The federal agenda 2021 outlook

During a February 16 webcast, speakers from KPMG and Eurasia Group discussed the priorities for the federal agenda during the first year of the Biden-Harris administration—including fiscal stimulus, climate, tax, and U.S. trade—and the implications for business. The following are four key takeaways from the conversation:

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1.  Fiscal stimulus is likely to fuel an economic recovery.

“This is the worst recession since World War II,” said Hunter. “But we’re looking at a somewhat bright future due to Biden’s proposed $1.9 trillion fiscal relief plan. That would put us above potential GDP for the next three years.” High vaccination rates, relative to other countries, are also expected to boost the economic recovery. However, not all industries will recover at the same speed. “The recovery is K-shaped across many dimensions: geography, industry, and households,” Hunter added. 

3.  Tax law changes on the horizon.

Democratic control of the new Congress increases the likelihood for tax increases. Members of Congress are expected to use special budget reconciliation procedures that allow certain types of legislation to pass with a simple majority vote without being subject to a filibuster (the same method used to enact the 2017 Tax Cuts and Jobs Act).

“I expect we’ll have higher taxes in some way by February 2022, but we’re not sure yet which taxes and how much,” said John Gimigliano, principal-in-charge of Federal Tax Legislative and Regulatory Services at KPMG LLP. Gimigliano highlighted a number of Biden’s tax proposals most likely to impact businesses, including the possibility of:

• Increasing the top statutory corporate income tax rate to 28 percent.
• Creating a new corporate minimum tax on global book income of $100 million or more.
• Increasing the tax rate on certain foreign income.
• Providing new or expanded business tax credits for various activities (including domestic manufacturing).
• Making various changes relevant to specific industries (such as pharmaceuticals, real estate, fossil fuels, energy, natural resources, and banking).

4.  U.S. trade posture returns to multilateralism.

Biden continues to reengage the U.S. on the world stage, taking a measured approach—resetting the relationship with key U.S. allies (such as the EU) where interests have historically been aligned and pursuing constructive but firm strategies toward China and Russia on key issues like digital services taxes and data privacy. While noting that pressures for a return to free trade, open borders, and global supply chains will influence U.S. trade policy longer-term, Lieber predicted that the United States-Mexico-Canada Agreement (USMCA) and the existing tariffs against China are likely to remain in place. “The USMCA is here to stay and has buy-in from all parties, although there may be tension caused by U.S. enforcement of some provisions [such as those pertaining to labor],” said Lieber.

On China, Lieber believes it is unlikely that Biden will be able to extract concessions from Beijing on U.S. access to the China market and intellectual property protection for U.S. companies doing business in there, which would be precursors to reducing tariffs.