The House Ways and Means Committee on February 10 and 11 advanced legislation to implement budget reconciliation instructions regarding COVID-19 relief. The budget resolution passed by Congress last week included reconciliation instructions for 12 House committees to draft legislation to implement President Joe Biden’s proposed $1.9 trillion COVID-19 relief plan. The Ways and Means legislation, which is estimated by the Joint Committee on Taxation staff (JCT) to increase the deficit by $593 billion over 10 years (the Congressional Budget Office (CBO) has not yet released its estimate), will be combined with legislation from the other House committees into a single budget reconciliation bill that will be considered by the House.
The action by the Ways and Means Committee is a significant step in advancing COVID-19 relief under the reconciliation process, which requires only a simple majority vote for passage. President Biden has proposed a two-part COVID and economic recovery package consisting of the $1.9 trillion emergency COVID relief package (the American Rescue Plan) plus an economic recovery plan (the Build Back Better Recovery Plan) that he is expected to outline this month. Congress later this year could use another budget reconciliation bill to act on the second part of President Biden’s package.
Action item: The swift action taken by the Ways and Means and other House committees indicates that the reconciliation process is on a fast track and thus far is progressing smoothly. Companies should evaluate how provisions in the bill -- including modifications to the employee retention tax credit and repeal of the worldwide interest expense allocation election -- would impact their business. In addition, taxpayers should note that the potential success of Congressional Democrats in passing the COVID relief bill using the reconciliation process increases the likelihood that a second reconciliation bill could be used this year to advance an economic recovery plan that may include significant tax proposals, including a variety of corporate, investment, and individual tax increases.
The swift action by the Ways and Means Committee this week is a significant step in advancing COVID-19 relief under the reconciliation process, which requires only a simple majority vote for passage. With a fiscal year 2021 reconciliation bill positioned to be considered by the House as soon as the week of February 22, taxpayers should be preparing not only for changes in that bill, but for potential legislation with tax increases that could be included in a fiscal year 2022 reconciliation bill later this year.
The second reconciliation bill could propose increases in tax rates for corporations and high-income individuals, international tax law changes, and other revenue-raising measures. With potential tax-increasing legislation one step closer to consideration, taxpayers should model and plan for proposed changes and engage with policymakers now to communicate their potential impact on jobs and business operations.