House to Vote This Morning on Build Back Better Act

House BBB approval is expected, but measure faces changes and uncertainty in Senate
 

In Today’s Digital Newspaper

Today’s dispatch is focused on the pending House vote on the $1.75 trillion to $2.2 trillion Build Back Better (BBB) Act.

POLICY FOCUS

— House vote on BBB delayed until this morning.

     An eight-and-a-half-hour speech by GOP House leader Kevin McCarthy (R-Calif.) led top House Democrats to postpone a vote on the Build Back Better (BBB) Act until 8 a.m. ET today. House Speaker Nancy Pelosi (D-Calif.) is confident the votes are in place to clear the measure. If so, it would then go to the Senate where it faces significant changes that will likely take into December to unfold. The fate of the Senate bill in large part depends on the vote of centrist GOP Sen. Joe Manchin (D-W.Va.). If he approves, and the measure passed the Senate will only Democratic votes, the altered bill would then go back to the House.

     The House bill includes universal preschool for three and four-year-olds; a one-year extension of the Child Tax Credit; expanded Medicaid coverage; some immigration reform; sweeping new climate change provisions, including tens of billions of dollars to build out electric vehicle infrastructure; and a modest program allowing Medicare to negotiate prescription drug prices. It will also impose new taxes on corporations and wealthy Americans.

     The Congressional Budget Office (CBO) estimated the bill would increase the deficit by a net $367 billion from fiscal 2022 through 2031 by increasing spending by $1.64 trillion and raising $1.27 trillion in revenue over that period, CBO said. The estimate doesn’t include additional revenue from tax enforcement funding, which CBO separately estimated would raise $207 billion in revenue.

     A preliminary cost estimate from the White House released Nov. 4 said the bill would reduce the deficit by a net $36.3 billion over 10 years, including $480 billion in additional revenue from the tax enforcement funding.

     Bottom line: CBO found the BBB package increased the deficit by a net $160 billion over 10 years, which would be a violation of Biden’s pledge that the legislation would be deficit neutral. But as noted, the White House and House Democratic leaders disputed CBO’s analysis of the potential revenue gains from increased IRS enforcement. Link to CBO estimates of BBB.

     The measure is being considered using the budget reconciliation process that allows passage of legislation with simple majorities in both chambers, though provisions must meet budget conditions in the Byrd rule or can be removed in the Senate through points of order.

     A simple majority is required for the House to pass the bill.

— Some details of the House Build Back Better Act (just some of the spending and tax provisions in the measure):

     Tax Increases. The measure would raise $1.48 trillion in revenue over 10 years by increasing taxes on corporations and high-income individuals, according to the Joint Committee on Taxation.

     Changes to corporate and international taxes would include:

• Imposing a 15% minimum tax on income corporations report on their financial statements or “book income,” with adjustments. The provision would apply to corporations with such income over $1 billion. U.S. companies with foreign parents would also need to have at least $100 million in income. It would raise $318.9 billion over 10 years, according to JCT.
• Creating a 1% excise tax on the fair market value of stock buybacks by publicly traded U.S. corporations, including any subsidiary. The provision wouldn’t apply to employee retirement plan funding or if total transactions for the year are less than $1 million. It would raise $124.2 billion over 10 years.
• Reducing deductions for foreign income of U.S. companies, which would yield a 15% global intangible low-taxed income (GILTI) rate and 15.8% foreign-derived intangible income rate, according to a summary from the House Rules Committee. The changes would raise $144.3 billion over 10 years. GILTI would also be calculated on a country-by-country basis under the measure.
• Increasing the base erosion and anti-abuse tax (BEAT) to 18% from 10% by tax year 2025, which would raise $67.1 billion over 10 years.

     Individual tax changes would include:

• Imposing a 5% surtax on modified adjusted gross income that exceeds $10 million. An additional 3% tax would apply to income that exceeds $25 million. Certain trusts and estates would be subject to the taxes. It would raise $227.8 billion over 10 years.
• Expanding the 3.8% net investment income tax to cover business income of single filers earning more than $400,000 and joint filers making more than $500,000, raising $252.2 billion over 10 years.
• Permanently disallowing excess business losses of noncorporate taxpayers, which would raise $160.3 billion over 10 years.

     The measure also would make changes to retirement plan rules for high-income taxpayers with more than $10 million in retirement account balances, including prohibiting contributions and requiring minimum distributions above that level.

     IRS Enforcement: the measure would provide $44.9 billion in additional fiscal 2022 funding to the Internal Revenue Service for tax enforcement, including for digital asset monitoring. It would specify that the IRS funding boost isn’t intended to increase taxes on individuals making less than $400,000.

     Tax Credits

     SALT Cap: The measure would increase the $10,000 cap on the state and local income tax deduction to $80,000 through 2030. It would return to $10,000 for 2031 and then expire. Republicans’ 2017 tax law (Public Law 115-97) imposed the cap on the amount of individual property and income or sales tax payments individuals can deduct from their federal taxes through 2025.

     CTC and EITC: The measure includes tax provisions designed to aid certain households, such as:

• Extending the expanded child tax credit from a March pandemic relief package (Public Law 117-2) for one year, through 2022, and limiting advance payments to taxpayers with income below $150,000 for joint filers and $75,000 for single filers. It also would make the credit fully refundable after 2022. The changes would cost $184.6 billion over 10 years.
• Extending an expanded version of the earned income tax credit for childless workers for one year, through 2022, which would cost $13.3 billion over 10 years.

     Green Energy: The measure includes a variety of green energy tax incentives that would cost $300.5 billion over 10 years.

     It would structure various credits as tiered incentives, providing either a “base rate” or a “bonus rate” of five times the base amount for projects that meet certain prevailing wage and apprenticeship requirements. An additional increased credit amount could be claimed in certain cases if projects comply with domestic content requirements, such as ensuring that any steel, iron, or manufactured product was produced in the U.S.

     The new structure would apply to several new and existing credits, including:

• The production tax credit for energy facilities that produce electricity from renewable energy sources, which would be extended through 2026 and increased for facilities in “energy communities” where a coal mine or a coal-fired electric generating unit has been shut down. The PTC for solar facilities would also be reinstated through 2026.
• The investment tax credit, which would be extended through 2026 for most property and increased for projects in energy communities and for solar and wind facilities that serve low-income communities.
• A clean electricity production tax credit and investment tax credit based on carbon emissions. Both would be available after 2026 and phase out beginning in 2031 or when U.S. emissions targets are achieved.
• A new investment credit for electric transmission property that would apply to facilities placed in service through 2031.
• A new zero-emission nuclear power production credit for facilities that produce electricity, available though 2027.
• A new credit for producing clean hydrogen, based on lifecycle greenhouse gas emission rates, through 2028.
• An investment tax credit for advanced manufacturing facilities that start construction before 2026 and a production tax credit for eligible components that would begin to phase down in 2027.
• A credit for the domestic production of clean fuels that would be based on their lifecycle carbon emissions, which would also phase out beginning in 2031 or when emissions targets are achieved.

     Several other existing tax incentives would be extended through 2031, including the:

• Carbon oxide sequestration credit.
• Nonbusiness energy property credit, with an increased percentage for installing energy efficiency improvements.
• Residential energy efficient property credit, which would fully phase out after 2033 and be made refundable starting in 2024.
• Energy efficient commercial buildings deduction, with an increased maximum deduction.
• New energy efficient home credit, which would be increased for homes certified as “zero energy ready homes.”
• Advanced energy project credit for investments in energy manufacturing facilities.

     Electric Vehicles: The measure would establish new incentives for electric vehicles, including:

• A refundable tax credit for new electric motor vehicles through 2031 that would phase out beginning at $500,000 for joint filers and $250,000 for single filers. The base credit amount would equal $4,000, plus an additional $3,500 for vehicles with a higher battery capacity. The credit would be increased by $4,500 for domestically assembled, union-made electric vehicles. Beginning in 2027, the credit would apply only to vehicles with final assembly occurring in the U.S.
• A refundable credit for purchasing a used electric motor vehicle through 2031. It would phase out at $150,000 for joint filers and $75,000 for single filers.
• A 30% credit for the cost of commercial electric vehicles through 2031, or 15% for hybrid vehicles.
• A 30% refundable credit for electric bikes through 2026 that would also phase out at certain income levels.

     Other Tax Provisions

     The measure also would:

• Impose a new excise tax on nicotine that’s been extracted, concentrated, or synthesized. Products approved by the FDA wouldn’t be included.
• Reinstate a 16.4 cents-per-gallon tax on crude oil and imported petroleum products to fund Superfund cleanups of hazardous sites. It would be adjusted for inflation beginning in 2023.
• Create refundable credits capped at $1 billion per year through 2031 for environmental justice programs at higher education institutions.
• Delay until 2026 changes to the research and development tax credit under the 2017 tax law, which required companies to amortize their R&D costs over five years instead of deducting them up front, beginning in 2022.
• Allow same-sex couples to claim refunds or credits related to a change in marital status before 2010, the earliest year covered by IRS guidance permitting taxpayers to amend their returns after the Supreme Court overturned the Defense of Marriage Act.
• Allow as much as $250 in union fees to be claimed as an above-the-line deduction.
• End the employer tax credit for paid family and medical leave in 2024 instead of 2026.

     Methane Fee: The measure would establish a fee on methane emissions from the oil and gas industry. It would apply to emissions from onshore and offshore production, processing, transport, and storage operations that exceed thresholds for each segment of the industry as defined in the bill.

     The fee would start at $900 per ton of methane exceeding the relevant threshold in calendar year 2023. It would increase to $1,200 per ton in 2024 and $1,500 per ton for subsequent years.

     The bill would provide $775 million for Environmental Protection Agency costs to implement the fee, including for grants, loans, and other support for monitoring, compliance, and reducing emissions.

     Agriculture

     The measure would provide $82 billion in ag spending, including $27 billion in new conservation funding, including $5 billion for a five-year program that would give farmers $25 per acre to plant cover crops. It would also provide:

• $14 billion to reduce hazardous fuels in National Forest System lands near developed areas, $4 billion of which could be used in other areas in certain circumstances. More than $3 billion in additional funds would be available for grants to reduce wildfire risks on nonfederal land.
• $9.7 billion for assistance to rural electrical cooperatives to promote resiliency, reliability, and affordability and for carbon capture and storage projects.
• $3.75 billion for competitive grants to promote conservation and tree planting by state, local, and tribal governments and nonprofit organizations.
• $2.88 billion for rural electrification loans, including for energy storage projects, that would be forgiven if certain conditions are met.
• $1.02 billion to pay off all or part of Farm Service Agency loans to economically distressed farmers and ranchers.

     It would provide several billion dollars through the Commodity Credit Corporation for environmental quality and stewardship incentives and “such sums as are necessary” for payments to farmers and land owners who adopt cover crop practices during the 2022 through 2026 crop years.

     Other Conservation Funding

     The legislation would provide:

• $6 billion to the National Oceanic and Atmospheric Administration for coastal and marine conservation and restoration grants and contracts, with a focus on resiliency and responding to the effects of climate change.
• $1.25 billion for the Interior Department for projects for conservation and to improve resiliency on federal lands and an additional $750 million for ecosystem and habitat restoration.
• $1 billion to NOAA for activities to protect the habitat of Pacific salmon.

     IMMIGRATION

     The bill would direct the Homeland Security Department to grant applications for “parole” to immigrants living in the U.S. illegally who arrived before Jan. 1, 2011, and have resided in the country continuously since then. Individuals who are inadmissible because of criminal activities, national security risks, human smuggling, or certain other reasons wouldn’t be eligible.

     Applicants would have to complete background checks and pay a fee. Individuals paroled under the bill would receive employment and travel authorization and would be eligible for driver’s licenses or other state-issued identification cards. Parole would be granted for five years or until Sept. 30, 2031, whichever is earlier. DHS couldn’t revoke parole unless the individual has become disqualified based on the policies in place when they were granted parole, and extensions would have to be granted through Sept. 30, 2031.

     The bill wouldn’t award permanent residency, and those paroled under the bill wouldn’t be counted against the annual caps on the number of green cards that can be issued.

     The measure would roll over and convert unused employer-sponsored green cards to family-sponsored visas each year, allowing for additional immigrant visas to be issued when the numerical cap on employer-sponsored immigration visas isn’t reached — as happened during the Covid-19 pandemic. Any unused family- and employer-sponsored green cards from fiscal 1992 through 2021 would be made available going forward.

     The bill would allow individuals selected in the annual diversity green card lottery — which awards immigration visas to individuals from countries underrepresented in U.S. immigration — from fiscal 2017 through 2021, but who weren’t granted visas due to Trump-era executive orders or the Covid-19 pandemic, to reapply and be granted green cards.

     Individuals whose green card applications have been approved but are awaiting sufficient numbers of visas to become available could pay a $1,500 fee to apply to the the Homeland Security Department to adjust their status to lawful permanent residency.

     Those with approved green card applications who haven’t been able to obtain visas for more than two years due to per-country or worldwide caps on family- or certain employer-sponsored green cards could apply for exemptions. Application fees would be $2,500 for family-sponsored visas, $5,000 for most employer-sponsored visas, and $50,000 for investor immigrant visas.

     The measure also would create supplemental fees for several types of visa petitions and other applications related to immigration status.

     It would provide $2.8 billion to U.S. Citizenship and Immigration Services to address visa processing backlogs.

     Trade: The measure would reauthorize Trade Adjustment Assistance (TAA) programs for four years and provide $1.7 billion annually for the programs, including $300 million annually through fiscal 2025 for new grants to help communities affected by global trade.

     The measure would also:

• Expand eligibility to include workers who lose their jobs due to decreased exports, teleworkers, and staffed workers who may be employed by a separate company but perform work at an affected firm. Public sector workers would be eligible for the program when services are outsourced to an offshore service provider.
• Require the Labor Department to provide benefit information to workers in their native language and a second notification of program benefits before workers have exhausted unemployment benefits.
• Extend trade readjustment allowance benefit weeks for workers participating in qualified training programs.
• Increase the cap on job search and relocation allowances to $2,000, from $1,250, and require states to provide the allowances for eligible workers to cover 100% of costs.
• Create a child care allowance of as much as $2,000 per independent for eligible TAA participants.