The House today voted 220 to 212 to approve the Senate-passed fiscal year 2022 budget resolution that provides reconciliation instructions for spending and tax relief provisions that would be offset in part by corporate and individual tax increases. The House action also calls for a House vote, without amendments, on September 27 on the bipartisan infrastructure bill recently approved by the Senate.
With final passage of the budget resolution, House and Senate committees, including the House Ways and Means Committee and Senate Finance Committee, can begin drafting reconciliation legislation. The pending budget resolution sets a non-binding deadline of September 15 for committees to draft and approve legislation.
House Ways and Means Committee Chairman Richard Neal (D-MA) has indicated that he will try to meet the September 15 deadline for reporting reconciliation legislation.
Senate Finance Committee Chairman Ron Wyden (D-OR) also is preparing for action on a reconciliation bill in his committee with the expected release on August 25 of statutory text for international tax proposals to be considered by the Finance Committee.
Action item: The House and Senate tax committees are preparing to act on legislation that would increase corporate and individual tax rates and make other significant changes to current tax law. Stakeholders should continue to communicate with policy makers on the potential effects of tax increase proposals on their employees, job creation, and investments in the United States.
Approval by both the House and Senate of a budget resolution with identical reconciliation instructions provides the procedural protections needed to enact a reconciliation spending and tax bill with only Democratic votes. Support of all 50 Democratic Senators and virtually all House Democrats would be needed to pass such legislation over the widely expected objections of Congressional Republicans.
The budget resolution’s reconciliation instructions require the House Ways and Means Committee and the Senate Finance Committee to raise as much tax revenue as needed or reduce other budget outlays to offset the cost of the tax relief and spending proposals within the committee’s broad jurisdiction. The instructions give the committee flexibility on how it meets this requirement by setting a requirement only that the House and Senate tax committees report legislation that reduces the deficit by not less than $1 billion over ten years.
Other committees are given the discretion to increase the deficit by amounts that are set for each committee. For example, the other 12 House committees are given the following limits on increased deficits associated with spending proposals to be considered (similar overall limits are set for specific Senate committees):
The Ways and Means and Finance Committees are expected to consider proposals that would provide targeted tax relief and increased spending for expanded healthcare benefits, along with other proposals within their jurisdiction. The cost of such proposals is expected to be offset by corporate and individual tax increases, changes to Medicare prescription drug reimbursement rates, and other measures that have been proposed by President Biden and Democratic members of Congress.
President Biden’s tax proposals include increasing the US corporate tax rate to 28%, making significant changes to international tax provisions, increasing the top individual ordinary income tax rate to 39.6%, taxing capital gains and qualified dividends investment income at the same rate as ordinary income for certain high-income individuals, and changing current step-up in basis rules for valuing assets at the time of death.
Finance Chairman Wyden recently proposed other tax changes in addition to the international tax proposals that he is set to release on August 25. For example, Chairman Wyden recently released draft bills that would:
Observation: While the budget resolution sets a non-binding deadline of September 15 for the House and Senate committees to report legislation for further action in both chambers, it is unclear whether the Ways and Means Committee and the Finance Committee, will be able to report legislation acceptable to both moderate and progressive Democrats in both chambers in such a short period of time.
Key moderate Democrats in the House and Senate have expressed opposition to certain elements of President Biden’s tax increase and spending proposals. For example, Senator Joe Manchin (D-WV) previously has stated that he would support increasing the US corporate tax rate to no higher than 25% and would support increasing the capital gains tax rate to no higher than 28%. Senator Krysten Sinema (D-AZ) on August 23 reaffirmed that she will not vote for a final reconciliation package that costs $3.5 trillion over ten years. A group of House Democrats also recently sent a letter to Ways and Means Chairman Neal expressing concerns over President Biden’s international tax proposals. Other House Democrats have expressed opposition to proposed changes to step-up in basis rules that could negatively impact family-owned businesses and farms.
House Speaker Nancy Pelosi (D-CA) previously had stated that the House would not vote on the infrastructure bill until the Senate had passed the final reconciliation bill, but a group of moderate House Democrats secured a commitment for the House to vote, without amendments, on the infrastructure legislation before September 30, when current federal highway program authorization legislation is set to expire. House passage of the Senate-passed infrastructure bill without change would clear it to be signed into law by President Biden.
Observation: The current Senate-passed infrastructure bill includes a new cryptocurrency information reporting requirement and a measure reinstating Superfund excise taxes on chemicals, along with other tax and non-tax offsets. House passage of the Senate bill without modification would preclude further changes to the cryptocurrency information reporting as part of the current infrastructure bill.
The House and Senate also will be facing a number of fiscal deadlines when they reconvene in September. Congress next month is expected to consider a ‘continuing resolution’ to maintain funding for federal departments and agencies beyond the scheduled expiration of current government discretionary funding legislation on September 30.
In addition, a temporary suspension of the federal debt limit expired July 31, and Treasury Secretary Janet Yellen has called on Congress to address the debt limit as soon as possible. According to CBO staff projections, the Treasury Department is expected to exhaust its ability to meet the government’s debt obligations by October or November. Democratic Congressional leaders have indicated that a temporary suspension of the debt limit may be considered in September as part of a short-term government funding continuing resolution. However, Senate Minority Leader Mitch McConnell (R-KY) has said that Republicans will not support a debt limit increase as part of government funding legislation unless the legislation also includes measures to reduce the federal budget deficit.
For our August 10 PwC Insight on the Senate-passed infrastructure bill and the Senate budget resolution, click here.
For the text of the FY 2022 budget resolution, click here.