Congress pivots to other priorities as BBB stalls

 

Lawmakers are turning to other legislative priorities as discussions on a smaller reimagined version of the Build Back Better reconciliation bill have failed to produce any substantive results over the past several weeks.

Key holdout Sen. Joe Manchin, D-W.V., recently called the bill “dead,” though he later clarified that he meant the prior version and he could be open to starting from scratch on something new. However, no substantive negotiations appear to be taking place. Manchin has repeatedly raised numerous issues with a potential reconciliation bill, including macroeconomic concerns like inflation. Manchin reiterated these concerns last Thursday—after the Department of Labor released its January 2022 inflation statistics—stating, “Congress and the Administration must proceed with caution before adding more fuel to an economy already on fire.”

Manchin also has concerns with the procedure for the bill itself, calling for it to go through committees. If the process were to be resurrected from scratch, it could drastically change what a tax title looks like. Manchin recently said in a radio interview that he favors a 25% corporate rate and 28% capital gains rate—though both those provisions were removed from the prior version of the bill over objections from Sen. Krysten Sinema, D-Ariz.

President Joe Biden has acknowledged that he may have to sacrifice key priorities, including the enhanced child tax credit and increased spending on social community colleges, to get agreement from Manchin on an updated reconciliation bill. But while Biden and other Democratic lawmakers have been hoping for an updated package that includes 1) international tax reform (such as 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), 2) alternative energy credit extensions and enhancements, and 3) IRS funding increases and other revenue raisers, Manchin’s recent comments cast doubt on the likelihood of passage in the near future.

Nevertheless, while the reconciliation bill is stalled, there are still other legislative vehicles lawmakers could use to enact stalled tax priorities.

Congressional Republicans and Democrats last Wednesday agreed to a “broad framework” for an omnibus spending deal to cover the remainder of the fiscal year, though little specifics of the package are available at this time. Given the broad bipartisan support for retroactively postponing the amortization of research and experimental expenses under Section 174, lawmakers could attempt to attach a retroactive “fix” for that provision in the upcoming omnibus bill. Lawmakers could also address the fix in standalone bipartisan legislation or an innovation bill soon going to conference.

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.

Businesses should remain apprised of developments on Capitol Hill, as legislation addressing several important tax provisions could move quickly in the coming months—even if the Build Back Better reconciliation bill continues to lose momentum.

 

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