The newly passed Infrastructure Act is currently closely linked to the Human Infrastructure Act, which is intended to implement an increasingly aggressive tax reform.
On August 10, the Senate voted to pass the Invest in America Act, a $ 1 trillion infrastructure bill that provides over $ 500 billion for new highways, bridges, waterways, transit, airports, and internet services. The vote was the result of lengthy negotiations between President Joe Biden and key officials on both sides of the aisle as the bill passed with a bipartisan 69-30 votes. The bill also includes tax netting that may affect businesses and individual taxpayers, which are highlighted below.
Essential tax regulations
No new income taxes are included in this infrastructure bill. However, a far larger $ 3.5 trillion social spending instrument – known as the “Human Infrastructure” Act – currently contains significant tax changes that Democrats hope to enact in addition to the Physical Infrastructure Act.
Nonetheless, it is expected that one of the largest offsets (ie the most important tax revenue generator) in the Infrastructure Act will result from increased reporting requirements in connection with cryptocurrencies. The joint tax committee expects the move to raise nearly $ 28 billion over the next 10 years. First, from 2023 the bill would expand the reporting requirements for brokers in connection with the sale of digital assets, just as securities brokers have been subject to investment-related activities for decades with the required Form 1099-B for documenting and reporting investment gains and losses, among other things. Additionally, the proposed law could also align digital asset brokers with many other types of businesses, requiring them to report cash payments in excess of $ 10,000. It is important to note that last minute attempts were made to clarify and expand the definition of a “broker” under the Senate package, but no agreement could be reached within the 30-hour window for changes. It is entirely possible that the scope of the term “broker” and who is subject to these extended reporting requirements will be checked before the draft law is actually signed.
In addition, the new legislation also provides for an early abolition of the tax credit for employee withholding, which would come into force on September 30, 2021. Restructuring start-up companies are exempt from this new provision and can still be eligible for credit until the fourth quarter. Interestingly, it wasn’t until March that the loan was extended with the passage of the American Rescue Plan Act from 2021 to the end of 2021. We wrote in a previous alert about this short-term refund option.
Finally, the Infrastructure Act, which the Congressional Budget Office estimates will add $ 256 billion over 10 years to the deficit, would also reintroduce or expand a number of excise taxes. Perhaps most notably, the bill will revive the super fund tax, an excise tax on dozen of super fund chemicals that was previously in effect from 1980 to 1995. The new tax will take effect on July 1, 2022 and is expected to double the amount previously levied. The bill will also expand a number of transport-related taxes, including those that levy taxes on certain types of fuel, truck weight, or tires.
The new law is closely linked to the upcoming 2022 Budget Adjustment Act
As already mentioned, the newly passed Infrastructure Act is currently closely linked to the Human Infrastructure Act, which is supposed to implement an increasingly aggressive tax reform. While the infrastructure bill passed the Senate, House Democratic leaders have stated that they will not vote on the infrastructure bill until an agreement is reached on the 2022 budget. The Senate also passed a resolution (with a 50-49 partisan vote) that would allow Democrats to bypass the 60-vote super-majority normally required for the budget through a process called reconciliation. Thus, it is possible (if not likely) that this Infrastructure Act will soon be followed by more significant tax laws. Earlier this month, the Senate passed a framework for the 2022 budget, including instructions to the Senate Finance Committee to achieve at least $ 1 billion in deficit reduction (net tax increases), including:
- Increase in paid family and sick leave;
- Expansion of the Affordable Care Act;
- Expansion of Medicare;
- Extension of child, long-term care and earned income tax credits; and
- Relief for the state and local income tax deduction cap enacted under the Tax Cuts and Jobs Act of 2017.
The bill also indicated that certain tax increases would offset these provisions, including:
- Corporate and international tax rates;
- Fair taxation for people with high incomes; and
- Increasingly aggressive IRS tax enforcement.
Since the Law of Reconciliation only provided a framework for the drafting of laws, we broadly expect that the legislation introduced will contain a number of the suggestions from President Biden’s proposals on the “Green Paper” published in May. Some of the numerous tax law changes likely to be proposed in the Reconciliation Act include:
- Increase in the corporate tax rate
- Increase in the individual tax rate
- Increase in the capital gains tax rate
- Reduction in inheritance tax exemption
TAG’s perspective
Unless heavily invested in cryptocurrency, many taxpayers should not be significantly affected by the newly passed infrastructure law. However, there is pressure in the Senate to move forward with broader legislation, and with the resolution passed earlier this month, it looks like there will be significant changes sooner rather than later. Therefore, there may be a shorter window of time for high net worth individuals to take advantage of the favorable circumstances set out by the Tax Cuts and Jobs Act. The tax landscape is constantly changing.