November 15, 2021

House Tees Up Vote on Build Back Better Reconciliation Bill

On November 7, just after midnight, the House of Representatives approved the rule for debate on H.R.5376, the Build Back Better social spending reconciliation bill. It was a 221 to 213 party-line vote that came after a written commitment from moderate Democrats to vote for the bill itself after an official financial analysis of the measure (the “CBO score”) is completed, likely by Thanksgiving, assuming the CBO score confirms that the bill is fully offset and spends only the projected $1.75 trillion.

The bill—which until it is actually voted on can be changed in the House, and which is likely to be changed in the Senate—is a fully-offset package of around $1.75 trillion in new social spending. The “human infrastructure” bill provides significant amounts of money for healthcare (Medicare expansion and extension of enhanced subsidies for Affordable Care Act (ACA) insurance), elder care programs, child support programs, education programs, a new federal paid leave program, “green energy” and other climate change provisions, an increase in the amount of state and local tax (SALT) deductions that would be allowed, and immigration reforms.

The offsets are primarily new taxes on “the “ultra-rich” and corporations. Also expected to contribute to the revenue neutrality of the bill is its provision granting limited authority for Medicare to negotiate prices on some prescription drugs, and increased funding to the IRS for enforcement of existing tax laws. There are also substantial new international tax rule changes.

From the NAIFA perspective, what the bill excludes is even more important than what it contains. Among the significant wins (so far) for NAIFA are:

• The bill does not include a proposal to tax each year’s gains on investments (capital assets), whether or not those assets’ gains have been realized (i.e., sold or traded). Because this proposal—which was estimated to raise more than $550 billion over ten years—would have applied only to the very rich and only to capital assets, it would have struck only a glancing blow at life insurance and annuities. However, that glancing blow would be significant: it specifically did include private placement life insurance and annuities in its scope.
  
  
• The bill does not raise corporate, individual, or capital gains tax rates.
  
  
• The bill does not change current estate tax rules.
  
  
• The bill does not change (reduce) the Section 199A deduction for non-corporate business income.
  
  
• The bill does not include proposals to change grantor trust rules that would have retroactively made some irrevocable life insurance trusts (ILITs) includable in taxable estates and would require future ILITs to be structured in a non-grantor trust format.
  
  
• The bill does not include provisions to require employers to offer payroll-deduction and/or employee deferral retirement savings plans, or the proposal to make the Saver’s Credit refundable.
  
  
• The bill does not include the PRO Act’s “ABC test” to determine whether a worker is an employee or an independent contractor.

The bill does include several provisions that could impact some NAIFA members and/or their clients. These provisions include:

• Mega-IRA tax changes—generally, these provisions prohibit contributions to retirement savings plans, including IRAs, when the aggregate of a person’s retirement savings accounts equals or exceeds $10 million; and they require distribution (and tax paid) on amounts above $10 million—there are special rules for rollovers, including from traditional to Roth treatment of the rolled-over amounts, and further, there is a reporting requirement imposed on accounts of $2.5 million or more.
  
  
• Surtax on incomes of $10 million or more—there would be a five percent tax on top of the 37 percent top tax rate on individuals’ income above $10 million, and another three percent tax on individuals’ income above $25 million; there is also a “tax-the-rich” surtax on trust income.
  
  
• Expansion of the base on which the net investment tax is based to capture more pass-through business income; this base expansion also applies to the separate 3.8 percent Medicare tax.
  
  
• Corporate minimum tax—15 percent on book income on corporations with profits of $1 billion or more, and a tax on corporate stock buy-backs.
  
  
• Federal paid leave program.
  
  
• Expansion of Medicare Part B to include limited hearing benefits.

H.R.5376 has not yet passed the House—only the rule under which it will be debated has passed. However, the struggle between moderate and progressive Democrats was resolved by an agreement under which the progressives promised to vote for the traditional bipartisan infrastructure bill, and the moderates promised to vote for H.R.5376 once the CBO score/CBO’s additional financial information is available (and confirms initial cost and offset estimates). The agreement also specified that the vote on H.R.5376 would occur the week of November 15, although there might be enough wiggle room in the language of the agreement – which is written and signed by the relevant parties – to allow for a delay in the vote if it takes CBO longer than to November 15 to complete its scoring of the bill.

Prospects: While it currently appears likely that the BBB reconciliation bill will be enacted into law, it still has a long way to go. The Senate is almost certain to change the House version of the bill—including, potentially, dropping or substantially changing the paid leave program, and pulling in “new” (i.e., not in the House bill) revenue raisers if needed to fully offset the cost of the bill.

This is an all-Democrat bill (all Republicans not only oppose it, but also are working hard to block it, although it is unlikely that any of these attempts to kill the measure will succeed). It is governed by the rules of reconciliation legislation. So, expect challenges based on the reconciliation process’s “Byrd Rules” (some of which may well succeed). And, while Democrats want to pass the bill, some will insist on inclusion, exclusion, or modification of certain provisions. Particularly under discussion are the new federal paid leave program and the Medicare expansion provisions. It will require all 50 Democratic votes in the Senate, and all but three Democratic votes in the House to enact the legislation, so accommodations to address these concerns are inevitable.

Hence, although it is likely that H.R.5376 will be enacted into law, it is less likely, some say impossible, that it will be the House version of the bill. And it is possible, if not probable, that the process will not be done by Thanksgiving.

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