Lawmakers are starting negotiations over a smaller reimagined version of the Build Back Better reconciliation bill after President Joe Biden conceded that they will need to break the package up to “get as much as we can now, and fight for the rest later.”
Biden acknowledged that he may have to sacrifice key priorities—such as the child tax credit and increased spending on social community colleges—in order to get agreement from Sen. Joe Manchin, D-W.V. This could still leave room for a substantial package that includes major tax provisions. Biden noted there is broad support for pre-K funding, significant climate investments (including tax credits), and health care reform, funded by tax increases.
Procedurally, Democrats are still looking to pack as many priorities as possible into a single reconciliation bill that can pass both chambers. House Speaker Nancy Pelosi, D-Calif., stated that Democrats can’t simply divide the bill up because any pieces moving outside of reconciliation will need 60 votes in the Senate.
The tax title of an updated reconciliation bill could include international reform, alternative energy credit extensions and enhancements, IRS funding increases, and other revenue raisers. The Biden administration will likely be pushing to enact proposed changes to the deduction for foreign-derived intangible income, the tax on global intangible low-tax income, and the base erosion and anti-abuse tax to bring the U.S. in line with the global minimum tax agreement brokered by the administration.
The state and local tax (SALT) deduction remains a major source of contention. Reps. Tom Suozzi, D-N.Y., Josh Gottheimer, D-N.J., and Mike Sherrill, D-N.J., recently released a statement reiterating their SALT reform in the bill, noting, “SALT remains a top priority. We support the President’s agenda, and if there are any efforts that include a change in the tax code, then a SALT fix must be part of it. No SALT, no deal.” But Senate Democrats have been unable to agree on an income cap for SALT relief, and many are now pushing to leave off relief altogether.
There are still many hurdles to enactment. Manchin was unwilling to even commit to his previous negotiating positions, stating, “We’ll just be starting from scratch [on the reconciliation bill] whenever we start,” and adding that he intends to “start with clean sheet of paper and start over.” Manchin has also repeatedly stated that Congress should be more focused on inflation and continued COVID-19 relief—so he could reject the idea of an updated reconciliation bill altogether.
Progressives will also have to decide if they are willing to accept a smaller package without many of their key priorities.
Democratic leadership and the White House will continue talks on the reconciliation package next week, with hopes of passing an updated reconciliation bill by Biden’s State of the Union address on March 1.
If no reconciliation bill comes together, several tax priorities could still be addressed separately in bipartisan legislation. There is broad support for retroactively postponing the amortization of research and experimental (R&E) expenses under Section 174. Lawmakers have even discussed trying to attach a fix for that provision on an upcoming government funding bill due by Feb. 18 or an innovation bill that is expected to move soon. Other tax priorities may have to wait until later in the year. Postponing the addition of amortization and depreciation to adjusted taxable income for the Section 163(j) limit on the interest deduction could be paired with an “extender” tax package with expired provisions later in the year. There is also broad support for bipartisan retirement account legislation.
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