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Government funding is extended through February 18 after votes by the House and Senate yesterday. The insistence by Senators Mike Lee (R-UT) and Roger Marshall (R-KS) for a vote on an amendment to defund President Biden’s vaccine mandate for businesses briefly threatened a weekend shutdown – they wouldn’t allow the continuing resolution (CR) vote to be expedited without it – but the amendment was defeated. Action to extend government funding takes one pressing item off the Senate’s December agenda, which also includes planned consideration of the Build Back Better Act (H.R. 5376) budget reconciliation bill by Christmas. But the tension over the vaccine amendment and a holdup on the defense authorization bill demonstrated how one or two members can halt progress in the Senate. Majority Leader Chuck Schumer (D-NY) said passing the reconciliation bill won’t be easy.

There is some increasing skepticism about enactment of the BBB reconciliation bill by the end of the year. Prior to the fast-moving action on the CR, House Ways & Means Committee Chairman Richard Neal (D-MA) said December 1 that completion of the bill this year was threatened by the funding and debt limit deadlines. Chairman Neal said while “it’s desirable to get it done” before the end of the year, “there’s a series of issues that have to be completed in the next couple weeks, so we should be addressing those pretty forcefully,” according to the Daily Tax Report.

Senator Schumer is aiming for Senate passage by Christmas of the reconciliation bill, which will almost certainly be returned to the House because of policy changes, or at least because of modifications resulting from reconciliation rules and the “vote-a-rama” capping debate. Chairman Neal noted that the ARPA’s Child Tax Credit expansion to include monthly payments expires at the end of the year and would need to be extended regardless.

Tax Notes reported, “House Ways and Means Committee Democrats coming out of their weekly caucus meeting December 1 seemed to think it might just take a Christmas miracle for the Senate to act before the holiday on their party’s marquee tax bill,” citing Reps. Don Beyer (D-VA), Ron Kind (D-WI), and Earl Blumenauer (D-OR). Senate Finance Committee Chairman Ron Wyden (D-OR) reiterated November 29 that he wants to push for a billionaire’s tax to be in the package and said he wants changes in energy provisions. The House bill reflects a hybrid of the House approach of working within the current system through 2026 and Wyden’s technology-neutral proposal thereafter.

Punchbowl News reported this morning that Senator Kyrsten Sinema (D-AZ) “has been privately telling colleagues she doesn’t believe the Build Back Better Act will pass until after Christmas.” This isn’t Sinema’s request or hope, but rather her prediction, according to the report. CNN reported late last night that Senator Joe Manchin (D-WV) is also skeptical that the bill can pass this year and is “seeking changes to some of the provisions in the tax title of the bill.”

SALT – The state and local tax deduction cap remains a focus of discussions surrounding the reconciliation bill and has long been speculated to be a target of Republican vote-a-rama amendments. Senator Shelley Moore Capito (R-WV) said she will offer an amendment to strike any SALT cap relief because “I don’t want to subsidize the billionaires in these states — the 10 biggest states — that are going to be getting the largest amount of benefit.”

CAMT – The House reconciliation bill’s 15% minimum tax on corporations with annual adjusted financial statement income over $1 billion remains controversial. Politico reported December 1: “Green energy companies say they would lose investment write-offs under the proposal, blunting efforts to combat climate change. Heavy manufacturers are worried too, saying the plan would strip away long-standing deductions for buying machines and equipment… Insurance companies, meanwhile, say they don’t even use the accounting system the minimum tax proposal relies upon.” The story said lawmakers seeking changes are constrained by the prospect of helping some industries and not others and creating a revenue gap in the bill.

In support of the proposal, Senator Elizabeth Warren (D-MA) tweeted November 29: “At least 70 public corporations made over $1 billion in global profits in 2020 while paying less than 15% of those profits in taxes. My plan for a Corporate Minimum Tax—which the House just passed as part of #BuildBackBetter—will get these giants to pitch in a fair share.”

Senator Rob Portman (R-OH), a Finance Committee member like Warren, delivered remarks on the Senate floor December 2 outlining potentially harmful consequences of the book tax, which he said would “drive inflation higher” and cause problems for pension plans, an issue he has a long history with. “Under this proposal, a qualifying company ends up paying a new tax on certain investment gains, potentially due to just a change in interest rates in their employee pension funds. So, this is a new tax,” he said. “Right now, if the pension fund has an income gain, that would not be taxed. But under this proposal, it would be, under the book tax proposal. So it’s basically a tax on the pensions.”

Retirement – The Senate HELP Committee December 2 advanced the nomination of Lisa Gomez to be Assistant Secretary for the Employee Benefits Security Administration at the Department of Labor by a vote of 12-10. It isn’t clear if the nomination will reach the floor this month. 

Global tax – The OECD is expected to soon release the final Pillar Two model rules in coordination with the OECD-led global tax deal. Tax Notes reported Pascal Saint-Amans, OECD’s top tax official, as saying December 1 an agreement on technical work for the model rules has been reached but discussions continue. He anticipates that the rules will be released soon but did not give an exact date. He said the separate OECD commentary, which needs “to make these extremely dry rules better understood,” is taking more time to complete. It could be released in the next few weeks and the EU is expected to release a draft directive based on the model rules prior to year’s end.

Tax – Final rules on the foreign tax credit could be released soon as they are currently under review by OMB/OIRA. The 2020 proposed regulations would fundamentally revamp the rules for determining the creditability of a foreign tax.

Health – President Biden December 2 announced new actions to combat COVID-19 this winter. The strategy largely builds on infrastructure set up over the last several months to accelerate vaccine distribution and encourage more people to get initial doses and booster shots, especially seniors and children. It also includes a new requirement for insurers to cover the cost of at-home COVID-19 tests through guidance the administration plans to issue in January.

Treasury/IRS this morning released proposed regulations on “minimum essential coverage.”

NDAA – The National Defense Authorization Act (H.R. 4350) still hasn’t cleared the Senate. The latest hurdle is Senator Marco Rubio (R-FL) blocking a deal on amendments that omitted his proposal that “would ban imports from China’s Xinjiang region, where administration officials have accused the government of carrying out genocide against the Uyghur ethnic minority.”

Defense One reported, “It’s looking more and more likely that the annual defense policy bill will not become law in 2021. Congress frequently has an end-of-calendar-year push to pass the bill, which authorizes the Defense Department activities for the fiscal year that began in October, requests reports or briefings from the Pentagon, and sets new policy on things such as military justice reform or who should register for the draft. But experts say there’s lots of precedent for the legislation passing in the new year and few consequences to doing so.”

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