TAX TAKE: A Change is Gonna Come: Top 10 Questions for the Upcoming House/Senate Reconciliation Bill Negotiations (Part One)

Tax Alert

Late Friday, House Democratic Leaders announced that the vote on H.R. 5736, the Build Back Better Act, will be delayed until "no later" than the week of November 15. Assuming the bill ultimately passes the House, it is clear that the Senate will amend the bill, setting the stage for a House/Senate negotiation of a final package. These negotiations could have a significant impact on the size and content of the package, particularly from a tax perspective. Thus, we present part one of our top 10 questions regarding these important negotiations.

  1. What about the cost? On Friday, the Joint Committee on Taxation released an official score of the revenue provisions of the Build Back Better Act which includes approximately $1.5 trillion of tax increases on individuals and businesses. However, the Congressional Budget Office (CBO), has not released an official score of the spending provisions in the bill. The absence of a CBO score has not only delayed the House vote on the bill but will also influence the consideration of the bill in the Senate. 
  2. What about SALT? The pending House bill contains an increase in the state and local tax (SALT) deduction cap from $10,000 to $80,000 through 2030, when it will then return to $10,000 (an earlier proposal set the cap at $72,500 through 2031). There is also Senate interest in SALT deduction cap relief, although Senators Bernie Sanders (I-VT) and Bob Menendez (D-NJ) are pushing an alternative plan that would provide relief only to taxpayers making under $400,000.
  3. What is the impact of the enactment of the bipartisan infrastructure bill? On Friday, the House also passed the $1.2 trillion Senate-approved bipartisan infrastructure bill (H.R. 3684, the Infrastructure Investment and Jobs Act), clearing it for President Biden's signature. The Congressional Progressive Caucus had delayed the House vote on the bill, seeking assurances of support from moderate Democrats on the reconciliation bill. Although moderate Democrats have now committed to voting for the reconciliation bill "no later" than the week of November 15, it is yet to be seen whether the Progressive Caucus has surrendered the only leverage it had by allowing the infrastructure bill to pass without more progress on the reconciliation bill.
  4. Will the reconciliation bill be enacted this year and, if so, when? Despite the intra-party debates and procedural challenges that have led to the protracted consideration of the reconciliation bill, Congressional Democrats and the Biden Administration remain committed to enacting the reconciliation bill this year. The need for a significant legislative victory in advance of the 2022 Congressional midterm elections is particularly important given that control of both the House and Senate is likely in play. Nevertheless, given the lateness in the year and the potential for significant differences to arise in the context of the House and Senate negotiations, there remains the potential that despite best efforts the bill is not enacted this year. The delay in the House vote on the bill until "no later" than the week of November 15, combined with the need for House/Senate negotiations and the holidays, suggests that if a bill is agreed to, it will be very late in the year. Congress faces several fiscal deadlines on December 3 (the debt limit, government funding, and highway funding) that could provide an earlier "target date" for consideration of the reconciliation bill if the negotiations progress quickly, but the end of the year is likely viewed as the "drop dead" date for enactment. 
  5. What about a traditional year-end tax bill? Setting aside the reconciliation bill, Congress has a number of bipartisan tax priorities that could be addressed in a traditional year-end tax bill, including expiring tax provisions (so-called "tax extenders"), pending TCJA changes, retirement legislation, and perhaps some technical corrections. The protracted reconciliation bill negotiations, and their impact on an already divided Congress, suggests that Congress will not have the time or political will to work on such a package. Congress could, of course, act on these items next year with retroactive effect, although it will be challenging to enact any tax legislation in light of the pending Congressional midterm elections.

Stay tuned for part two of our top 10 questions next week. #TaxTake

Upcoming Speaking Engagements and Events

Loren will present, "Pending Regulatory Challenges to Select International Provisions of the Tax Cuts and Jobs Act," at the 67th Annual William & Mary Tax Conference on November 12.

On November 30, Loren will speak on the North America panel at IFA's 2021 virtual event, "The Global Tax Agreement: The Two-Pillar Solution."


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