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The Biden administration “is preparing an alternative to its $1.75 trillion spending bill” that will focus on climate measures, omit some social spending proposals, and perhaps “impose stricter income caps on the child tax credit and other” programs, according to a January 18 Reuters report. “White House climate czar Gina McCarthy and U.S. Treasury officials will head to Capitol Hill to meet with lawmakers and staff on the bill,” the report said, adding that the process could culminate with an appeal from President Biden to Senator Joe Manchin (D-WV) to support the measure.

The report seemed to offer the first concrete signs of movement for the Build Back Better Act (BBBA) since Senator Manchin pulled the plug on the bill exactly one month ago, and a pivot toward the oft-suggested route of focusing on the elements that he can support. The White House called the report “off-base” and “wrong” in a statement, and while they didn’t seem to dispute that things were happening, they took exception to the idea that an approach had been decided. Press Secretary Jen Psaki said during a news conference, “I would just make very clear there is no specific proposal we are putting forward. We are just engaged in a range of conversations with members of Congress about what to do next.”

There appears to be some disagreement among Democrats over whether to break up the package. A report in the Washington Post said, “House Democrats running for reelection in competitive districts, facing increasingly long odds of surviving a potential Republican wave” are calling for a new strategy, including breaking up the BBBA and holding votes on politically popular provisions like curbing prescription drug costs and extending the child tax credit. Some Democratic leaders like Majority Leader Steny Hoyer (D-MD) have maintained that the BBBA shouldn’t be abandoned and still has a chance of passing, the report said.

A story on the perils of inaction said, “The party campaigned on an ambitious agenda of beefing up Obamacare, increasing health care access to America’s most vulnerable patients, and, most significantly, lowering the high cost of prescription drugs in the United States. A year later, there’s increasing concern within the party about what falling short on their long-standing goals could mean for this year’s midterms. ‘It has been a concern for us,’ said Congressional Progressive Caucus Chair Pramila Jayapal (D-Wash.). ‘You can see it with the number of Democrats in vulnerable districts across the country who want to be able to go back and tell people that we’ve lowered their costs for child care, for pre-K, for elder care, for drug pricing, for health care.’”

The press has recently focused on the tough stretch for President Biden and Democrats – the BBBA is stalled, voting rights bills probably can’t pass without rules changes that don’t have sufficient Democratic support in the Senate, the Supreme Court blocked the Administration’s vaccine-or-test mandate for large employers, inflation reached a four-decade high, and the Child Tax Credit expansion lapsed – and how to turn things around before the State of the Union address scheduled to take place on March 1 and the midterm election season.

An analysis in the January 16 Washington Post said, “Biden and his party now might have to accept a Build Back Better bill designed almost entirely by Manchin, though it’s not clear there is any such formula acceptable to the West Virginian.”

The New York Times reported on concerns that support from key segments of the Democratic party could further erode without action on issues like climate change and paid family leave – which have been under consideration in the BBBA – including from top progressives like Senator Bernie Sanders (I-VT). That is juxtaposed in the article with views from top moderates like Rep. Stephanie Murphy (D-FL), who questioned the ambitious plans of party leaders without the votes to make them law; and Cheri Bustos (D-IL), who said Democrats should consider less ambitious bills that could draw Republican support and give the party accomplishments it can claim in the midterm elections. “We really kind of need to reset at this point,” she said.

A report in the January 18 Wall Street Journal said the BBBA as originally envisioned was perhaps an “overreach” but that “walking away from the effort would mean Democrats would walk away from plans to help parents and working families that most in the party consider core to the party’s identity.” Rep. Ro Khanna (D-CA) said, “Let’s listen to Sen. Manchin, give him the respect that he deserves to be the 51st vote (to pass the legislation), and see how we can come to a consensus.”

Supply chain – Rep. Khanna further said Congress should act to address supply chain issues, in an analysis that said one approach to the issue would be “a House vote to fund the CHIPS Act, legislation designed to boost domestic production of the semiconductors that all sorts of manufacturers find in short supply. That would be a long-term rather than a short-term solution, but it remains a mystery why the House has yet to vote to fund chip legislation.” The funding was folded into the USICA, which passed the Senate but is awaiting a House-Senate conference committee that is said to be stalled.

Global tax – Embedded in the BBBA, and stalled along with it, are the 15% GILTI rate and country-by-country calculation necessary to bring the US into compliance with the OECD-led global tax deal.

An OECD commentary related to Pillar Two model rules is forthcoming, perhaps in February. A Tax Notes article cited an Italian official as confirming that timetable and saying once the commentary is completed, the Inclusive Framework will start developing a multilateral instrument for the coordinated implementation of the subject-to-tax rule, a treaty-based rule that allows source jurisdictions to impose withholding tax on certain related party payments that are subject to tax below a minimum rate. The article cited a European Commission official as noting that the United States is having difficulty enacting GILTI regime reforms because of the overall BBBA, not the reforms themselves, and that the European Commission expects the United States to adopt GILTI regime reforms in time for the EU Council to grant equivalence.

Politico reported January 18 that three nations – Estonia, Hungary, and Poland – questioned the timetable for a minimum global corporate tax rate of 15 percent by January 2023 and “also demanded the initiative be contingent on the rollout of a global levy” out of concern that “U.S. President Joe Biden will fail to find the Congressional support he needs to implement the same rules, leaving Europe at an economic disadvantage.”

Congress – Fox News reported that Rep. Greg Murphy (R-NC) was selected by the House Republican Steering Committee to fill the Ways & Means Committee seat vacated by former Rep. Devin Nunes (R-CA). A urologist, he is a member of the House Republican Doctors Caucus. Republican Ways & Means members are scheduled to meet today to re-allocate subcommittee assignments.

Reps. Jim Langevin (D-RI) and Jerry McNerney (D-CA) announced they are not running for reelection, bringing the total to 28 House Democrats who are either retiring or running for other office.

POTUS - President Biden will hold a formal news conference at 4 p.m.

On Friday, January 21 (12:00–1:00 p.m. ET) is the EY Webcast, “Tax in the time of COVID-19: update on legislative, economic, regulatory and IRS developments.” Register

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