Build Back Better Act Delayed

The Build Back Better Act passed in the House in November. The $1.75 trillion social spending bill would advance key parts of President Joe Biden’s economic agenda, and extend the child tax credit for another year. Senators Joe Manchin (D-West Virginia) and Kyrsten Sinema (D-Arizona) halted Biden’s original $3.5T proposal from advancing.  Sen. Manchin, still having concerns about the true cost of the bill, has halted the latest rendition from advancing again.

With all the talk of possible tax increases, none have come to fruition. Original proposals to raise revenue by rolling back tax cuts in the TCAJ Act for those earning over $400k annually, and raising tax on capital gains for those with income over $1 million were eliminated from the bill that passed the House. 

How would new spending be paid for?

If Democrats can wrangle support from Manchin, the spending plan will mostly be paid for by tax increases on very high earners and large corporations. The Congressional Budget Office found that the estimated spending bill would increase the deficit by $367 billion over the next 10 years.  It does not take in to account potential revenue generated through new IRS enforcement, which could reduce the deficit.

New tax revenue includes:

• 15% minimum corporate tax on corporations that report more than $1 billion in profits – starting in 2023.
• 1% surtax for companies that perform stock buybacks starting in 2022.
• 3.8% net investment income tax would apply to pass through business income over $400k.
• A 5% new surtax on those with incomes over $10 million per year ($5 million if married filing separately), and an additional 3% on incomes above $25 million.
• Limits contributions to IRAs for those with balances over $10 million. RMDs would also be accelerated for those accounts.

There is one tax break in the bill for higher income earners – an increase to the state and local tax (SALT) deduction.  The TCAJ Act capped the SALT deduction at $10,000.  The Build Back Better Act would raise the $10,000 cap to $80,000, starting with the 2021 tax year, and extend it for nine years.

New spending includes:

• $555 billion to fight climate change
• $400 billion to hire enforcement agents for the Internal Revenue Service.
  • This is expected to increase tax revenue by collecting taxes from those evading them.
• $400 billion for childcare and universal pre-kindergarten
  • Preschool to cover more than 6 million 3- and 4-year olds.
• $200 billion in child tax credits
  • An extension of the child tax credit through 2022 at $300 a month for each child under the age of 6 and $250 a month for each child ages 6-17.
• $200 billion for 4 weeks of paid family and medical leave
• $165 billion for healthcare spending
  • Expands Medicare coverage to include hearing aids.
  • Several initiatives aimed at lowering the cost of prescription drugs, including insulin.
• $150 billion to expand affordable home care
• $150 billion for affordable housing

Should the Build Back Better Act pass, new spending may be further reduced. Manchin was not in favor of extending the child tax credits for another year unless the income cap was lowered.

Democrats are holding on to hope that the bill will pass in 2022.

Sources:

Titles – H.R.5376 – 117th Congress (2021-2022): Build Back Better Act. (2021, November 19). https://www.congress.gov/bill/117th-congress/house-bill/5376/titles

Raju, M. (2021, December 2). Machin tells senators he’s skeptical Build Back Better can pass. CNN. https://www.cnn.com/2021/12/02/politics/joe-manchin-biden-build-back-better/index.html

Summary of Cost Estimate for H.R. 5376, the Build Back Better Act (2021, November 18). Congressional Budget Office. https://www.cbo.gov/publication/57627