Tax Reform 2021 - Build Back Better: Status Update as of December 9, 2021

Not much has changed since the last post to our tax blog. The Build Back Better bill is still parked in the Senate after passing the House in November. Some provisions of the nearly $2 trillion bill that President Biden and other congressional leaders had hoped would be law by now are still up for debate.

The president is uncertain that the bill will pass by his earlier goal of December 25, noting that he’ll take passage of the legislation “… as early as we can get it. We want to get it done no matter how long it takes.” Others appear to be echoing that sentiment, with the New York Post citing a senior Democratic source who insisted that, “the goal is still before Christmas Day, but before New Year’s sounds just as nice.” 

Democratic party senators are still grappling to reach a consensus on various issues and provisions included in the legislation. The spending aspect of the bill and the impact on the overall fiscal health of the United States is one of the concerns of Sen. Joe Manchin, D-W.Va, who’s uneasy with the prospect of the bill’s spending provisions adding fuel to the highest inflation rate the U.S. has experienced in years. He also believes the indicated costs of new programs seem to appear lower than they actually would be if enacted. 

In addition, the bill must meet rules established by the Senate governing what can be included in a bill that’s sought to be passed using the “reconciliation” process. The so-called Byrd Rule, for instance, lays out restrictions for what can be passed under budget rules. Among those is that a proposal must have an impact on federal spending and revenues, and that its impact isn’t “merely incidental” to its nonbudgetary goals. As of December 8, Senate Parliamentarian Elizabeth MacDonough has still not ruled on some of the potential provisions included in the bill, including immigration-related provisions and plans to control pharmaceutical prices. 

Much of the focus on the revenue raising (federal tax impact) side of the bill concerns the deductibility of state and local taxes (SALT). The House-passed bill proposes to temporarily increase the $10,000 current cap for everyone to $80,000, but Sens. Bernie Sanders (I-Vt.) and Bob Menendez (D-N.J.) have been working on an alternative plan that would allow many people an unlimited deduction, while higher earners would continue to be covered by the current SALT cap. The issue is a priority of lawmakers from high-tax states like New York, New Jersey, and California, who argue the current $10,000 deduction limit is unfair to their constituents. Sen. Sanders, however, is not ready to support a proposal that would benefit the top 1% of households (roughly those with income exceeding $500,000). 

If the Senate ultimately passes a version of the Build Back Better legislation that’s different from the House version, the bill would need to travel back to the House, where it will again need to be voted on. What’s unclear is the impact on some of the legislation’s retroactive effective dates if the bill doesn’t pass both chambers until sometime after January 1, 2022. We’ll continue to monitor the situation closely as the bill progresses.