The passage of the American rescue plan has shown how tax increases can be incorporated into bills with little or no notice.
“A number of revenue increases have been added to ensure the revenue reconciliation that could actually be reviewed in the future to generate additional revenue,” said Marc Gerson, a member of the tax department of Miller & Chevalier Tax law firm and a former majority tax advisor to the law firm House Ways & Means Committee. “One of them would be to extend the Code Section 162 (m) restriction,” he said. Section 162 (m) limits the deductibility of executive compensation paid to certain employees of a publicly traded company.
“It is planned to go into effect in 2027, but that could be developed further to generate more revenue,” he continued. “Then there is the extension of the excessive business loss rules by a year to 2026. These could be expanded further in the future, so that the American bailout is, to some extent, a harbinger of future revenue increases. “
One interesting aspect of the changes to Section 162 (m) is that the additional top five people appear to include everyone in a company and are not necessarily limited to Section 162 (m) officers, according to Adam Cohen. Partner at the law firm Eversheds Sutherland.
“This would mean that for companies with highly paid non-executive employees, the compensation paid to those individuals would be subject to the $ 1 million withholding ban,” he said. “Examples include companies with high-paying entertainment talent, employees with significant commissions, or employees who have high incomes in a given year from exercising options or unqualified deferred pay.”
Next on the Biden administration’s agenda will be a “very significant” infrastructure package and a green energy package, a significant portion of which will be funded through tax increases, Gerson said. “The infrastructure proposal and the green paper [the Treasury’s general explanations of the administration’s revenue proposals] will set the starting point for tax policy discussions for the year. There’s a lot to find out, both about the size of the expense and how to pay for it, including what tax increases are required to pay for it. We are in a bit of a waiting loop, but I expect spring will be full, as the Green Paper will be published at the committee hearings at the end of April. “
Dustin Stamper, executive director of the Washington National Tax Office of Top 8 Grant Thornton, agreed.
Treasury Secretary Janet Yellen “has said that the Green Paper will give us an indication of the administration’s top tax priorities,” he noted. “The passage of the US bailout opens the door for Democrats to consider further tax proposals for transformation. It will be their first opportunity to show how aggressive they want to be on their tax hike proposals. “
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“You have indicated that they want to make pretty big strides on climate change and infrastructure, and they won’t want to do any of this with deficit funding, so revenue increases will be on the table. There has been a lot of discussion about increasing the corporate tax rate. Joe Manchin [D-West Virginia] has stated that he supports an increase to at least 25 percent. This type of moderate buy-in is important. “
“Other low hanging fruits will be increases in the upper bound rate, capital gain rate and other rates of return on investment,” he continued. “Congressional Democrats also focus on international tax regulations. We expect a pretty significant tax reform package from Senator Wyden in the next few weeks [D-Oregon, chairman of the Senate Finance Committee]. But I think it is important to remember that any tax increase proposals that we will see will be voted back from what we saw during the campaign, but that still leaves room for some significant tax increases. “
The other question, according to Stamper, is not just what they are tracking, but when are they doing it effectively. “We are still confident that they are reluctant to push through retrospective increases. Given the fragile economy, it is more likely that they will seek change prospectively. “
Companies are following developments closely and are preparing for tax increases, Gerson said. Quoting the 15th annual tax policy survey by Miller & Chevalier and the National Foreign Trade Council, he noted that the survey results reflect growing concerns about the evolving tax legislation agenda.
“The dynamic and ever-changing political environment combined with the risk of substantial corporate tax increases has made taxpayers more aware of tax policy developments,” he said. “Taxpayers monitor and react to developments on a daily basis. There has never been a more important time to engage with policy makers. “