposal has caused much concern among wealthy taxpayers because it could result in double taxation (income tax and either gift or estate tax) of a transfer.  In addition, it is not clear whether the recipient would receive (or under what circumstances would receive) a step-up in basis on the date of death of the transferor.  There are a number of other unresolved issues imbedded in the skeletal version of this proposal, including timing of tax payments and cross-border treaty issues.  I would expect many of these issues to be worked out before this provision is enacted.

Notably, there is no proposal to roll back the haircut on deduction of state and local taxes that was enacted in 2017.  This roll back has support among a number of Democrats and may be the subject of negotiations during the legislative process.  

Next Steps

Procedural votes on both these legislative actions are currently expected in the Senate on July 21.  The procedural vote on the infrastructure bill will be designed to test Republican Senators’ the commitment to the legislation.  The procedural vote on the Reconciliation Budget will test the unity of the Senate Democrats.  Most likely, the full legislation will be drafted by the time Congress returns from its August recess in early September, with actual legislative action commencing soon after.  It is possible that some of the legislation will be drafted before the August recess.

Conclusion and Politics

The Biden Administration has turned an important legislative corner with the Senate Budget agreement.  In addition to setting the stage for a Budget Reconciliation process that will aim for completion in the fall of 2021, the Democrats have put the GOP on notice that these proposals are moving towards enactment in 2021 with or without Republican support.  The effects of putting this type of pressure on the GOP are discussed below, but no outcome is assured. 

The politics of all of this is fascinating and stands in marked contrast to the legislative disarray of the early Trump years.  To be successful, the Democrats must present a completely united front.  The progressive wing, led by Senator Sanders, wanted a $6 trillion budget, and probably some moderates wanted far less than a $3.5 trillion price tag, but they were able to settle on a number in the backroom, most likely with President Biden’s assistance.  The Democrats have taken the first step and appear to have grabbed the twin initiatives of unity and inertia at this point.

The dilemma for the Republicans is that attempting to bar the door to this legislation could backfire badly for them in 2022 and 2024.  If they can successfully stymie the Democrats, they could face an angry electorate in 2022, as much of this legislation appears to have popular support.  If they try to stonewall but the Democrats are successful in enacting their program, the GOP’s failure to act in a bi-partisan way could hurt them in the 2022 midterm elections.  If the GOP is successful in the 2022 midterm elections, they still will not be able to repeal prior Democratic legislation, as President Biden would veto any such attempt.  

The Democrats are betting that the successful enactment of their legislative program would help them in 2022.  By the time of the 2024 elections, these provisions conceivably could be sufficiently popular to overwhelm the GOP and negate its efforts to restrict voter turnout.  And any GOP presidential candidate in 2024, including Trump, could have a difficult time attacking these policies while at the same time retaining a populist stance.  Arguments of increasing the deficit, creating significant inflation (which is a possibility), or “socialism” may be persuasive to some voters.  All this said, it is somewhat early to be drawing conclusions on the 2024 race, or even on the 2022 midterm elections.  

Future blogs in this series will track these legislative activities and delve more deeply into the actual provisions as they are fleshed out in the legislative process.  I will also focus on the OECD global minimum tax agreement, and on tax proposals relating to energy and climate change.

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2See General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals, Department of the Treasury, May 2021, at 104-106; found at .  


Allen is an attorney and a CPA who has an international tax practice focused on working and consulting with accounting and law firms, businesses, and investors on international tax planning, M&A, tax controversy, legislative and regulatory matters.

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