Congressional spending proposals are expected to have fewer adverse impacts for community banks than originally anticipated but still require further evaluation, said Eide Bailly partners Paul Sirek and John Fischer during the Bank Holding Company Association’s annual fall conference.
The proposals include a $1.2 trillion infrastructure package and $3.5 trillion reconciliation bill, the latter possibly cut nearly in half following negotiations. The legislation has been delayed due to party infighting and disagreements between Republicans and Democrats. Sirek said Democrats insist that the larger spending bill be passed before the infrastructure package.
Congress is discussing removing the fourth quarter Employee Retention Payroll Tax Credit portion of the stimulus bill — more than $70 billion in revenue — to pay for part of the infrastructure bill.
Another proposal could change the tax rate for U.S resident corporations from a flat 21 percent tax to a blended/marginal system. There are no plans for a tax increase on couples with less than $450,000 of yearly income. As reported by Forbes, the proposal could also include limitations on the 20 percent Section 199A Qualified Business deduction, 3 percent surcharge on ultra high earners, and the 3.8 percent net Investment Income Tax that would apply to active business income for high earners.
Higher rates are expected for C-corps with at least $10 million in revenue — a surtax to offset the cost of lower rates for others. C-corps could push deductions to future years when higher taxes are projected to kick in. Sirek noted Congress is discussing cutting the $11.7 million individual estate and gift tax exemptions to an inflation-adjusted $6.3 million.
To Sirek, bankers could consider delaying some expenses and undertaking reverse tax planning to adjust for any future hikes — recognizing income now at the lower tax rate and deferring deductions into future tax years with higher rates. Banks with binding deals in place on or before Sept. 13 are advised to finalize the transactions by the end of the year to utilize existing rates.