The Biden Agenda – Goals Costs, and Challenges

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The Biden Administration is moving quickly to deliver on key promises made during the presidential election campaign. In addition to the $1.9 trillion COVID-19 economic relief package passed into law in late January, the administration has introduced two additional major policy initiatives, totaling almost $4 trillion in spending and taxes this spring. The first, the American Jobs Plan, seeks to address our country’s aging infrastructure. The second, the American Families Plan, seeks to shore up the financial footing of lower- and middle-class families as the country begins to emerge from the pandemic.

White House staff has noted that the president has long wanted to pursue an infrastructure package and appears passionate about the effort. According to the 25-page high-level summary document released on the day the American Jobs Plan was unveiled, the proposal includes hundreds of billions of dollars for roads, bridges, and ports, among other items. Although there is disagreement on funding levels and areas of focus, spending on infrastructure enjoys bipartisan support, at least on a conceptual basis.

Congress is now in the beginning stages of considering legislation reauthorizing our nation’s surface transportation programs. Known as “the highway bill,” this measure will serve as the lynchpin for any comprehensive infrastructure package that is forged this Congress. The current highway bill expires in September.

The aspect of both the American Jobs Plan and the American Families Plan that has attracted the most attention is how to pay for all this new spending. The tax titles in these proposals are generally short on specifics, but paint a decidedly clearer picture of who will be impacted than the spending components of these measures. Media coverage has focused on the jump in the corporate tax rate from 21 percent to 28 percent. Also receiving attention are the many provisions to curb offshoring – most notably doubling the global minimum tax (known as GILTI or Global Intangible Low-Taxed Income) from 10.5 to 21 percent. These two major tax increase planks are tagged as the funding mechanisms for the programs outlined in the American Jobs Plan.

Additional tax increases are outlined in the American Families Plan, most prominently the proposed capital gains increase from 20 percent to 39.6 percent for those earning $1 million or more. The other widely discussed proposed change is ending long-standing capital gains tax breaks on inheritances known as “step-up in basis.” This allows taxpayers to use the market value of assets at the time of inheritance rather than the actual purchase price as the cost basis for capital gains when the holdings are sold.

What has not been reported on widely are the many potential revenue raisers not in either proposal that will almost certainly surface as the congressional tax-writing committees begin their task of fashioning actual legislation to implement these plans.

Congress is now in the beginning stages of considering legislation reauthorizing our nation’s surface transportation programs. Known as “the highway bill,” this measure will serve as the lynchpin for any comprehensive infrastructure package that is forged this Congress. The current highway bill expires in September.

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One area on which the Hardwood Federation is keenly focused is a potential increase in taxes S Corporations and other pass-through entities currently pay. Beginning in 2018, after the enactment of the Tax Cuts and Jobs Act (TCJA), a new tax deduction for owners of pass-through businesses took effect. Pass-through owners who qualify can deduct up to 20 percent of their net business income from their income taxes, reducing their effective income tax rate by 20 percent. This deduction currently is slated to run through 2025 unless extended by Congress.

Given that pass-through businesses employ a majority of private-sector workers (58 percent), pay a significant share of all business taxes (51 percent), and that large S Corporations (more than 100 employees) pay 20 percent of all business taxes, it seems reasonable to conclude that Congress will turn to pass-throughs at some point as they sharpen the pencil on raising revenue.

Another proposal that has received serious consideration in previous Congresses is eliminating the preferential tax treatment on standing timber. Currently, standing timber is assessed at the capital gains rate, recognizing the long-term investment and risk that landowners incur to produce trees that can take 50 to 80 years to mature. So-called “pay fors” have surfaced in Congress in recent years that would eliminate capital gains preferential tax treatment for revenue derived from harvesting timber and instead assess gains as ordinary income at the top tax rate.

More than doubling the tax rate on timber proceeds would be devastating for forest landowners across the spectrum – from small private landowners trying to put a kid through college with a timber sale or thinning project to large industrial forest landowners. The downstream effects on companies in the hardwood manufacturing sector that rely on forest fiber for product and energy are consequential. Although the timber tax pay has not been discussed for a few years, we have found that these tax proposals have a way of continuing to come back.

These proposals and others impacting our sector may surface in the coming weeks. The Hardwood Federation team is fanning out virtually to offices on both sides of the Capitol to gather intelligence and discuss the impact that increased taxes will have on jobs in rural areas. A study recently conducted for the National Association of Manufacturers concluded that one million jobs would be lost in the manufacturing sector alone, following the first two years after enacting the revenue raisers being discussed. As always, we will keep you apprised of what we hear and may be calling upon you to help engage Congress as opportunities materialize.

Dana Lee Cole is executive director at the Hardwood Federation, a Washington, D.C.-based hardwood industry trade association that represents thousands of hardwood businesses in every state in the United States and acts as the industry’s advocacy voice on Capitol Hill. She can be reached at dana.cole@hardwoodfederation.com

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