By Stuart E. Leblang, Michael J. Kliegman and Amy S. Elliott

Two Democrats in Washington have a disproportionate say when it comes to drafting the tax provisions that could end up in the $3.5 trillion ^[1] human infrastructure and social spending FY2022 budget reconciliation bill (also referred to as the Build Back Better Act): ^[2]  House Ways and Means Committee Chairman Richard Neal (MA) and Senate Finance Committee Chairman Ron Wyden (OR).  Chairman Wyden has been regularly releasing detailed proposals over the last several months (including tax reforms involving international, energy, derivatives and carried interest³ ) to prove his progressive bona fides to his largely liberal Oregonian constituents ahead of running for reelection.  Chairman Neal, on the other hand, seems to recognize that tax hikes are a magnet for lobbyist opposition and has been holding his cards closer to his chest.⁴ 

So what are we to make of the menu of possible payfors that Chairman Wyden circulated last week? ⁵  Four of them in particular caught our eye, as—if adopted—they could have an outsized impact on the operations of publicly traded companies and capital markets:

1. An excise tax on corporate stock buybacks;
2. A carbon tax with a border adjustment;
3. A mark-to-market regime for derivatives and billionaires; and
4. Increased taxes on corporations whose CEOs and executives are highly compensated.

While none of these proposals were included in Treasury’s so-called Green Book ⁶ (which, among other things, detailed how President Biden planned to raised taxes on corporations and the wealthy), they are not entirely out of left field.  Below we explain why we do (or do not) think each of these payfors likely has legs and speculate as to the possible contours of each.

In addition, we will also touch on:

1. Wyden’s proposals to reform the taxation of passthroughs by reducing optionality (including getting rid of publicly traded partnerships altogether) and closing various partnership tax loopholes (the details of which were released September 10); and
2. A payfor that was not on Wyden’s list but that we are hearing Chairman Neal may be particularly open to—tightening the rules regarding the deductibility of business interest expense.

A Bit of Background

Before diving into the details of the six payfors we have highlighted, we want to offer up some additional context.  Although Chairman Wyden circulated a document containing potential revenue raisers proposed by Senate Finance Committee Democrats, there is a lingering question over how much influence he will ultimately have over what makes it into the bill.  The legislative process is extremely fluid.  Given the truncated timeline, it appears that the House will initially mark up a package with roughly $3.5 trillion in spending but with expansive, broad offsets so that it is largely paid for.  We expect that there will be changes to the bill before final passage in the House (and that some of the offsets will be dialed back), and those changes will be largely dependent on the whip count and input from the Democratic caucus at-large.

The current plan is to pre-conference the reconciliation bill so that the House and Senate largely agree on a draft by September 15 (the nonbinding deadline in the budget resolution). ⁷   While the members and staff of Ways and Means and Senate Finance are certainly talking to one another, it is not clear how much actual negotiation is going on.  Ways and Means started marking up its draft of the legislation in tranches September 9, and it released details of various spending proposals under the committee’s jurisdiction September 7 ⁸ (details that apparently had not been preapproved by Senate Democrats ⁹ ).  Meanwhile, it is expected that Senate Finance will likely have no markup, as Senate Leadership plans to skip the committee process and go straight to floor consideration of the bill in that chamber for scheduling reasons.

Chairman Neal plans to conduct a markup of the tax incentive portions of the bill September 14 (the text of that tranche—645 pages—was released late September 10), leaving the tax increase markup to September 15 (delaying release of that text until September 13 or 14, or possibly over the weekend). ¹⁰ House rules require that legislative text be made available to the public at least 24 hours prior to markup.¹¹  Note that the suggested release dates could change.

Because Chairman Neal has generally stayed mum on payfors in recent weeks, we are focusing our attention now on what Chairman Wyden circulated ¹² (what we will refer to as the Wyden Document), which summarizes about 25 corporate, individual, tax gap and other payfors across four pages.  They range from the expected (including raising the corporate tax rate from 21 percent “to a higher rate”) to the fringe (including imposing a 20-cent per pound excise tax on virgin plastics in single-use products ¹³ ).

Taxing Corporate Stock Buybacks

As we explained in more detail in our September 10, 2020 report “Predicting How Biden’s Tax Hikes Would Impact Business,” President Biden is not a fan of corporations that focus primarily on their responsibility to shareholders, while shirking their “responsibility to their workers, to the community, to their country.” ¹⁴  He faults corporations for not using the tax savings from the 2017 Tax Cuts and Jobs Act (TCJA) to increase their payrolls (investing in the middle class) but rather using it to buy back stock (enriching shareholders). ¹⁵  President Biden is not alone in his criticism.  Sen. Marco Rubio, a Republican from Florida, has also proposed increasing the tax rate on share repurchases (buybacks) to “raise revenue to finance other incentives for capital investment like full expensing.” ¹⁶ 

One way to limit stock buybacks using the tax code would be to treat them as cash dividends, which is one of the options under consideration by the Finance Committee. ¹⁷  While the rate impact may not be different (individuals receiving qualified dividend income are generally taxed at the same rate as if they participated in a buyback ¹⁸ ), the entire amount of the dividend is generally subject to tax whereas investors can generally reduce the amount realized on their buyback by their tax basis (this is referred to as basis recovery).  Finally, dividends present a withholding tax risk to non-U.S. investors.

However, a major problem with such a deemed-dividend approach—which could raise an estimated $47 billion per year just from foreign shareholders in non-tax-haven jurisdictions alone ¹⁹ —is that the dividend would likely be deemed paid out to all shareholders on a pro rata basis (not just those who chose to exchange their shares for cash), triggering so-called phantom income (and real tax) for shareholders that did not participate in the buyback.  The Wyden Document confirmed that Senate Finance Democrats are considering treating buybacks as “deemed” dividends taxable to all shareholders (with certain exceptions ²⁰ ), although that is only one alternative.

The other way Chairman Wyden is contemplating limiting stock buybacks is through the implementation of a stock buyback excise tax, which—rather than targeting the investors themselves with increased taxes—would effectively take a pound of flesh directly from corporations engaging in buybacks.  According to the Wyden Document, this tax would be applied “to publicly-traded corporations that [buy back] a significant amount of stock.”

This morning, Senate Banking Chairman Sherrod Brown (D-OH) and Chairman Wyden released details of legislation (the Stock Buyback Accountability Act) that, starting in 2022, would impose a 2-percent excise tax on the amount spent by a publicly traded company on stock buybacks.

The legislation could generate about $100 billion over 10 years. ²¹  An exception is provided “to the extent the stock buyback is used to fund an employee pension plan, an ESOP, or similar vehicle,” ²² and small buybacks (of $1 million or less) will be excluded from the tax.

Imposing a 2-percent excise tax on the corporation is a much more elegant way of limiting stock buybacks than going the deemed dividend route.  It is also not as outlandish as Sen. Brown’s prior bill targeting buybacks (the Stock Buyback Reform and Worker Dividend Act of 2019), which would have forced companies to pay $1 to every worker for every $1 million they paid out in stock buybacks or increased dividends.²³

In the past, we have been fairly skeptical that Congress would venture into this domain and decide to tax stock buybacks.  We still think it is highly unlikely that lawmakers will decide to curtail stock buybacks by treating them as deemed dividends as opposed to redemptions in exchange for stock in certain cases.  Doing so would have complicated tax basis implications, and it would be extremely challenging for lawmakers to overcome the horrible politics of imposing tax on shareholders that did not even participate in the buyback.

But with Democrats desperate for revenue, we are starting to think that a small excise tax on stock buybacks could enter the realm of the possible.  While it may not show up in Chairman Neal’s markup draft, we expect that it could be part of legislative negotiations between the House and the Senate as the bill continues to move through the process.  It could be added to the bill before it gets to the House floor (especially if the House anticipates that Senate Majority Leader Chuck Schumer, who has been critical of buybacks, ²⁴ will insist upon its inclusion).  An excise tax on stock buybacks certainly is not a given, but, if push comes to shove, we do not anticipate that there are moderates who will make inclusion of such a tax the deciding factor for their vote.  While such a tax may have seemed extreme several months ago, the landscape is changing, and it is a simple tax that could be ripe enough to survive inclusion in the final bill.

Carbon Tax with Border Adjustment

Could Washington finally be warming to a destination-based tax?  The Wyden Document indicates that Senate Finance Democrats are contemplating imposing not only a tax on carbon dioxide (in the form one or more of the following:  a $15 per-ton carbon content tax imposed on major fossil fuels upon extraction, a per-ton carbon emissions tax assessed on major industrial emitters and a per-barrel carbon tax on crude oil) but also pairing such a tax with a border adjustment feature—essentially a tax on certain imports—”to ensure foreign companies also pay the tax.”

Recall that lawmakers did not embrace the notion of replacing the corporate income tax with a destination-based cash flow tax (DBCFT) when it was proposed in 2017 by then-House Speaker Paul D. Ryan (R-WI) and then-Ways and Means Committee Chair Kevin Brady (R-TX). ²⁵  However it is looking like a destination-based tax is still on lawmakers’ minds as they consider putting a price on carbon without putting U.S. industry at a competitive disadvantage.  Reports indicate that the carbon tax’s border adjustment feature alone, depending on its design, could generate as much as $16 billion per year in revenue. ²⁶ 

We suspect this proposal was included not only because it likely has the support of those in the Biden Administration (Treasury Secretary Janet Yellen has been vocal about the need for putting a price on carbon ²⁷ ), but also because other countries around the world are implementing (or considering implementing) similar taxes as concerns around climate change escalate.

But that likely will not be enough to ensure its inclusion in the ultimate bill.  There are enough Democratic lawmakers from fossil fuel friendly jurisdictions (not only Sen. Joe Manchin (WV), but also the more than a dozen Texas Democrats that serve in the House) that could object such that the chances are low that it could survive (even if it raises a lot of revenue).  Such lawmakers would likely view any carbon tax as a “poison pill” and would likely announce that they will vote against the bill if it is included.  Given that the House can only afford to lose three votes, ²⁸ such a threat could be enough to doom the carbon tax’s prospects.

More importantly, this new tax would be complicated to implement, and there is real concern that there is not enough time for lawmakers and their staff to draft something that could be workable and would not trigger disputes with trading partners—not to mention concern that it would arguably violate President Biden’s promise not to raise taxes on Americans earnings less than $400,000.

Mark-to-Market for Derivatives and Billionaires

Chairman Wyden previously proposed requiring certain high net-worth individuals ($1 million annual income or $10 million net assets) to pay tax annually on the unrealized capital gains of their tradeable investments (essentially mark-to-market taxation for publicly traded assets such as stocks). ²⁹  The Wyden Document indicates that he is still interested in this idea of ending deferral for the wealthy, although he is now targeting just billionaires (impacting an estimated 600 people), not millionaires.

Both his earlier proposal and the Wyden Document contemplate imposing an extra lookback/deferral charge on gains from nontradable property (non-portfolio capital assets such as real estate, closely held businesses and collectibles) at the time of sale.  The Wyden Document says these changes would raise “hundreds of billions.”

The Wyden Document also suggests imposing mark-to-market “at wage rates” for all derivatives, something that was estimated to raise about $16 billion over 10 years back in 2014 when former Ways and Means Chairman Dave Camp, a Republican, released a similar proposal.  Last month, Wyden introduced legislation ³⁰ that would do the same thing.

The fate of these mark-to-market proposals could depend on Chairman Neal, who is a bit more concerned about the impact increased taxes may have on the markets, especially when the strength of the economy is uncertain.  That said, we would be surprised if this made it into any draft reconciliation legislation.  We think it is highly unlikely that such proposals would be included in the final reconciliation bill.

Taxing Excessive Executive Compensation

There is currently a limitation in the tax code designed to target excessive executive compensation.  Internal Revenue Code Section 162(m) limits a publicly held corporation from deducting more than $1 million in compensation per year for each of certain of its principal executives (each a “covered employee,” generally the top five including the CEO).

Not surprisingly, the limitation—which was enacted in 1993—does not seem to have slowed the growth of CEO pay. ³¹  While the Wyden Document contemplates further limiting the deduction, it does not provide additional detail.  We are hearing that there are at least three Section 162(m) tweaks under consideration:

1. Reducing the deduction limitation from $1 million to $500,000;
2. Expanding which covered employees’ compensation is subject to the deduction limitation from, essentially, the five most highly compensated executives to the 10 most highly compensated executives at the company (this expansion is scheduled to occur in 2027, pursuant to the American Rescue Plan Act of 2021, which President Biden signed into law in March, but presumably lawmakers are considering accelerating it); and
3. Expanding the scope of Section 162(m) so that it applies to all companies, not just those that are publicly traded.

While we understand these changes are all being discussed, it is not clear that all of them (especially expanding the scope of Section 162(m) to private companies) will end up in the draft released by Chairman Neal.  We do think some changes to Section 162(m) are likely to make it into Chairman Neal’s draft and could very well end up in the final reconciliation bill.

What is much less likely, however, is a separate tax targeted at excessive executive compensation that was detailed in the Wyden Document—a new “excise tax on corporations with CEO pay that exceeds certain ratios of the corporation’s average worker pay.”

This proposal sounds a lot like the Tax Excessive CEO Pay Act of 2021, ³² which would impose an additional 0.5 percent tax on the income of a corporation whose ratio of compensation of their principal executive officers to median worker was more than 50-to-1.  If the pay ratio disparity is more than 100-to-1, the rate goes up to 1 percent (and so on, all the way up to more than 500-to-1, in which case the rate is 5 percent).

That effectively means that instead of paying corporate tax at 21 percent (or 25 percent, if the base rate is increased in reconciliation), a corporation whose median worker makes $45,000 per year but whose CEO makes $25 million per year could have to pay corporate tax at a rate of 26 percent (or 30 percent, if the base rate is increased to 25 percent).

While it is certainly not clear that the Wyden Document contemplates an excise tax that would be similar in design to the Tax Excessive CEO Pay Act of 2021, a tax so designed would certainly change the calculus for public companies in determining the salaries of their CEOs.  There would be a shareholder revolt if a company’s effective corporate tax rate increased by 5 percentage points just because of the CEO’s compensation package (so that we would not expect such a proposal to generate much revenue).  That said, we think it is highly unlikely that it would show up in Chairman Neal’s draft.

Partnership Tax Reform

One payfor mentioned broadly in the Wyden Document—passthrough reforms—was fleshed out in detail September 10 when Chairman Wyden released 39 pages of discussion draft legislative text containing at least 18 separate partnership tax proposals that would broadly “remove optionality . . . and close certain tax loopholes that allow investors and corporations to pick and choose when to pay tax.” ³³   The changes—characterized as “the most significant for partnerships since 1984” ³⁴ —are estimated to bring in about $172 billion over 10 years. ³⁵ 

While many of the proposals are technical and fairly arcane, some of the reforms are nevertheless familiar as they are repeats of what former Ways and Means Chairman Camp detailed in his own passthrough discussion draft back in 2014. ³⁶  Some of them are more radical ³⁷ and would, for example, ensure that gain cannot be shifted between partners and that partners will no longer be able to defer gain recognition far into the future (or avoid it at all, if they benefit from stepped-up basis at death).

But one in particular would have a very dramatic impact on one sector of the public markets.  Chairman Wyden wants to repeal the ability of any publicly traded partnership (PTP) to avoid entity-level tax.  Under current law, PTPs (which are often referred to as master limited partnerships or MLPs when the underlying business is associated with oil and gas extraction, transportation or distribution) are supposed to be taxed as corporations unless they meet an exception where they can show that 90 percent of their income is qualifying.  While President Biden proposed in his 2022 Green Book to repeal the exception for those partnerships that operate in the oil and gas sector ³⁸ (which is about 80 percent of all PTPs), Chairman Wyden would repeal the exception across the board.  That means all of the approximately 65 PTPs currently trading on U.S. exchanges would have to start paying corporate tax effective in 2023. ³⁹ 

By contrast, other lawmakers have sought to expand the PTP/MLP structure so that it is available to renewable energy firms. ⁴⁰  Indeed, Chairman Neal included such an expansion—the creation of green energy PTPs—in thproposed an expansion, beginning in 2022, to the Section 7704 qualifying income exception for PTPs to include income from clean energy projects on the same day that Chairman Wyden pre legislative text of tax incentives he released late September 10.  The fact that Chairman Neal oposed a broad repeal of the Section 7704 qualifying income exception for PTPs is perhaps the clearest sign yet that the tax writing committees are not on the same page.  If nothing else, it is an indication that broad repeal of the exception is unlikely.

In addition, Chairman Wyden is proposing to repeal Section 852(b)(6) for regulated investment companies (RICs, which are basically mutual funds that get a dividends paid deduction that effectively wipes out their corporate-level tax).  Section 852(b)(6) generally provides that if a RIC stockholder requests to be redeemed out and the redemption is affected through a distribution of appreciated property, then the gain in the property will not be recognized by the RIC.  By repealing Section 852(b)(6), RICs will no longer be allowed to use in-kind redemptions to wipe out what otherwise would have been taxable gain.  Importantly, if Section 852(b)(6) is repealed, then exchange traded funds (ETFs) likely will no longer be able to engage in so-called heartbeat trades. ⁴¹ 

While we are still reviewing the passthrough proposals, we suspect that—if adopted—they could impact certain multinationals’ use of partnerships, resulting in an increase in their effective tax rates.  Many of the passthrough proposals may be too radical to gain traction in a Congress with such tight majorities.  This is especially the case given that we expect that many of these proposals could have an outsized impact on the real estate industry, which historically has been one of the most effective industries at fending off tax increases.

Further Limiting Interest Deductibility

While this payfor was not included in the Wyden Document, we are hearing that Chairman Neal—who is on a desperate hunt for realistic revenue raisers—has his eyes on further limiting the ability of corporations to deduct their borrowing costs.

In 2017, TCJA created a new limit on the deductibility of interest expense (found in Section 163(j)).  The limit was later raised for 2019 and 2020 under the Coronavirus Aid, Relief, and Economic Security (CARES) Act so that, in general, companies could deduct an amount of business interest expense equal to up to 50 percent of their “earnings.” For 2021, the limit went back down to 30 percent of their “earnings” (more specifically, an amount similar to earnings before interest, taxes, depreciation, and amortization or EBITDA).  The limit is scheduled to change to 30 percent of an amount similar to earnings before interest and taxes (EBIT) beginning in 2022.

One proposal that was floated back in 2017 but was not ultimately included in TCJA was enacting new Section 163(n), a so-called thin cap or debt cap rule that would limit interest expense deductions taken by domestic corporations that are members of an international group.  At a high level, Section 163(n) looks to the U.S. corporation’s share of the group’s global earnings (U.S. EBITDA / global group EBITDA) and limits the U.S. corporation’s ability to deduct its net interest expense proportionately.  At one time, it was estimated that Section 163(n) would raise about $8.4 billion in revenue over 10 years.

Creating a new interest expense limit calculated relative to a global group’s earnings (making it harder for a multinational to lever up its U.S. entities and use the deductions for the borrowing costs to reduce the taxes it pays in the United States) was actually included in the 2022 Green Book. ⁴²  The proposal does not mention Section 163(n).  It is estimated to raise less than $20 billion over 10 years.  (For a more in-depth discussion of Treasury’s proposal for a new interest expense limit, with two alternative ways to calculate it, see our prior report “Biden Green Book Tax Proposals’ Impact on Publicly Traded Companies” (June 2, 2021).)

Of all the six payfors discussed in this report, we think this one is by far the most likely.  While we are not sure which direction Chairman Neal will go (Section 163(n) or the Green Book), we suspect some version of a global thin cap rule could show up in his draft and could make it into the final reconciliation bill.  That would certainly complicate the active lobbying effort underway⁴³to stop the planned Section 163(j) tightening (from EBITDA to EBIT in 2022).

Timing Expectations

Even though all expectations are that the timing may slip, the Build Back Better reconciliation bill will be the number one priority of Democrats in House Leadership, Senate Leadership and the White House in the coming weeks.  Right now, Democratic Leaders are still communicating the ambitious goal of getting the bill through Congress as soon as the end of October (and potentially through the House in September). ⁴⁴  That said, escalating brinkmanship by certain lawmakers could push the effort into November (with a likely backstop of Thanksgiving).

Speaker Pelosi is trying hard to get the reconciliation bill close to done in the House by September 27, which is when she promised a group of 10 moderate House Democrats that the House would vote on the bipartisan infrastructure bill or BIF (its official name is the Infrastructure Investment & Jobs Act or IIJA).  Based on the current trajectory, there is a good chance that IIJA will pass the House before the House votes on the reconciliation bill, but that will largely depend on how much clarity there is on the bill’s prospects as the vote gets closer.  (It is widely believed that if IIJA does not pass the House, then the reconciliation bill is doomed.  With each passing day, there is inevitably another lawmaker who threatens to derail either IIJA or the reconciliation bill, and such drama is proving difficult to navigate.)

Depending on whom you ask, the chances that the reconciliation bill will become law is somewhat over (or somewhat under) 50 percent (and everyone has their own opinion as to what the likely size of the bill will be and which substantive provisions will likely be included).  Assuming IIJA does get through the House, then, even as a toss-up, the chances that the reconciliation bill could become law should be taken very seriously.  We will be following the tax angles closely and will put out updates as warranted.

^{[1] Although the legislation would increase the deficit over FY2022 through FY2031 by no more than $3.5 trillion, it is expected that about half of the $3.5 trillion will ultimately be offset by various payfors, primarily new or increased taxes on large businesses and the wealthy, although some through health care savings and economic growth.  Technically, however, the tax-writing committees were only explicitly tasked with reporting changes under their jurisdiction that would, on net, reduce the deficit by a nominal amount (not less than $1 billion).  (See the Aug. 9, 2021 memorandum to Democratic Senators re:  FY2022 Budget Resolution Agreement Framework, https://www.democrats.senate.gov/imo/media/doc/MEMORANDUM%20for%20Democratic%20Senators%20-%20FY2022%20Budget%20Resolution.pdf.) However, some (including Democratic Sen. Joe Manchin (WV)) are pushing for a smaller bill and others (including House Speaker Nancy Pelosi (CA)) have said they would like the bill to be fully paid for.}

^{[2] The committee print must comply with the reconciliation instructions found in the Concurrent Resolution on the Budget for Fiscal Year 2022 (S. Con. Res. 14), which was agreed to in the House Aug. 24, 2021 and in the Senate Aug. 11, 2021 (https://www.congress.gov/117/bills/sconres14/BILLS-117sconres14es.pdf).}

^{[3] https://www.finance.senate.gov/chairmans-news/wyden-brown-warner-unveil-international-taxation-overhaul-discussion-draft; https://www.finance.senate.gov/chairmans-news/-wyden-colleagues-introduce-legislation-to-overhaul-energy-tax-code- create-jobs-combat-climate-crisis; https://www.finance.senate.gov/chairmans-news/wyden-bill-ensures-wealthy-investors-pay-fair-share-in-taxes; https://www.finance.senate.gov/chairmans-news/wyden-whitehouse-bill-ensures-private-equity- moguls-pay-fair-share-in-taxes}

^{[4] “The Ways and Means chair told Brian [Faler of Politico] that if he did let much slip in advance — which he won’t — that would merely serve to give a head’s up and allow the opposition to mobilize,” according to Bernie Becker, It’s go time, POLITICO Pro Morning Tax, Sept. 7, 2021 (https://www.politico.com/newsletters/weekly-tax/2021/09/07/its-go-time-797441).}

^{[5] Brian Faler, Wyden eyes taxes on billionaires, executive pay to fund spending plans, POLITICO Pro, Sept. 3, 2021 (subscription required); Bernie Becker, It’s go time, POLITICO Pro Morning Tax, Sept. 7, 2021 (https://www.politico.com/newsletters/weekly- tax/2021/09/07/its-go-time-797441).}

^{[6] General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals (https://home.treasury.gov/policy- issues/tax-policy/revenue-proposals); for our prior report on the 2022 Green Book, see “Biden Green Book Tax Proposals’ Impact on Publicly Traded Companies” (June 2, 2021).}

^{[7] At which point the House Budget Committee will likely proceed to its markup of the legislation Sept. 17, 2021.  It has been reported that the reconciliation bill could go to the Rules Committee by Sept. 21, 2021.}

^{[8] https://waysandmeans.house.gov/media-center/press-releases/chairman-neal-announces-markup-build-back-better-act}

^{[9] “Neither the White House or Senate Dems approved the Ways & Means package released today.  Negotiations are ongoing,” reported Ryan Lizza, Tara Palmeri, Rachel Bade and Eugene Daniels, Biden’s Senate bias rankles the House, POLITICO Playbook, Sept. 8, 2021 (https://www.politico.com/playbook)}

^{[10] The draft will be released in tranches.  On Sept. 7, Chairman Neal released the full text of those portions of the reconciliation bill dealing with universal paid family and medical leave; retirement; child care access and equity; trade adjustment assistance; pathways to health careers; elder justice; skilled nursing facilities; and Medicare dental, hearing, and vision coverage.  (https://waysandmeans.house.gov/media-center/press-releases/chairman-neal-announces-markup-build-back-better-act); “The panel’s markup is expected to last into next week, and the tax provisions aren’t likely to come up until that time.  The opening days of the markup will focus instead on Democratic efforts to create a paid family leave program -- a huge priority for Rep. Richie Neal (D-Mass.), Ways and Means chair -- as well as other social welfare initiatives,” as reported by John Bresnahan, Anna Palmer and Jake Sherman, The SALT-y Democrats, Punchbowl News AM, Sept. 7, 2021 (https://punchbowl.news/).}

^{[11] See 117th Congress House Rule XI, clause 2(g)(4) (https://rules.house.gov/sites/democrats.rules.house.gov/files/117-House- Rules-Clerk.pdf).}

^{[12] Naomi Jagoda, Senate Democrats float taxes on stock buybacks, plastics to pay for spending plan, The Hill, Sept. 3, 2021 (https://thehill.com/policy/finance/570754-senate-democrats-float-taxes-on-stock-buybacks-plastics-to-pay-for-spending); Naomi Jagoda, Five tax issues to watch as Democrats craft $3.5T bill, The Hill, Sept. 4, 2021 (https://thehill.com/policy/finance/570828-five-tax-issues-to-watch-as-democrats-craft-35t-bill).}

^{[13] This excise tax was proposed by Sen. Sheldon Whitehouse (D-RI) in S. 2645 (the Rewarding Efforts to Decrease Unrecycled Contaminants in Ecosystems (REDUCE) Act).}

[14]

^{[15] CNBC Transcript:  Former Vice President Joe Biden Speaks With CNBC’s ‘Squawk Box’ Today, CNBC, May 22, 2020 (https://www.cnbc.com/2020/05/22/cnbc-transcript-former-vice-president-joe-biden-speaks-with-cnbcs-squawk-box- today.html).}

^{[16] https://www.rubio.senate.gov/public/_cache/files/d1c6db46-1a68-481a-b96e- 356c8100f1b7/3EDECA923DB439A8E884C6229A4C6003.02.12.19-final-sbc-project-mic2025-report.pdf}

^{[17] Bloomberg News, Senate Democrats eye taxes on stock buybacks, excess CEO pay, Sept. 3, 2021}

^{[18] Assuming an investor satisfies the requirements for qualified dividend income, including the holding period requirement, such income is taxed at the lower capital gains rates.  Nonqualified dividends are taxed at ordinary income rates.}

^{[19] Daniel J. Hemel & Gregg D. Polsky, Taxing Buybacks, 38 Yale J. on Reg. (2021) (available at https://digitalcommons.law.yale.edu/yjreg/vol38/iss1/4); The authors point out that dividends do not offer the option of deferral, describing that as a benefit for investors who do not participate in a buyback or only choose to redeem a portion of their shares.  But most buybacks are nothing more than the company opportunistically going into the market and purchasing its own stock.  In those numerous cases, no investor thinks in terms of selling stock to the company, just selling stock or not selling stock.  On the other hand, it is certainly the case that management whose compensation package includes stock options more directly benefits from buybacks, because buybacks increase earnings per share, using corporate finance transactions to inflate the stock price without changing the underlying business value.}

^{[20] “Aides on the Finance Committee said some repurchased shares would be exempt from taxation if they were deposited somewhere, like in a pension fund, and not retired,” Jonathan Weisman and Peter Eavis, Democrats Eye Taxing Stock Buybacks and Partnerships to Pay for Agenda, N.Y. Times, Sept. 10, 2021 (https://www.nytimes.com/2021/09/10/us/politics/stock- buybacks-partnerships-democrats-tax.html).}

^{[21] Seth Hanlon and Galen Hendricks, Addressing Tax System Failings That Favor Billionaires and Corporations, Center for American Progress, Sept. 2021 (https://cdn.americanprogress.org/content/uploads/2021/09/03052054/Addressing-Tax-System- Failings-That-Favor-Billionaires-and-Corporations.pdf).}

 ^{[23]https://www.brown.senate.gov/newsroom/press/release/brown-unveils-major-new-legislation-to-create-worker-dividend- curb-stock-buyback}

^{[24] In Feb. 2019, Sen. Schumer coauthored an op-ed with Sen. Bernie Sanders (I-VT) indicating that they were considering introducing legislation imposing preconditions before a company could buy back its own shares (https://www.nytimes.com/2019/02/03/opinion/chuck-schumer-bernie-sanders.html).}

^{[25] We wrote extensively about the DBCFT.  See, for example, “No Need to Fear the Border-Adjustment Tax,” published in Bloomberg View, Feb. 16, 2017; “A Slightly Better ‘Better Way’ Plan,” published in Tax Notes March 6, 2017; and “Insurance For The Border-Adjustment Tax,” published by Forbes March 9, 2017.}

^{[26] Lisa Friedman, Democrats Propose a Border Tax Based on Countries’ Greenhouse Gas Emissions, N.Y. Times, July 19, 2021 (https://www.nytimes.com/2021/07/19/climate/democrats-border-carbon-tax.html).}

^{[27] U.S. Treasury’s Yellen says carbon pricing can work, with caveats, Reuters, July 13, 2021 (https://www.reuters.com/business/sustainable-business/uss-yellen-carbon-pricing-can-work-with-caveats-2021-07-13/).}

^{[28] There are currently three vacancies in the House.  If three of the 220 Democrats join all of the 212 Republicans to vote against the bill, and the remaining 217 Democrats vote in favor of the bill, then it will pass.  But if four vote against it, then it will not pass (https://clerk.house.gov/).  At least two House Democrats, Rep. Jared Golden (ME) and Rep. Kurt Schrader (OR) have indicated they may be willing to vote against the reconciliation bill, no matter the size.}

^{[29] For Chairman Wyden’s “Treat Wealth Like Wages” plan, see https://www.finance.senate.gov/imo/media/doc/Treat%20Wealth%20Like%20Wages%20RM%20Wyden.pdf}

^{[30] S. 2621, the Modernization of Derivatives Tax Act of 2021 (MODA)}

^{[31] In 2005, 725 firms exceeded the deduction limitation.  In 2013, 1,185 firms exceeded the deduction limitation.  (https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/Firms-Exceeding-162m.pdf)}

^{[32] S. 794, the Tax Excessive CEO Pay Act of 2021 was sponsored by Sen. Bernie Sanders (I-VT).  There is a similar bill in the House (H.R. 1979).}

^{[33] See the one-pager and section-by-section available here:  https://www.finance.senate.gov/imo/media/doc/Wyden%20Pass-through%20Reform%20One%20Pager.pdf?source=email and https://www.finance.senate.gov/imo/media/doc/Wyden%20Pass-through%20Reform%20Section%20by%20Section.pdf?source=email}

^{[34] Richard Rubin, Democrats Float Partnership, Buyback Taxes to Fund $3.5 Trillion Spending Plan, Wall St. J., Sept. 10, 2021 (https://www.wsj.com/articles/democrats-float-partnership-buyback-taxes-to-fund-3-5-trillion-spending-plan-11631264400).}

^{[35] “Those changes, without any increase in tax rates, would raise $172 billion over 10 years, according to the Joint Committee on Taxation, Congress’s official scorekeeper on tax matters,” as reported by Jonathan Weisman and Peter Eavis, Democrats Eye Taxing Stock Buybacks and Partnerships to Pay for Agenda, N.Y. TIMES, Sept. 10, 2021 (https://www.nytimes.com/2021/09/10/us/politics/stock-buybacks-partnerships-democrats-tax.html).}

^{[36] Those include mandating Section 743(b) and Section 734(b) adjustments to the basis of partner-ship assets whenever a partnership distributes money or other property or whenever there is a transfer of partnership interests (requiring the remaining partners’ basis in the property to be revalued, assuming the partnership sold all of its assets for cash equal to the fair market value of such property).}

^{[37] For example, Chairman Wyden wants to require all partnerships to use the remedial method for Section 704(c) allocations (doing away with the traditional method and the traditional method with curative allocations) and repeal the seven-year limitation in the so-called mixing bowl rules so that precontribution gain or loss must be recognized by the contributing partner when the property to which the gain or loss relates is distributed.  He also wants to require that all partnership distributions be made in accordance with the partner’s interest in the partnership, removing the current law substantial economic effect safe harbor (which would, among other things, “prevent the shifting of tax attributes between partners”).}

^{[38] Chairman Wyden has also proposed this change, describing it as “putting [PTPs] on equal footing with other energy companies and closing down the ‘Lone Star Loophole.’” (https://www.finance.senate.gov/imo/media/doc/Clean%20Energy%20for%20America%20Act%20-%20Section%20by%20Section.pdf)}

^{[39] According to the Energy Infrastructure Council (EIC)—the trade association for PTPs/MLPs—there were about 65 PTPs trading on U.S. exchanges as of August 24, 2021.}

^{[40] Sen. Chris Coons (D-DE) and Sen. Tom Carper (D-DE) are two of the cosponsors of the Financing Our Energy Future Act.}

^{[41] Zachary R. Milder, Rachel Evans, Carolina Wilson and Christopher Cannon, The ETF Tax Dodge Is Wall Street’s ‘Dirty Little Secret,’ Bloomberg, March 29, 2019 (https://www.bloomberg.com/graphics/2019-etf-tax-dodge-lets-investors-save-big/).}

^{[42] See pages 18-20, https://home.treasury.gov/system/files/131/General-Explanations-FY2022.pdf}

^{[43] Search lobbying disclosures for Save the DA Coalition, for example.}

^{[44] John Bresnahan, Anna Palmer and Jake Sherman, House Dems clash with W.H., Senate Dems, Punchbowl News AM, Sept. 8, 2021 (https://punchbowl.news/).}