The House Ways and Means Committee on September 15 approved tax increase and tax relief proposals that are to be acted on by the House of Representatives as part of “Build Back Better” reconciliation legislation. The legislation was approved by a largely party-line vote of 24 to 19; Rep. Stephanie Murphy (D-FL) was the only member to cross party lines by casting a vote opposing the bill along with all Ways and Means Republicans. House and Senate tax proposals are being considered under a fiscal year 2022 budget resolution that provides reconciliation instructions for a package that currently adds up to about $3.5 trillion of spending and tax relief provisions, offset in part by corporate and individual tax increases.
Outlined below is a high-level overview of some of the key provisions affecting individuals that are contained in the Ways and Means Committee-approved legislation. A separate PwC Insight that discusses key business provisions in the bill can be found here.
Differences between the House tax proposals and forthcoming Senate tax proposals that are expected to be considered in coming weeks will have to be resolved before final legislation can be put to a vote in both chambers. Congressional Democratic leaders are seeking to complete action on the legislation so it can be signed into law by President Biden before the end of this year.
Observation: Reconciliation legislation can be approved with only Democratic votes over the expected objections of Congressional Republicans, but moderate Democrats in both the House and Senate have indicated that they will not support a package with a price tag of $3.5 trillion over 10 years. While the cost of any final package remains uncertain, the Ways and Means Committee-approved bill features significant business and individual tax increases. Moderate House and Senate Democrats are expected to insist on scaling back the scope of both the spending proposals and certain tax increase proposals.
Most of the Ways and Means Committee-approved tax provisions would be effective for tax years beginning after December 31, 2021, but some key provisions have earlier effective dates. For example, the provision to increase the current top rate on capital gains and qualified dividend income from 20% to 25% is proposed to be effective for tax years ending after the date of introduction (September 13, 2021). A transition rule retains the 20% tax rate for capital gains and qualified dividend income recognized on or before that date.
Note: The Ways and Means Committee tax bill does not include any proposed change to the 2017 tax reform act’s cap on individual itemized deductions for state and local taxes. Ways and Means Chairman Richard Neal (D-MA) issued a statement on September 13 committing to include “meaningful SALT relief” in the final enacted legislation.
Action item: Taxpayers should continue to monitor the status of reconciliation legislation and analyze how particular provisions could affect their investment and business activities as well as their wealth, estate, and, possibly, philanthropic plans. Taxpayers also should consult with advisors on which provisions are most likely to be enacted as part of any final legislation. On Tuesday, September 21, PwC will host a webcast on which we will cover some of the key provisions in the reconciliation legislation. Please register in order to participate.