Washington Post op-ed: Congress — and Biden — Can Raise Taxes Retroactively If They Want To, by David Herzig (E&Y):
Tax increases seem to appear on the horizon. Recently, the Biden administration proposed raising the corporate income tax to 28 percent, among other tax increases, to pay for a $2 trillion infrastructure plan. Depending on where the economy is in the fall, President Biden and the Democratic-controlled House and Senate may advance an agenda heavy on other policy initiatives, such as addressing climate change and reforming the Affordable Care Act. These plans are also likely to be paid for with increased taxes. In recent interviews, Treasury Secretary Janet Yellen and Mark Mazur, a tax policy official, said that Treasury should be thinking broadly about revenue-raising policies to pay for Biden’s campaign proposals.
As lawmakers consider the magnitude of tax increases, taxpayers may wonder whether those increases will be retroactive not only to the date of the bill’s introduction, but to the beginning of 2021. This is an important and interesting question: Can tax legislative increases be retroactive?
Under conventional wisdom, the answer is no. Taxpayers should be able to rely on the existing rules; otherwise, the government’s pursuit of short-term revenue could create a sense of unfairness and animosity toward the system.
In reality, however, the answer is yes. Tax increases can be retroactive, and not just to the current year.
As surprising as this may sound, there are few constitutional constraints on the legislature’s ability to set effective dates of legislation. Congress has wide discretion in its constitutional power to tax. ...
If Congress decides not to make the proposed tax increases retroactive, it will be most likely for practical purposes: At this point, it’s unlikely that a tax bill will be finished early enough to incorporate changes into IRS forms and software before large numbers of taxpayers begin filing their 2021 tax returns early next year. But if enough money is at stake, practicality might not stand in the way of retroactivity.