The discussion around what tax provisions might be included in a slimmed-down Build Back Better Act (BBBA) package is heating up, as Senator Joe Manchin (D-WV) has given a clear signal as to what he would be willing to support. Specifically, Manchin has called for a package that will raise revenue by lowering prescription drug costs and reforming the tax code. Some of what is raised will be spent on combating climate change, but Manchin has made clear that half of the revenue raised must be devoted to deficit reduction and battling inflation. In his State of the Union address last week, President Biden also promised to battle rising prices in an effort to stymie skyrocketing inflation, which has risen to levels not seen since the early 1980s. With the prospect of lawmakers' renewed vigor around the tax debate, we bring you Part One of another of our famous lists of the burning questions we have about whether this renewed vigor will result in a bill signing ceremony. We can picture it now: in the Rose Garden with spring in full bloom…

1. Does Senator Manchin really want to do a deal? If we're going by appearances, it seems so. Manchin has always said that he's been transparent about his vision for the package throughout the process and this latest communique seems to be in that spirit. Negotiation takes two parties, however, so it will be up to others in the caucus (particularly Senator Kyrsten Sinema (D-AZ) and progressives) to work with him to end up with something everyone can support. Speaking of…
2. Can a bill with significant deficit reduction survive a vote-a-rama in the Senate? Probably. While the vote-a-rama process is brutal, and there has been an instance in recent history where a party-line defection killed the bill at issue, it is unlikely that Senate Majority Leader Chuck Schumer (D-NY) would bring the package for vote without a very strong likelihood of success. Nevertheless, Democratic senators whose favorite social spending program wound up on the cutting room floor would be very tempted to file amendments seeking to repurpose some of the revenue dedicated to deficit reduction to fund these spending programs. Thus, the full Democratic caucus would have to be on board in order to avoid some very painful votes in the amendment process that not only would have political implications but could also threaten the viability of the bill.
3. What is Senator Manchin's definition of tax reform? Manchin hasn't ruled out the possibility of tax rate hikes, which Sinema has vociferously opposed. And by "hasn't ruled out," we really mean he has been actively pushing for them. Less clear are his positions on other components of the House-passed BBBA, specifically the international tax provisions impacting multinationals, as well as the provision imposing a 15 percent minimum tax on corporate taxpayers' book income. Nevertheless, it is important to note that given Senator Sinema's consistent opposition to rate increases, Senator Manchin will need to be convinced that implementation of the House-passed BBBA revenue provisions would in fact constitute "tax reform."
4. Will progressives give up on the child tax credit extension and other social spending programs? Will moderates give up on SALT deduction cap relief? There are many Democratic members who are committed to reviving the child tax credit and other social spending programs that the House-passed BBBA included. For his part, Manchin has not stated that he is opposed to the child tax credit in and of itself, but he cannot support temporary spending measures. Of course, the issue with permanency is cost. That, coupled with the continued inflationary pressures at play and Manchin's staunch belief that increased spending isn't an effective way to combat inflation, the outlook on permanent social spending programs being included remains murky. Thus, it is likely that progressives will need to abandon their hopes for such programs if the bill is to move forward. Similarly, it is likely that more moderate Democratic members will also need to abandon some priorities, potentially including relief from the salt and local tax (SALT) deduction cap, if the bill is to move forward.
5. Will the research and development (R&D) amortization fix or other business tax relief be included? There is bipartisan support for the R&D amortization provision to be repealed and it's hard to imagine Democrats engaging in an intraparty cage match for its inclusion when they technically don't have to. House Ways and Means Committee Chairman Richard Neal (D-MA) has signaled that a fix would be included in an upcoming extenders package, and unlike the traditional consideration of an extenders package, he expects that bill to be passed sooner rather than later. That being said, advancing business tax relief provisions without similarly advancing individual tax relief provisions such as the child tax credit extension may be challenging, particularly in an election year.

Upcoming Speaking Engagements and Events

Loren will present "Letting Imperfect Be The Enemy of Highly Imperfect - U.S. Tax Policy & Legislative Update," at the TEI 72nd Midyear Conference on March 21.

On April 26, Marc will moderate a panel titled "Retirement Policy's Path Ahead: 2022 Legislative Outlook," at the ERIC Spring 2022 Virtual Policy Conference.

In the News

In comments to CQ Roll Call, Jorge said it would be difficult to retroactively enact the employee retention tax credit in the 2022 omnibus package. He stated the unusually difficult tax season adds complexity to the issue and would likely lead to more paper tax filings which require manual processing – a large reason for the IRS's current backlog.

In Tax Notes, Jorge commented on the direct-hire authority granted to the IRS saying "allowing [the IRS] to hire more staff will be a huge help – not only for the IRS but also for taxpayers."

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