How Quickly Can President Biden Pass His American Jobs Plan?

How Quickly Can President Biden Pass His American Jobs Plan?

President Biden recently unveiled his $2.29 trillion dollar plan to invest in transportation infrastructure and other capital projects, The American Jobs Plan (AJP). Although designed to stimulate the economy, the AJP may come with unfavorable tax provisions. Biden’s proposed eight-year AJP would be funded over the next 15 years through increases to corporate taxes and changes to U.S.-international business taxation. These permanent tax increases would offset the cost of the infrastructure and capital projects, and would begin to reduce federal deficits thereafter.

Given the nature of the sharply-divided Senate, it is likely that the plan will need to pass using the Senate’s budget reconciliation rules (Reconciliation). Because the Biden Administration’s American Recovery Plan (ARP) Act passed in February through Reconciliation, it appeared that Reconciliation rules would not be available again until the new Congressional fiscal year begins in October. However, there are now indicators that the Senate will have the authority to use Reconciliation rules again this fiscal year. This would pave the way for a vote on the AJP well before the new fiscal year begins October 1. House Speaker Nancy Pelosi (D-CA) previously proposed a timeline to pass the legislation in the House by July 4, so it is unclear whether this new development will impact the House’s timeline.

The Senate’s rules are more relevant to the ultimate timing, however. Before we profile the corporate tax change proposals under the AJP, we will first explore the legislative process that the Senate will likely use to pass the AJP.

Senate Procedural Rules

As a refresher, Reconciliation is a special procedure that is used to bypass normal Senate procedural rules. Although most bills in the Senate actually require only a simple majority to pass – 50 Senators and the Vice President, for example – 60 votes are required to end debate on an issue and to proceed with a vote. Senators can block the vote if there are less than 60 Senators in favor by engaging in endless debate (the much-discussed “filibuster”). In the Senate, the folklore of such a “talking filibuster” was replaced many years ago with the less dramatic tactic of merely indicating any member’s intent to filibuster.

Because only three-fifths of the Senators can vote to end a filibuster, the bar is set higher to end debate than it is to pass an underlying measure. The practical effect under this framework is that a three-fifths vote will almost always be required to ultimately pass legislation in the Senate.

In the current Congress, this is a high bar to meet to advance the Biden Administration’s agenda. Biden would need to have 10 Senate Republicans join with all 48 Senate Democrats and both Senate Independents (who caucus with the Democrats) to circumvent the filibuster. Given the early reactions to the AJP from Senate members such as Mitch McConnell (R-KY), this appears highly unlikely. As a side note, it is also possible for the Democrats to change the rules of the Senate to either eliminate or complicate the filibuster (such as restoring the talking filibuster requirement). It is not clear that these efforts would be a viable option for ultimate passage of the AJP, however, as eliminating the filibuster is not universally popular among Congressional Democrats.

Reconciliation, however, serves as an exception to these rules when certain types of legislation are under consideration.

Budget Reconciliation

Unlike normal Senate procedural rules, Reconciliation is exempt from the debate process and can pass under a simple majority vote. Typically Reconciliation can only be performed once per fiscal year, which means that the AJP and its corresponding tax law changes could not be passed before the federal government’s new fiscal year commences on Oct. 1, 2021. However, the Senate parliamentarian recently indicated that Democrats may amend their Reconciliation used to pass the ARP Act to add additional reconciliation rules for the infrastructure bill, which opens the door for Biden’s AJP to pass much sooner.

Even with this allowance, it is important to note that other limitations apply before laws can be passed using Reconciliation. Provisions must alter spending or revenues; they cannot make changes that affect the Social Security trust fund; and they cannot increase the deficit beyond a 10-year window. It is this last rule that triggers the likely need for tax increases as a part of the infrastructure package. Unlike the recently passed ARP Act, the AJP has long-term budgetary propositions that fall outside of the 10-year window. Planning, permitting, and construction for many projects are likely to take more than 10 years. Thus, to comply with these rules and to presumably attract votes from senators concerned about the deficit, the AJP includes significant tax increases on corporations and international business operations.

Also, the infrastructure and tax provisions in this bill are so significant that it may not be possible to pass all of it as one standalone bill. There are already preliminary discussions on splitting the bill into as many as three separate bills in order to improve the chances of support for a standalone bill under Reconciliation.

Finally, the Biden Administration has been silent on how and when other tax law changes discussed during the campaign will be enacted. These include many changes affecting individuals, including:

  • Eliminating the Section 199A Qualified Business Income deduction for taxpayers with income in excess of $400,000 (“wealthy cap”);
  • Phasing out itemized deductions above the wealthy cap;
  • Limiting the benefit of itemized deductions to 28%;
  • Increasing the maximum ordinary income rate to 39.6%;
  • Taxing long-term capital gains at the increased ordinary rate for taxpayers with income over $1 million;
  • Eliminating the step up in basis on death;
  • Reducing the estate and gift tax exemption to 2009 levels ($3.5 million for an individual and $7 million for a married couple, indexed for inflation); and
  • Increasing the maximum rate for estate and gift taxes to 45%.

Because the corporate changes proposed under the AJP mirror closely the corporate changes discussed during the campaign, it is not unreasonable to assume that Biden will want to accomplish these individual and estate and gift tax changes, as well.

With Reconciliation established as a likely path to passage of the AJP, it is now time to explore the AJP’s significant provisions.

Headline Infrastructure Provisions

Although we will focus primarily on the AJP’s tax provisions, a few of the headline infrastructure provisions should be summarized. Of the AJP’s $2.29 trillion price tag, $621 billion would be allocated to transportation infrastructure (highways, bridges, roads, public transit, rail, electric vehicles, and other programs). Another $689 billion would be allocated to domestic infrastructure programs, including affordable housing, schools and VA hospital upgrades, clean drinking water facility and pipe upgrades, broadband Internet access, electric utility upgrades, and other programs. $400 billion would be allocated to elder care workforce creation and enhancement. $300 billion would be allocated to American manufacturing revitalization through enhanced access to credit, capital improvements, and workforce development. And $280 billion would be allocated to other programs, including research and development.

Corporate Tax Provisions

The AJP’s tax increases primarily target C corporations, including those that only do business domestically and those that also have international operations. One of the provisions in the AJP would be to increase the corporate tax rate from 21% to 28%. This reinstitutes half of the 14% corporate tax rate cut enacted by the pre-TCJA, which dropped the rate from 35% to 21%.It will therefore increase the rate by one third from the current 21% rate.

In addition to the corporate tax rate increase, the AJP would impose on C corporations a 15% minimum tax on large corporations’ book income. This provision is described as a way to ensure that large profitable corporations do not avoid tax through deductions and other “loopholes.” While a specific threshold has not been set, the AJP states that this new form of minimum tax will only be applied to “the very largest corporations,” and the threshold discussed during the campaign was $100 million of book profits.

It should be noted that a minimum tax on book income once existed during the three years following the Tax Reform Act of 1986. The former minimum tax on book income motivated corporations to take steps that would lower book income for financial reporting purposes, which presently has the virtue of being an objective and independent measure of business profits. These past experiences may factor into the final version of this proposal in the AJP.

International Tax Law Changes

The AJP also calls for changes to the U.S.-international tax system. It would:

  • Increase the global intangible low-taxed income (GILTI) tax rate on corporations operating abroad to 21% (from the current rate of 10.5%) and calculate GILTI on a per-country basis.
  • Eliminate incentives for foreign-derived intangible income (FDII), and the exclusion under GILTI for the first 10% of returns on investments in foreign countries
  • Eliminate deductions for expenses related to offshore jobs, and
  • Provide tax credits to support on-shoring jobs.

The AJP also encourages multinational agreements to enact minimum taxes in order to avoid the “global race to the bottom” on corporate tax rates. This multinational plan would likely be separate from any tax legislation, as tax treaties and other international agreements go through separate processes.

A high corporate tax rate could entice some businesses to acquire or merge with a foreign company in order to shift their tax base outside the U.S. This process is called a corporate inversion. The AJP states that stronger rules will be enacted to prevent such actions.

Clean Energy and Other Tax Provisions

The AJP calls for an end to subsidies and tax credits for fossil fuel businesses. This would include the elimination of the special foreign tax credits for fossil fuel businesses. The AJP would also create new tax credits for clean energy generation.

The final tax-related provision is not a new tax law or tax credit, but rather is a call for stronger tax enforcement. The AJP would provide additional IRS funding to enforce the tax laws and ensure that large businesses are compliant with the law. Specifically, the AJP would essentially impose a 100% audit rate on all large corporations. The plan also includes a statement that this increased tax enforcement would be performed in conjunction with a “broader enforcement initiative to be announced in the coming weeks that will address tax evasion among corporations and high-income Americans.”


Overall, the AJP faces significant procedural hurdles arising from the divided Senate. If the AJP is enacted via Reconciliation (as expected), then the tax provisions will be significant not just for their content but also to ensure that the AJP does not increase the deficit outside of a 10-year window. These tax provisions are largely aimed at corporations, both domestic and multinational, but as with all spending legislation, this is subject to change.

The final version of the AJP, if passed, will likely be very different than the proposal outlined above. For example, several members of Congress want to include a repeal of the $10,000 cap on state and local tax deductions for individuals. This cap has been a target of representatives and senators from high tax states since it was instituted by the TCJA. Because the costs associated with this repeal are significant, it will be challenging to fit the repeal within Reconciliation rules.

In any case, the AJP is in its early stages of negotiation. There is likely to be many changes to the AJP before it potentially becomes law. For more information on how the proposals in the AJP could affect you or your business, please contact a member of our team

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