The Administration and Congressional leaders pushed their domestic agenda for most of 2021. A key feature in their strategy was enacting the “Build Back Better” (BBB) legislation. Leaders had hoped to complete work on this bill in the early fall of 2021, but as the legislation encountered several snags, the BBB slipped into late fall. The legislation cleared the House in mid-November, and in December, was working its way through the Senate procedures and special rules for a reconciliation bill.
As 2021 came to a close, the following key developments occurred with the BBB:
- The Senate finished its legislative work for the year before Christmas. Senate leaders were unable to reach an agreement to move forward with a vote on the BBB and decided to reconvene in January.
- There are still several items within the BBB that the Senate Parliamentarian continues to deliberate. However, these items are not budget-related and can ultimately be removed from the bill if necessary.
- The Senate made no major tax changes to the BBB in December. From a tax standpoint, the bill is essentially similar to what passed in the House before Thanksgiving.
- A major development occurred just as the Senate recessed for the year. Senator Joe Manchin (West Virginia) announced that he would not support the BBB. Manchin had voiced concerns with the bill at various times since it rolled out last summer but had not formally announced his intentions to either support or reject the BBB until late December. His opposition of the BBB puts passage of the bill in jeopardy. Democratic leadership needs all 50 Democratic senators to support the bill under the specific reconciliation rules. As Republican senators were locked out of the budget reconciliation process, they do not plan to support the BBB. This means that without Manchin’s vote, the bill would fail to secure the necessary 50 Senate votes.
- The White House and other Democratic leaders were surprised that Manchin announced his opposition to the BBB, as the Senate was still negotiating and hoped to reach an agreement in January. Manchin’s announcement shocked many.
While it appeared that the BBB quickly went from a 50/50 possibility to a longshot following Manchin’s announcement, the bill may be revamped as Congress returns this week from its holiday break. The BBB could be rebuilt, perhaps significantly, in an attempt to secure Manchin’s support. However, other members in the House and Senate may oppose major changes to the BBB.
The Administration and many Congressional leaders have invested a great deal of political capital in the BBB and will continue to try to work out some type of agreement. At this point, they have too much at stake to let the BBB fail and are likely to agree on a bill for the sake of passing it.
With the BBB seemingly on the verge of collapse, what are its prospects in the New Year?
- Manchin expressed his concern on the overall size of the BBB leading to further inflation. Therefore, some reductions in the size and scope of the package are possible.
- Manchin has also posed reservations with the larger child tax credit of $3,000 (and $3,600 for those under the age of six). This is a vital component of the BBB for Congressional leaders and the Administration, so this issue will be a point of contention.
- Indicated in his opposition, Manchin would like to roll back the tax cuts provided to individuals and businesses in the Tax Cuts and Jobs Act (TCJA) of 2017. While many in his party align with Manchin’s proposal to reduce these tax cuts, not everyone agrees on raising individual and business taxes, including Senator Kyrsten Sinema (Arizona). In fact, her opposition to higher individual and corporate tax rate changes led to significant revisions to the BBB in October and early November.
- Securing the support of Manchin might come at the cost of losing votes from Senator Sinema or others. As a result, Sinema, instead of Manchin, could become the vote that prevents the BBB from passing in the Senate.
- Note – with any revisions to the BBB in the Senate, the House will still need to accept all of the Senate changes, and this is not a certainty given the House’s narrow margins.
- There is even some talk of splitting the bill into smaller bills and trying to pass these one at a time. This, too, could be a possible strategy to win over Manchin, but the complicated reconciliation rules may make it difficult to adopt this strategy.
- Finally, keep in mind that Congressional leaders still have not identified a workable plan for revising the State and Local Tax (SALT) deduction, which is currently capped at $10,000. Any revision needs the support of Senate and House members and is a political hot button for many in Congress.
Ultimately, the Build Back Better legislation may need to be rebuilt before it passes Congress. We will continue to monitor the BBB and keep you updated. Please contact your Sikich advisor with any questions. Stay tuned…