Nearly a year ago, Congress embarked on a journey to push an infrastructure bill and a separate bill (“Build Back Better” – BBB) focused on social, environmental and individual issues. The two bills moved separately in Congress under their own set of rules. The infrastructure bill had some bi-partisan support and was eventually enacted last November and amounted to over $1 trillion in spending and various projects. On the other hand, the BBB moved under special rules, known as “reconciliation,” which allowed the bill to go forward with simple majorities in the House and Senate.
The BBB was a partisan bill that started out as a $3+ trillion bill with the Democrats controlling the scope of the bill – from what was included in the bill to the timing of it, with no input from the Republicans. With narrow margins in the House and Senate, the BBB began its legislative gauntlet. It was revised several times and scaled back to approximately $2 trillion and then passed the House in late November. The Senate, at that point, took up the BBB with hopes of passing it before the end of the year, but the bill stalled when Senate Manchin (West Virginia) announced his opposition in late December.
Manchin and democratic leaders talked periodically but made no progress toward reaching an agreement. The bill was left on the backburner, with Manchin concerned that with the economy softening and inflation surging, he could not support the BBB.
Manchin’s BBB Ride in July
Manchin announced on July 14, 2022, that he would not support any further negotiations with Senate Majority Leader Schumer and others about reaching an agreement on BBB. Following the June inflation report with a 9.1% annualized inflation rate, Manchin said he would only accept a BBB bill with: (1) price limits on Medicare prescription drugs; and (2) a two-year extension of the ACA insurance premium subsidy. He stated he would not support a bill that raised taxes or addressed energy measures, as they would further add to inflation. Therefore, a much skinnier version of the BBB was set for a vote before the August recess.
Then, surprising news broke late on July 27, that Manchin had reached an agreement with Schumer on a $700 billion deal that would include, yes, higher taxes and energy provisions. It has been reported that meetings were being held privately to negotiate these additional provisions. Schumer, Manchin and other Democratic leaders have dropped the moniker, “Build Back Better,” and this latest bill is now called the “Inflation Reduction Act of 2022” (IRA). It is still part of the reconciliation rules that the BBB had when adopted last year, but with a different name and other changes.
What’s in the Latest Version of the BBB/IRA bill
The bill is a $700 billion package (less than half of what the House passed in the Fall). Here is what it contains:
Total Revenue Raised
- 15% Corporate Minimum Tax
- Prescription Drug Pricing Reform
- IRS Tax Enforcement
- Carried Interest Loophole
- $313 billion
- $288 billion
- $124 billion
- $14 billion
- Energy Security and Climate Change
- Affordable Care Act (ACA) Extension
- $369 billion
- $64 billion
Total Deficit Reduction
The 15% corporate minimum tax applies to large corporation with over $1 billion in average gross receipts. Further, it does not apply to S Corporations. If this provision is adopted, keep an eye on it, as Congress could later revise the limits of the corporate AMT to include more corporations. The IRS enforcement measure could impact many taxpayers as the IRS expands its audits and other review of taxpayers, both individuals and businesses.
The energy section noted above contains numerous provisions. There are a variety of incentives and credits to encourage certain energy efficient measures. Both individuals and businesses could avail themselves of several of these incentives.
We have included the following items for your reference:
- A one-page summary of the Inflation Reduction Act of 2022
- The full legislative text of this bill (~ 750 pages)
- Summary of the Energy Security and Climate Change Investments in the Inflation Reduction Act of 2022
It is still uncertain if Senator Sinema (Arizona) and other Democratic senators will be on board with the latest bill. It is unsure if the news on July 28 that the economy is officially in a recession will impact prospects for the passage of this bill. The House must also approve any bill passed by the Senate.
Please note – there is no SALT (State and Local Tax) provision in the latest version to address the $10,000 deduction limitation, so this could present some challenges in the coming days.
These recent events were the most significant news on the reconciliation legislation since Manchin pulled his support for the BBB last December. We will continue to monitor the progress of this bill – stay tuned.
Contact us if you have any questions, and we’ll be in touch.