TAX TAKE: Separate Ways (Worlds Apart): Top 10 Questions for the 2022 Consideration of the BBBA (Part One)
With President Biden's statement officially punting negotiations of the Build Back Better Act (BBBA) to next year and Senator Manchin's comments yesterday opposing the legislation, we now ask ourselves the top 10 questions relating to the continued consideration of the bill in the new year.
- What is next after Senator Manchin's comments yesterday opposing the BBBA? Yesterday Senator Joe Manchin (D-WV) stated his opposition to the BBBA on a Sunday talk show, a shot across the bow to President Biden's top legislative priority. Interestingly, Senator Manchin carefully said he was opposed to "this" piece of legislation, potentially leaving the door open for a slimmer version of the BBBA. That said, Senator Manchin's comments will significantly stall momentum and force Democrats to make major changes to the package.
- What are major open issues for the BBBA (should it go forward in a slimmed down version) and can it eventually be enacted? Setting aside whether Senator Manchin is willing to negotiate a smaller scale of the BBBA, there are still several unresolved issues that must be addressed, including the proposed expansions to the child tax credit (CTC), changes necessary to comply with the Senate budget reconciliation rules, and the determination of the SALT deduction cap. Although the end of 2021 was viewed as the deadline for BBBA enactment, the Administration and the Democratic Congressional leadership have remained hopeful it can pass early in 2022. There does seem to be a lot of work that needs to be done (particularly with Senator Manchin) to get to an agreement, but the need for a significant legislative victory in advance of the mid-term elections may drive an agreement sooner rather than later, even if the package is scaled back. However, if negotiations go too far into 2022, it will be increasingly difficult to maintain support for the BBBA, as members will become increasingly nervous about voting for such a large "tax and spend" package as the November elections get closer.
- What are the key dates and a potential timeline for action? With the turn of the calendar year, there is now no set deadline for the consideration or passage of BBBA. Rather than try to prognosticate on somewhat arbitrary deadlines (recall that lawmakers and the White House missed all the fall "deadlines" with ease), we at Tax Take will say this: If nothing is passed within the first quarter of 2022, the likelihood of the BBBA passing at all drops precipitously – some of us would say to zero percent. That being said, a number of key dates to watch include the return of the Senate on January 3 and the return of the House on January 10. Also, note that the State of the Union address in late January/February and the current expiration date of government funding on February 18 could provide potential dates to force legislative action.
- What is the status of the "Byrd Bath"? The Senate Parliamentarian continues to review the BBBA for compliance with the budget reconciliation rules, a process that has taken much longer than anticipated. Last week, the parliamentarian ruled that the BBBA's immigration provisions need to be stricken from the bill. It is anticipated that the review will continue and may result in additional modifications to the bill.
- Will the size of the package change? Even with the prospect of passage now firmly shifted into 2022, Senator Manchin has consistently maintained that the size of the spending package should be significantly smaller due to inflation worries and the rising federal debt. The news about inflation is not expected to be any better anytime soon and Federal Reserve Chairman Powell has indicated the economic stimulus measures in response to the COVID-19 pandemic will cease such that interest rate hikes will begin a year earlier than planned – in 2022. These data points suggest either a smaller spending package or the (re)introduction of additional revenue raisers to ensure the package is truly paid-for.
Stay tuned for questions 6-10 next week. #TaxTake
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