House Passes Build Back Better Reconciliation Bill | Senate Likely to Change House-Passed Build Back Better Bill | Congress Passes Debt Limit Increase, Medicare Sequester
House Passes Build Back Better Reconciliation Bill
On November 19, the House of Representatives approved and sent to the Senate H.R.5376, the Biden/Democrats Build Back Better reconciliation bill. The $1.75 trillion measure passed on a 220-213 mostly partisan vote. The bill is more notable, from NAIFA’s perspective, for what it does not contain than for what it includes. Most of the adverse tax increases that had been proposed have been left out of the House bill.
All House Republicans opposed the bill and one House Democrat, Rep. Jared Golden (D-ME), joined them in voting against it.
The bill is sure to change in the Senate, but was passed by the House, it contains $130 billion in extended or expanded subsidies for affordable health insurance, through the Affordable Care Act (ACA) premium subsidies and tax credits. Also included in the bill is a new federal paid family and medical leave program that would provide up to four weeks of government-paid leave, starting after two weeks of absence. The federal benefit would replace wages based on income level—starting at about 90 percent of wage replacement for those earning $15,082/year or less and going down to 73 percent of wage replacement for income between $15,082 and $34,248 and capping out at about 53 percent for compensation between $34,248 and $62,000.
The bill’s supporters claim the cost of the bill is fully offset, although the official score, from the Congressional Budget Office (CBO), finds a shortfall of almost $400 billion. Among the offsets are almost $1.5 trillion in tax increases. These tax increases include:
A new “millionaire’s tax” (two new surcharges on income above $10 million and $25 million)
Limits (generally, $10 million) on how much tax-favored money can be contributed to and held in retirement savings accounts (including IRAs)
Changes to the net investment tax and Medicare tax rules to bring more pass-through business income into those tax bases
A 15 percent minimum tax on $1 billion or more corporations
A tax on corporate stock buyback’s
International tax rule changes
The House bill also includes a one-year extension of the child tax credit, climate change provisions, education program funding, low-income housing support program funding, and an increase (to $80,000) in the limit on the deduction for state and local taxes (SALT).
Some of the offsetting revenue is due to come from increased funding to the Internal Revenue Service to “close the tax gap” (i.e., collect more tax already owed under current law through toughened enforcement), and limited new authority for the Federal government to negotiate the cost of certain prescription drugs.
For NAIFA, what’s even more important is what is not in the House version of H.R.5376. Effective lobbying by NAIFA members and their staff resulted in lawmakers rejecting proposals to:
Tax investment gains annually (albeit limited to the very rich) whether or not the gains are realized (assets sold or traded)—the proposal included a provision that would tax private placement life insurance in the universe of taxable gains, but otherwise excluded life insurance and annuities
Tax gains on inherited assets (repeal, subject to certain exceptions, of step-up in basis rules)
Change (adversely) the section 199A deduction for non-corporate business income
Include the PRO Act’s “ABC” test for determining whether a worker is an employee or an independent contractor
Change estate tax rules
Adversely change grantor trust rules
Increase capital gains tax rates
Increase corporate tax rates
Increase top individual tax rates
H.R.5376 also excludes a proposal to require most employers to automatically enroll their workers in either a salary deferral retirement savings plan or a payroll-deduct IRA program. A proposal to make the Saver’s Credit refundable was also left out of the bill.
Prospects: Many of these House-approved provisions are likely to win support from the entirety of the Senate Democratic caucus (and it will be necessary to have that unanimity in order to pass the reconciliation bill), but some won’t. Senate Democrats are likely to delete, modify and/or add provisions to the House-passed bill. Information on what the Senate may change is in the story below.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org; or Michael Hedge – Director – Government Relations, at mhedge@naifa.org
Senate Likely to Change House-Passed Build Back Better Bill
The Senate is working towards a vote on the House-approved Build Back Better (BBB) reconciliation bill, H.R.5376. Leadership wants the vote this month, although most Washington insiders think it will slip into 2022. Senators are virtually certain to make changes to the House bill. Among the possible changes are elimination or modification of the federal paid leave program, and modifications (and possibly additions) to the revenue/offset package.
Take Action Now!: NAIFA members are encouraged to contact their own Senators to remind them of the importance of not adding back any of the adverse proposals that the House bill left out of its version of H.R.5376. In particular, the message should ask Senators to oppose any effort to diminish the section 199A deduction for non-corporate business income, to tax unrealized investment gains (even if only for multi-millionaires), to eliminate step-up in basis, to increase capital gains tax rates, and/or to hike corporate tax rates.
Many moderate Democrats are insisting that the finished measure be revenue-neutral—i.e., that all the new spending be fully offset. It is not currently revenue-neutral, based on the preliminary but official Congressional Budget Office (CBO) score. So, if the final CBO score, which is expected later this month and without which the Senate cannot, under the rules of reconciliation, proceed to a vote on the bill, confirms the initial finding that the bill is about $376 billion short of revenue-neutrality, Senators will have to either shrink some of the spending programs or add new revenue.
Further, there are Democratic Senators who want to add to the spending side of the bill. For example, Sen. Bernie Sanders (I-VT) is still fighting to expand Medicare benefits to include dental and vision benefits. However, that effort is in competition with other Senators’ attempts to shrink the House-approved expanded Medicare hearing benefit.
Also at risk is the new paid leave program that was included in the House bill. Some Senate moderate Democrats are concerned not only about the program’s cost, but also about adding more benefits to Medicare when Medicare itself is facing a solvency crisis in just a few years. Plus, the federal paid leave program may not survive its “Byrd Bath”—the process by which the Senate parliamentarian determines whether the provision complies with the reconciliation rules. If she determines that the federal paid leave program does not comply with the (highly complex) reconciliation rules, the program will have to be dropped from the final package.
There are other unrelated-to-NAIFA provisions likely to change in the Senate, too—for example, the state and local tax (SALT) deduction provision, the tax credit for union-built electric vehicles, and the corporate minimum tax provision, among others.
When all is said and done, there is a real possibility that additional offsetting revenue will be needed. That could bring back into play provisions left out of the House bill—things like an increase in the corporate, personal and/or capital gains tax rate; modification (to shrink its benefit) of the deduction for pass-through business income; and estate tax rule changes.
Prospects: Senate action will take time. Democrats want the bill finished by Christmas, but the complexity of the negotiations (combined with the need to win unanimous Democratic support), and other demands on Senate time, mean most Washington insiders (on and off the Hill) think a Senate vote on the BBB will slip into 2022. Then, the bill as changed by the Senate has to go back to the House for its approval, and that, too, could take time. In short, while the goal is to finish work on the BBB reconciliation bill before Christmas, most Washington insiders predict the effort could easily spill into 2022.
NAIFA Staff Contacts:Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org; or Michael Hedge – Director – Government Relations, at mhedge@naifa.org
Congress Passes Debt Limit Increase, Medicare Sequester
Congressional leadership devised a process for raising the debt limit, and passed it on December 14, thus averting the economically catastrophic potential for a default by the U.S. on its existing debt. The agreement also included legislation to avoid $14 billion in otherwise required Medicare cuts.
The agreement was a complex, process-oriented strategy that allowed Democrats to by themselves raise the debt limit—to $2.5 trillion, enough to get the U.S. through until after the November 2022 elections, without the threat of a filibuster in the Senate. It also allowed them to pass the legislation needed to stave off the budget law-required sequester—automatic cuts—to Medicare. Opposition to the cuts—two percent across the board, or about $14 billion—was bipartisan and widespread.
Generally, the agreement required Congress to first pass a bill that allowed a one-time exception to the Senate’s filibuster rules that let Democrats by themselves, with a 51-vote majority, raise the debt limit. This bill required 60 votes in the Senate to pass.
The House passed the process bill, S.610, which also includes the needed extension of the deferral of the sequester of Medicare funds, on December 7. The Senate passed the process bill on December 9. President Biden then signed it into law. So, enactment of S.610 means the across-the-board Medicare cuts have been averted.
Then, both the House and Senate had to vote on a separate bill to increase the debt limit. Those votes—all Democratic with no Republican support—came on December 14, the day before the December 15 date that Treasury said would mark the end of its ability to borrow enough to meet its existing obligations, on a timely basis.
Prospects: The agreement—which was signed off on by Congressional leaders from both parties in both the House and Senate—had its opponents, and they were vociferous in their dislike of the idea. But at the end of the day, there were the votes to pass the debt limit increase measure in time to avert a default.
Some in Washington are concerned that this is a precedent-setting maneuver that could weaken the minority party’s use of the Senate filibuster. But whether that proves to be true remains to be seen.
NAIFA Staff Contacts:Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org; or Michael Hedge – Director – Government Relations, at mhedge@naifa.org
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