As the Biden Administration and the Democratic Congressional Leadership work on developing a path forward with Senator Joe Manchin (D-WV) on the Build Back Better Act (BBBA) over the holiday recess, we present the second half of our top 10 questions related to the continued consideration of the bill in the new year.  

6. How will the tax provisions change? The tax provisions are arguably more solidified than the spending provisions, although we expect the tax provisions to continue to evolve. At a minimum, the continuing "Byrd Bath" may necessitate changes and technical fixes (similar to those released in the latest Senate Finance Committee draft). In addition, as noted, the dispute over the size of the SALT deduction cap will need to be resolved. There is also the potential that Senator Manchin may demand changes to the tax provisions in any negotiated deal. Although he has been less vocal on his position on the tax provisions, his "agreement" over the summer with Senate Majority Leader Chuck Schumer (D-NY) suggested a receptivity to corporate, individual, and capital gains rate increases. Hopefully, no "new" revenue raisers will be added, although taxpayers should be mindful of the need for new revenue if the size of the package increases or there is an effort to replace one of the existing revenue raisers.       
7. What about SALT deduction cap relief? To cap at $400,000 or not to cap at $400,000? That is the question. Conceptually, one might expect the $400,000 cutoff the Biden Administration has consistently used as a proxy for who and who isn't wealthy to spill over into the SALT deduction cap relief debate. However, we all know $400,000 in say, Vermont, might go much farther than it does in say, New Jersey. Not surprisingly, Senator Bob Menendez (D-NJ) has proposed an increase in the cap to $550,000. Stay tuned – the placeholder in the latest Senate Finance Committee draft speaks volumes about how much remains unresolved on this front.      
8. Is the corporate book income minimum tax here to stay? Everyone loves to point to the last book minimum tax that was in the Code and its very short life. We might say past is prologue, and the Senate's complete unwillingness to address the many shortcomings in the statute various taxpayers have identified – instead preferring to sprinkle generous grants of regulatory authority throughout – illustrates just how precarious the provision's status is. Nevertheless, the level of public discontent with a provision does not necessarily serve as a predictor of the likelihood of its passage – if the most recent version of the BBBA can make it across the finish line. Taxpayers are encouraged by the inclusion of a defined benefit pension plan "fix" in the latest Senate Finance Committee draft and hoping that other changes are made. Others are proposing replacement of the book income minimum tax with a modest corporate tax rate increase (which would need to overcome the objection of Senator Kyrsten Sinema (D-AZ)) or the reinstatement of the old corporate alternative minimum tax.      
9. If the GILTI modifications aren't enacted, what impact will that have on Pillar 2 implementation? Some observers have noted that if the U.S. fails to enact GILTI modifications to ensure that the provision aligns with the requirements of Pillar 2, that deal is "dead" and no other countries will move to enact similar minimum taxes locally. We disagree. There are many inclusive framework members who are keen to have their own versions of a minimum tax and will forge ahead. Indeed, on December 22, the European Union proposed a directive to implement Pillar 2 across all of its member countries, a significant show of support despite the current state of limbo the BBBA finds itself in.      
10. What about tax extenders? Aside from BBBA, there is some discussion of a bipartisan tax extenders effort in the first quarter of 2022. Such a package could theoretically address a number of items, including not only the temporary provisions that expired in 2021 and that will expire in 2022, but also TCJA provisions that were subject to scheduled changes at the end of 2021, bipartisan retirement legislation, and technical corrections. In addition, if BBBA efforts fail or stall, the package could become a vehicle for a child tax credit extension. Of course, the parties will have to overcome the political challenges of working together in an election year and likely find acceptable revenue offsets to fund the package. Looking further down the road, a post-election "lame duck" session could also provide an opportunity for tax extenders – the fact that 100 percent bonus depreciation will begin to phase down in 2023 may provide additional motivation for action.

From All of Us to All of You

We would like to take a moment to thank you, our readers, for your support of Tax Take over our first year. We greatly appreciate your feedback and look forward to another great year ahead. Our hope is to continue to present you with the most important tax policy developments in a concise and informative format (and maybe a catchy tune to start your week). Happy holidays! #TaxTake

In the News

Jorge commented on the status of the Democrats' tax agenda in Politico. "Emotions are running high right now in the Democratic caucus," Jorge said, "but I think after the dust settles and perhaps after a little holiday cheer, cooler heads can still prevail and come to an agreement that pleases all sides." 

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