Reconciliation stalls, Senate turns to voting rights

 

President Joe Biden’s efforts to re-engage in talks on his Build Back Better platform failed to gain any traction with the start of the new year as holdout Sen. Joe Manchin, D-W.Va., told reporters “there is no negotiation going on at this time.”

 

Manchin reset the process by initially walking away from negotiations on Dec. 20, but Biden pledged a renewed effort to salvage parts of the package more palatable to Manchin. Little progress has been made, however, and Manchin reiterated his stance last Tuesday stating, “I’m really not going to talk about Build Back Better anymore because I think I’ve been very clear on that.” The Senate is now expected to turn to election reform before pivoting to try and resurrect key pieces of their tax and spending priorities on a new version of reconciliation.

 

Upcoming deadlines could still drive action on items such as the child tax credit, renewable tax incentives, R&E expense amortization and international tax reform. Lawmakers have discussed an informal deadline of the president’s State of the Union address to find agreement on a transformed reconciliation bill—scheduled for March 1—but that’s a malleable deadline.

 

The Biden administration will be pushing to move the 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. International tax reform could also raise significant revenue to pay for other tax and spending initiatives.

 

While Manchin has not specifically expressed support for the package’s international tax provisions, he did recently indicate he could support a bill built around the climate-related provisions of the package, noting, “The climate thing is one that we probably can come to an agreement much easier than anything else.” Many of the energy incentives that the reconciliation bill would extend and enhance, if enacted, expired at the end of 2021.

 

Democrats are also hoping to renew the child tax credit, which expired last month—but Manchin has repeatedly called for creating a work requirement and lower income phaseout for the credit, which could complicate the provision’s prospects for passage. Manchin also opposes the reconciliation bill’s one-year extension of the enhanced child tax credit, which he claims hides the true cost. A longer extension would prove quite costly, however, and could also complicate the legislation’s prospects for passage.

 

There is still broad support for postponing the five-year amortization of R&E expenses, which is now in effect for tax years beginning after 2021. Industries that will be hit hard by the change are pushing for a fix before first quarter financial statements and estimated taxes are due, but the provision likely depends on a broader package coming together.

 

Grant Thornton Insight:

Recent discussions on Capitol Hill have proposed including a provision postponing the five-year amortization of R&E expenses in an upcoming omnibus spending bill (or continuing resolution), scheduled to be passed before federal government funding expires on Feb. 18. A provision postponing the five-year amortization of R&E expenses could also be added into the U.S. Innovation and Competition Act (USICA)—though adding the provision to an omnibus bill, a continuing resolution, or the USICA would require at least 60 votes for passage in the Senate, meaning 10 Republicans would have to cross the aisle for enactment.

 

An additional looming question is whether progressive Democrats will still support an amended reconciliation bill if popular items such as the enhanced child tax credit and a national paid family leave program are dropped or significantly altered in order to secure Manchin’s vote.

 

Senate Democrats said they expect Biden to restart talks with Manchin after a “cooling off” period that will likely extend until the Senate finishes debate on voting rights legislation and rules reform. Senate Majority Leader Chuck Schumer, D, N.Y., stated, “I believe the Biden administration will be having discussions with Manchin, with his cooperation and participation on BBB, as we move forward.”

 

 

 

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