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House passes Build Back Better reconciliation bill

November 2021

In brief

The House on November 19 voted 220 to 212 to pass the “Build Back Better” reconciliation bill (H.R. 5376) that includes more than $1.5 trillion in business, international, and individual tax increase provisions. All but one Democrat -- Rep. Jared Golden (D-ME) -- voted for H.R. 5376; all Republicans voted against the bill. 

The Congressional Budget Office (CBO) on November 18 projected an overall net cost of $1.7 trillion over 10 years for the bill’s package of targeted individual tax relief that includes an expanded child tax credit, clean energy incentives, and increased spending on healthcare, education, childcare, and other programs. After accounting for net tax revenue effects and other offsets, CBO projects that the legislation would increase federal deficits by $367 billion over 10 years.

CBO’s $367 billion deficit projection does not include estimated savings from increased IRS enforcement funding. CBO estimates that measures in the bill providing an additional $80 billion for IRS tax enforcement efforts would increase revenues by $207 billion through 2031. This would reduce CBO’s projected $367 billion deficit cost for the legislation to $160 billion. Note: The Treasury Department had projected $480 billion in revenue gains from increased IRS compliance measures in the legislation, which led the White House to assert that the cost of the Build Back Better legislation was more than offset with increased tax revenues.

Observation: Many House and Senate Democrats have signaled that they will continue to rely on the Treasury Department’s projection of $480 billion in increased revenue collections from higher IRS funding. 

House passage of the Build Back Better bill follows President Biden’s signing on November 15 of a $1.2 trillion bipartisan infrastructure bill. For more on the infrastructure legislation, see our PwC Insight.

The Senate currently is expected to begin action on H.R. 5376 in early December, after Congress returns from a Thanksgiving holiday recess. Some provisions of the House-passed Build Back Better legislation are expected to be revised by the Senate, which would then require further action by the House. A final identical version of the legislation must be approved by both the House and Senate before it can be signed by President Biden.

Observation: President Biden and Senate Democratic leaders are working to gain the support of all 50 Democratic Senators for the reconciliation legislation. Senator Joe Manchin (D-WV) has expressed general concerns about the House-passed bill and opposition to specific provisions in that bill. Other Senators are expected to offer amendments to modify the bill. 

Action item: House passage of business and individual tax increase proposals shifts further debate on the Build Back Better legislation to the Senate. Stakeholders, and especially CEOs and CFOs, should communicate with Senate policy makers on the potential effects of tax increase proposals on their employees, job creation, and investments in the United States.

In detail

Business and international tax increase provisions in the House-passed bill include a new 15% corporate book income-based minimum tax on large corporations, a new 1% tax on corporate stock repurchases, limitations on interest deductions of international financial reporting groups, modifications to inbound and outbound international provisions -- including global intangible low-taxed income (GILTI), foreign-derived intangible income (FDII), foreign tax credit rules, the base erosion and anti-abuse tax (BEAT), and subpart F income -- and the extension through the end of 2025 of expensing (current deduction) of research and experimental costs under Section 174. The legislation also would reinstate certain Superfund excise taxes on crude oil and imported petroleum products.

Individual tax increase provisions in the House-passed bill include a new surtax on high-income individuals and trusts, expansion of the net investment income tax, limitations on qualified small business stock exclusions, wash sale rules on cryptocurrency, and permanence, with modifications, of a temporary current-law limitation on excess business losses. Retirement savings provisions include a measure limiting contributions to Roth or traditional IRAs where the total account value exceeds $10 million, with mandatory distributions if that amount is exceeded. 

As approved by the House, H.R. 5376 would increase the limitation on the state and local tax deduction from $10,000 to $80,000 ($40,000 in the case of an estate, trust, or married individual filing a separate return), and extend the limitation through 2030. A limitation of $10,000 ($5,000 in the case of an estate, trust, or married individual filing a separate return) would apply in tax year 2031, before the limitation sunsets altogether in 2032. Note that currently the limitation is $10,000 for all but married filing separately (which is $5,000).

This provision would be effective for tax years beginning after 2020.

The current SALT cap, as enacted by the 2017 tax reform act, is scheduled to expire at the end of 2025, along with other 2017 act individual and pass-through tax provisions.

H.R. 5376 as approved by the House also includes numerous incentives for clean energy, including an advanced manufacturing investment credit, an advanced manufacturing production credit, clean electricity production and investment credits (as well as an increased clean energy investment credit for facilities connected to low-income communities), and a clean fuel production credit. 

The House on November 18 adopted an amendment to H.R. 5376 that made certain technical changes to non-tax provisions in the legislation in an effort to ensure the bill as approved by the House complies with Senate reconciliation rules and the reconciliation instructions in the FY 2022 budget resolution. 

Observation: The amendment was drafted following a series of  "Byrd Bath" meetings with the Senate Parliamentarian to analyze whether all of the provisions in the House bill comply with Senate germaneness rules for reconciliation bills (the so-called "Byrd Rule"). Some non-tax spending provisions were modified to avoid the risk of their running afoul of Byrd Rule budget reconciliation procedures, since they were not expected to garner the support of 60 Senators needed to waive the point of order against the overall legislation that otherwise could be raised by a Senator.

Senate debate to come

The Build Back Better bill will be considered in the Senate under budget reconciliation instructions that provide limits on the overall time for debate. Reconciliation procedures also allow for passage of the legislation by a simple majority (allowing the Vice President to cast a tie-breaking vote), instead of the 60-vote majority required for most legislation. 

A number of Senate Democrats have indicated that they will seek to amend the House-passed Build Back Better bill when the Senate considers the legislation. For example, Senator Manchin has expressed opposition to the paid family leave provision in the House-passed bill, and he has stated publicly that he will not vote for a bill that spends more than $1.5 trillion over 10 years. Senate Republicans also are expected to offer amendments while opposing the overall legislation. 

Observation: If Senator Manchin does insist on reducing the overall cost of the legislation to no more than $1.5 trillion, this could affect the level of tax increases in the bill. If the cost of the Build Back Better bill is reduced to the level cited by Senator Manchin, then other offsets in the legislation could allow for some of the $1.5 trillion in tax increase provisions to be dropped or modified. Under the FY 2022 budget resolution’s reconciliation instructions, only the tax committee’s provisions have to be fully offset.

Observation: Senator Manchin also has questioned whether projections of the overall cost of the legislation are accurate, since many spending provisions are temporary. For example, a temporary expansion of the child tax credit enacted earlier this year for 2021 would be extended for only one additional year, through the end of 2022. President Biden and Congressional Democrats have stated their intent to extend the expanded child tax credit and other temporary measures in future legislation, but whether the cost of any potential extensions of temporary measures would be offset or deficit financed remains to be seen.

Senate Budget Committee Chairman Bernie Sanders (I-VT) and Senate Finance Committee member Bob Menendez (D-NJ) have indicated that they are considering proposals to limit the benefits of a SALT cap increase to taxpayers with incomes no higher than some specific amount (for example, incomes no higher than $400,000). Senate Finance Chairman Ron Wyden (D-OR) has indicated that he may seek to add additional tax increase measures to the legislation, including a mark-to-market “billionaires income tax” proposal. 

Observation: A preliminary distributional analysis provided by the Joint Committee on Taxation staff indicates that the benefit of the current House-approved SALT cap provision would more than offset proposed tax increases for some individuals with incomes above $1 million. It also is notable that if the temporary expanded child tax credit were allowed to expire at the end of 2022 as scheduled under the bill, many taxpayers under $400,000 would experience tax increases. For example, in 2023, of those with income between $100,000 and $200,000, 46% would have a tax increase of more than $100 while only 11% would have a tax reduction of more than $100.

For more information 

CBO cost estimate summary for the Build Back Better Act (H.R. 5376) 

CBO estimates for Title XIII, House Ways and Means Committee provisions of H.R. 5376 

JCT estimates for the revenue provisions of H.R. 5376 as passed by the House

For more on the key tax provisions of H.R. 5376 as passed by the House, see our PwC Insight.


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Pat Brown

Washington National Tax Services Co-Leader, PwC US

Rohit Kumar

Washington National Tax Services Co-Leader, PwC US

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