Senator Joe Manchin (D-W.Va.) on Monday threw into question the ability for Congress to quickly pass the budget reconciliation bill that has been under discussion for months.
“I will not support the reconciliation legislation without knowing how the bill would impact our economy and our country – and we won’t know that until we work through the text,” Manchin said, adding that if he can’t explain the bill to his voters then he can’t support it.
Democratic leaders were hoping to complete action this week in the House on the budget reconciliation bill, and have the Senate pass it next week. Manchin has thrown that timeline into question. Several House Democrats wanted some assurance that the reconciliation bill would pass the Senate before they cast their vote in support of the legislation. Manchin essentially said the opposite today.
What’s more, the legislative text that Manchin refers to remains a work in progress. And so far, what Manchin sees he doesn’t appear to support.
“As more of the real details of the [budget reconciliation bill] are released, what I see are shell games, budget games; that the real cost of the $1.75 trillion bill is estimated to be almost twice that amount,” Manchin said.
The Senator is referring to the fact that several spending proposals in the bill are being written for a shorter duration than originally expected, i.e., a proposal will be effective for two years instead of ten years. However, shortly before the proposal expires, it would be extended, giving credence to the adage that nothing is more permanent than a temporary federal government program.
Manchin also called on the House to pass the infrastructure bill that passed the Senate in August. House progressives are threatening to oppose the legislation’s passage until both chambers approve of the budget reconciliation bill. Manchin’s support for reconciliation is instrumental for it passing the Senate since passage will require the support of all Democrats in that chamber.
“Holding that [infrastructure] bill hostage is not going to work to get my support of what you want,” he said.
Latest on Reconciliation:
The House of Representatives last week released an updated version of Democrats’ $3.5 trillion budget reconciliation bill that slashed its overall cost by roughly half. Unofficial estimates for the new bill peg the ten-year cost at $1.75 trillion with revenue increases amounting to roughly $2 trillion.
However, Speaker Nancy Pelosi (D-Calif.) stressed shortly after the legislative text was released on the $1.75 trillion bill that changes to it were inevitable.
One provision likely to be added to the bill is relief from the cap on the State and Local Tax Deduction (aka SALT). One option being discussed is fully repealing the cap for two years (2022 and 2023) and restoring the cap for 2024 thru 2027. The cap is currently set to expire at the end of 2025. Under this proposal, it would be extended for an extra two years.
The Senate is also expected to make changes to the bill. Senate Finance Chairman Ron Wyden (D-Ore.) recently told reporters that “the deal is not done until the Senate acts.”
If the Senate modifies the bill, the House must approve those changes before the bill can be signed into law. This can be a time-consuming process and likely pushes completion of the bill into December.
Tax Increases, What’s In:
The following provisions are currently included in the bill:
- A 15% minimum tax on the corporate profits that large corporations—those with over $1 billion in profits—report to shareholders.
- A 1% surcharge on corporate stock buybacks.
- A 15% country-by-country minimum tax on foreign profits of U.S. corporations.
- A 5% surtax rate on incomes above $10 million, and an additional 3% surtax on income above $25 million.
- A 3.8% Net investment income tax on non-passive income.
- Modifying excess business losses (i.e., net business deductions in excess of business income) for non-corporate taxpayers.
- Reinstating the Hazardous Substance Superfund Financing Rate on crude oil, imported petroleum products and chemicals.
- Limiting the interest deduction for certain domestic corporations that are members in an international financial reporting group.
- Providing that partnership indebtedness is treated in the same manner as corporate indebtedness regarding Section 165(g).
- Disallowing prisons or other detention facilities to qualify for REITS.
- Limitations regarding partial exclusion for gain from certain small business stock.
The bill also provides increased funding to the IRS for the following issues:
- $1.931 billion for taxpayer services.
- $44.887 billion for enforcement.
- $27.376 billion for operations support.
- $4.750 billion for business systems modernization.
The full list of tax increases that are currently in the bill is here.
The bill's text can be found here.
Tax Increases: What’s Out:
Several tax increases approved by the House Ways and Means Committee last month for the budget reconciliation bill have been cut from the legislation.
Provisions pulled from the bill include:
- Modifying the corporate tax rate from 21% to a graduated system (18% on the first $400,000; 21% on income up to $5 million, and 26.5% on income thereafter).
- Increasing the 37% individual tax rate to 39.6% and apply it to a broader swath of taxpayers.
- Upping the 20% capital gains rate to 25% for certain high-income taxpayers.
- Increasing the three-year holding period to five years to qualify for carried interest.
- Increasing taxes on tobacco products.
- Reducing the estate tax exemption.
- Treating sales between grantor trusts and their deemed owner as equivalent to sales between the owner and a third party.
- Limiting the pass-thru deduction for certain high-income taxpayers.
- Changing the effective date for the deduction limitation on excessive employee remuneration to December 31, 2021, from December 31, 2026.
- Prohibiting retirement account contributions for taxpayers whose accounts exceed $10 million in the prior tax year.
- Requiring withdrawals from retirement accounts over $10 million.
The full list of tax increases included in the House Ways and Means bill is here.
The billionaire tax was widely reported as possibly being added to the bill. That has yet to occur.
Must Pass Bill:
Politically speaking, this legislation is must-pass. Democrats have been fretting over this bill for months as issues with it continue and seem unending. But failure to pass the legislation would be politically damning for Democrats in next year’s elections. So, passage is expected, but it is not clear when that will occur or what tax provisions will be in the final bill.
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