Page 17 - ISQ UK_October 2021

OCTOBER 2021

Passing the bipartisan

infrastructure deal, negotiating 2021 TO DO LIST
a budget reconciliation package, Finalize infrastructure negotiations
funding the government for the Arrange the government’s funding for
next fiscal year, raising the U.S. the next fiscal year
statutory borrowing limit (‘debt

ceiling’), and settling key defense Raise the US statutory borrowing limit
( debt ceiling’)
’
and foreign policy decisions top a
long list of priorities in DC. Settle key defense and foreign policy decisions
Finalize reconciliation bill

Next on the agenda is the negotiation of a reconciliation bill, with a above $5 million would be subject to a 3% surtax. Limits to Roth
maximum total of $3.5 trillion – a number that is extremely likely to IRA conversions are also proposed. Increased IRS enforcement on
be negotiated downward. According to the framework developed unpaid tax liabilities is also a key revenue raiser expected in the
by Congressional Democrats in August, this bill is seeking to final bill. These tax details provide an outline of the trajectory of a
addresses priorities on climate, housing, technology, education, potential final bill. However, as negotiations remain fluid, these tax
and health care. The reconciliation bill is expected to extend the provisions could change significantly before a final deal is struck.
current Child Tax Credit, which is set to expire in December. The
spending in this package is anticipated to be offset by tax changes One final thing to watch that will have a dramatic impact on the
and policy changes that increase revenue. As this is being done final bill: The Senate’s ‘Byrd Rule’ named after former Senator
through ‘budget reconciliation,’ passage requires a simple majority Robert Byrd (D-WV). Generally speaking, the Byrd Rule requires
in the House and Senate (no filibuster/60-vote threshold applies). items in a budget reconciliation to be tied to spending and revenue.
Leaders are aiming to finish this bill in the October-November This could cause some policy priorities to be ruled out of order by
timeframe, but as we have seen in past policy debates, this could the Senate parliamentarian. Candidates for Byrd Rule exclusions
easily slip until December. Disagreement among Democrats could include a clean energy standard and immigration citizenship
also prevent final passage, so depending on what is included or changes. The biggest question remains what level of spending
excluded among the spending and tax priorities, we could see and revenue can attract the support of both the moderate and
policy-driven market volatility. progressive wings of the Democratic Party to get a final bill across
the finish line. The fate of the bipartisan infrastructure bill has been
Changes to individual, corporate, international, and investment tied to these dynamics for both sides to retain leverage and has
taxes are being discussed as ways to pay for the reconciliation contributed to the friction seen within the Democratic Party on the
bill. There has been a pledge by Congressional Democrats to limit path forward.
tax increases to households above $400,000. President Biden has
proposed a corporate tax rate increase from 21% to 28%, while BREWING BEHIND THE SCENES: FISCAL CLIFF
House Democrats have proposed a 26.5% top rate, coupled with THREATENS MARKET VOLATILITY
a tax cut to 18% for small businesses with taxable income below As lawmakers work to settle the expansive economic agenda
$400,000. Tax relief around the restrictions on State and Local Taxes outlined above, key fiscal deadlines around government funding
(SALT) have also been promised, but details are limited. Dividends, and the debt limit add complicating factors to this fall’s political
capital gains, and other non-wage income taxes are also likely to dynamics. The initial strategy for Democrats has been to tie a
be increased in a final bill. House Democrats have proposed raising debt limit increase to a short-term government funding bill at
the top income tax rate from 37% to 39.6% and increasing from the end of September. This initial strategy elevated government
20% to 25% (28.8% with the 3.8% Affordable Care Act surtax) the shutdown/ debt limit concerns in the market. Although the initial
long-term capital gains and qualified dividends for households with budget resolution unlocking the reconciliation process for a
annual income above $400,000. Households with annual income
follow-on supplemental bill did not include an immediate pathway

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