Although the majority of President Biden's first State of the Union address was appropriately focused on the war in Ukraine and the status of the overall economy, he did make an attempt to revive the pending Build Back Better Act (BBBA) by raising the potential for inclusion of significant deficit reduction measures: "By the end of this year, the deficit will be down to less than half what it was before I took office. The only president ever to cut the deficit by more than one trillion dollars in a single year." 

While Senator Joe Manchin (D-WV) had previously expressed interest in utilizing BBBA to address the national debt, his initial response to the President's State of the Union outreach was less than positive. Nevertheless, Senator Manchin quickly pivoted to lay out his vision for a scaled down version of a potential BBBA package (which presumably would be renamed) as one that would raise revenue through tax "reform" and reduce the cost of prescription drugs, with his support for such a package predicated upon evenly splitting the revenue raised between permanent climate change spending and deficit reduction. 

It's unclear if such a package could pass both the House and Senate, particularly given the proposed exclusion of social spending programs favored by progressives and relief from the state and local tax deduction cap favored by moderates. It is easy to envision a messy Senate floor amendment process where proponents of these excluded programs target the revenue used for deficit reduction to fund their initiatives. Nevertheless, it is interesting to consider the tax implications of the Manchin proposed package. As noted above, the amount of tax revenue needed for such a package would depend on the spending and deficit reduction targets, offset by the amount of revenue raised from prescription drug pricing reform. Presumably, the tax revenue raised in the House-passed version of BBBA would be more than sufficient for this purpose. If not, policymakers may look to the tax provisions in the House Committee on Ways and Means-passed BBBA, the forthcoming Greenbook, or perhaps the numerous proposals advanced by Senate Committee on Finance Chairman Ron Wyden (D-OR) for additional sources of revenue. 

There is also the issue of what tax provisions Senator Manchin would consider tax "reform" provisions, as he has cited the need to revisit the 2017 tax reform legislation to ensure that corporations and wealthy individuals pay their "fair share." Arguably, there are many components of the House-passed BBBA, such as the minimum taxes implemented through the corporate book income tax and the changes to GILTI (both of which President Biden endorsed in his address), as well as the surtax on high-income individuals, that may be viewed by Senator Manchin as "reform" – particularly in light of Senator Kyrsten Sinema's (D-AZ) continued opposition to the use of corporate, individual, and capital gains tax rate increases. Senator Sinema endorsed the view that the House-passed BBBA tax provisions would fund Senator Manchin's proposed package with tax reform-related provisions without raising tax rates. "Any new, narrow proposal – including deficit reduction – already has enough tax reform options to pay for it. These reforms are supported by the White House, target tax avoidance, and ensure corporations pay taxes, while not increasing costs on small businesses or everyday Americans already hurting from inflation," said Sinema spokesperson Hannah Hurley. #TaxTake

In the News

Jorge commented on how the IRS's investigative tools might be effective in applying sanctions on Russia in Politico and Tax Notes. "Anytime there's a lot of government scrutiny, there's a lot of interagency cooperation and exchange of information and knowledge." Speaking about the IRS Criminal Investigations unit, Jorge said, "It's less so about initiating a tax audit," Castro noted. "I think CI to me clearly has the experience to investigate assets and follow [financial] trails." 

The information contained in this communication is not intended as legal advice or as an opinion on specific facts. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. For more information, please contact one of the senders or your existing Miller & Chevalier lawyer contact. The invitation to contact the firm and its lawyers is not to be construed as a solicitation for legal work. Any new lawyer-client relationship will be confirmed in writing.

This, and related communications, are protected by copyright laws and treaties. You may make a single copy for personal use. You may make copies for others, but not for commercial purposes. If you give a copy to anyone else, it must be in its original, unmodified form, and must include all attributions of authorship, copyright notices, and republication notices. Except as described above, it is unlawful to copy, republish, redistribute, and/or alter this presentation without prior written consent of the copyright holder.