Congress Gets Closer to Massive Tax/New Programs Bill Debate
President Biden’s “Build Back Better” initiative is underway on Capitol Hill. His American Jobs Plan (AJP) and American Families Plan (AFP) form the foundation of two pieces of legislation, moving in a three-part process. The overall initiative, if enacted into law, would create new spending programs (e.g., expanded Medicare and a federal family leave program), and raise taxes on corporations and on “the rich” (people earning more than $400,000/year).
The Senate finished work on the first of the three steps towards enactment of “Build Back Better” on August 10, when Senators approved a bipartisan traditional infrastructure bill. That bill incorporates many of the proposals in the AJP. That set the stage for a reconciliation bill—which will require only Democratic votes to pass—that would, if enacted, create new programs (e.g., a federal paid sick and family leave program and Medicare expansion) and would raise taxes to offset “almost all” of the $3.5 trillion cost. That bill, which will likely take until fall or longer to come together, is expected to include much of the AFP.
Authorization of a reconciliation bill—which will avoid Senate filibuster rules and thus allow the Senate to pass the measure with only 51 votes—comes in the second of this three-step process, a fiscal year (FY) 2022 budget resolution. Senate Budget Committee Chairman Sen. Bernie Sanders (I-VT) released his proposed budget resolution on August 9. It calls for a $3.5 trillion reconciliation bill and instructs the tax-writing Ways & Means and Finance Committees to produce a bill that “reduces the deficit” (i.e., raises taxes) by “at least $1 billion.”
The $1 billion figure is “a nominal amount,” Sen. Sanders said. It is designed to give the committees flexibility to craft the spending programs in their jurisdiction, and the tax increases that will pay for them. The budget resolution also forbids new taxes on individuals earning less than $400,000/year. The budget resolution requires the committees of jurisdiction to complete their work by September 15, 2021.
Prospects: The House must approve the Senate-passed budget resolution, but it is not a law and does not require a signature by the President. It can, and probably will, pass with only Democratic votes. Its provisions are guidelines, and not binding, but will heavily, if not definitively, influence the spending and tax decisions made by the committees of jurisdiction that will write the actual bills that Democrats will try to enact into law.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org; or Michael Hedge – Director – Government Relations, at mhedge@naifa.org
Senate Approves Budget Resolution that Authorizes Reconciliation
On August 11, Senate Democrats, by a 50 to 49 vote, passed a Fiscal Year (FY) 2022 budget resolution that authorizes a $3.5 trillion reconciliation bill. The reconciliation bill embodies the second “human infrastructure” part of President Biden’s “Build Back Better” initiative. It is supposed to be fully offset mostly by corporate tax hikes and new taxes on “the rich.”
The budget resolution includes authorization for a federal paid leave program, Medicare expansion, long-term care supports for seniors and those with disabilities, “pro-worker incentives and worker supports” (i.e., the PRO Act), education initiatives including tuition-free community college, childcare programs, climate change provisions, and immigration reform provisions. The budget resolution also calls for relief from the state and local tax (SALT) deduction limit.
The budget resolution will not itself raise taxes or enact the spending programs. It will be the reconciliation bill that the budget resolution authorizes that creates the specifics of both the new spending and the tax increases.
Reconciliation bill: House and Senate Democrats have already begun work—in a big way—on the provisions that will go into the reconciliation bill, but the work will remain “on background” until after the budget resolution with its reconciliation bill authorization is passed. The specifics of what will go into the reconciliation bill are not yet known, but there is considerable information about what lawmakers crafting the legislation are discussing/negotiating. Those discussions/negotiations are bicameral, but only among House and Senate Democrats. The GOP is unified in its opposition to this reconciliation bill.
It is likely the reconciliation bill will include:
A federal paid leave program—details on how this work are still under discussion, but it seems clear the program, whether paid for by the federal government, employers, employees, or some combination of all of these, will include a guarantee of paid sick and family leave to all eligible workers.
Medicare expansion—currently, it appears that the bill will include provisions adding to Medicare dental, hearing, and vision benefits—limited, probably by sunsetting (setting expiration dates) for them, to control the cost of these new benefits. It seems unlikely, but not impossible, that despite authority in the budget resolution, a provision to allow those age 55 or 60 to buy into Medicare will not be included in the package.
PRO Act unionization rules, including worker classification provisions—but Washington insiders, both on and off the Hill, expect that PRO Act provisions will be dropped from the final package because they do not comply with the reconciliation bill process’s Byrd Rules.
New taxes—likely provisions include an increase in the corporate and top individual tax rates, new limits on the section 199A 20 percent deduction for non-corporate business income, capital gains tax increases, estate tax rules (especially trust rules, but also possibly a change in step-up versus carryover basis rules); wealth taxes, and financial transaction taxes (FTTs). There’s also talk of new limits on very big IRAs held by the wealthy. Individual tax hikes will likely be imposed only on those earning more than $400,000/year.
There will probably be other tax provisions, too—there is an effort underway (which may or may not succeed) to tuck two retirement savings provisions (an expanded Saver’s Credit and an automatic 401(k) program) into the bill. International tax rules are high on the target list, as is a provision lifting the limits on the state and local tax (SALT) deduction.
Enactment of the reconciliation bill is a complex task. A unified GOP promises to oppose it. So, Democrats will have to pass it with a unanimous partisan vote in the Senate, and a near-unanimous partisan House vote (only four Democratic “no” votes in the House would cause the bill to fail). The intra-party negotiations will be intense as progressives and moderates struggle over just how “big and bold” the legislation can be.
Prospects: The House must still vote on/approve the FY 2022 budget resolution. The House leadership has recalled House members to Washington early (August 23), however, it is possible that the House vote will come shortly after Labor Day. The House is not expected to dispute any of the provisions in the Senate-passed budget resolution.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org; or Michael Hedge – Director – Government Relations, at mhedge@naifa.org
Infrastructure Bill Passes Senate, Heads to House
On August 10, the Senate approved a bipartisan traditional infrastructure bill that is the first of two parts of President Biden’s “Build Back Better” initiative. The vote was 69 to 30.
The $1.2 trillion traditional infrastructure bill (H.R.3684) embodies much of President Biden’s American Jobs Plan (AJP)—one of two pieces, along with the American Families Plan (AFP) that comprise the Biden “Build Back Better” initiative. The Senate-passed bill focuses on funding for building roads, bridges, rail, ports, etc., but also contains (as offsets to the bill’s cost) three provisions that may be of interest to some NAIFA members:
A change in defined benefit plan funding rules (allowing for longer amortization of funding requirements).
A reporting requirement imposed on brokers dealing in cryptocurrency transactions.
An acceleration to September 30 (from year-end) of the expiration of the employee retention tax credit (ERTC).
Now, this bill goes to the House, where there is an ongoing debate about whether to vote on it right away or to instead wait until the Senate sends a reconciliation bill to the House.
Prospects: The House is likely to approve, without changes (but with some grumbling), the Senate-passed H.R.3684. Timing on House action is unclear, but insiders on and off the Hill say it is almost certain that the bill will be enacted into law later this year.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org; or Michael Hedge – Director – Government Relations, at mhedge@naifa.org
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