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January 21, 2022

What to expect in Washington (January 21)

Senator Joe Manchin (D-WV) is emphasizing that Democrats are back to the drawing board on the Build Back Better Act (BBBA), saying January 19, “we just started on a clean slate” in response to whether he still supports the $500 billion in clean energy provisions, Roll Call reported. A January 20 CNN report cited him as saying “we will just be starting from scratch” on the bill. A modified BBBA anchored by climate/energy provisions – the portion he has said would be easiest to find consensus on – is a focus as Democrats seek to revive negotiations, though Senator Manchin said he hasn’t yet resumed talks with the White House.

Energy-focused seems to be the direction the Administration is headed. President Biden said of the BBBA during a January 19 press conference, “We’re going to have to probably break it up… I think it’s clear that we would be able to get support for the $500 billion-plus dollars for energy and the environmental issues,” and noted that Manchin also supports universal pre-K. The President also said, “There is strong support for, I think, a number of the ways in which to pay for this proposal” – without detailing which tax proposals in the House-passed BBBA could stay or go. He further said, “I think we can break the package up, get as much as we can now, and come back and fight for the rest later.”

In the CNN report, Senator Manchin suggested he wants tax changes to be enacted, saying of lawmakers, “Get your financial house in order. Get a tax code that works and take care of the pharmaceuticals … gouging the people with high prices. We can fix that. We can do a lot of good things.”

There appears to be some disagreement among Democrats over whether to break up the package and move on issues piecemeal. House Speaker Nancy Pelosi (D-CA) said January 20 the “chunks” of the bill President Biden wants to act on, “I would hope would be a major bill going forward. It may be more limited, but it is still significant.” Also, those who say, “’Let’s divide it up’… don’t understand the process,” she said, alluding to the fact that without Republican support reconciliation is required and the number of reconciliation bills is limited per budget cycle. The Speaker went on to enumerate the priorities under the bill, including climate and healthcare provisions, and, as other Democrats have suggested, said they may “have to rename it.”

Negotiations are intended to be kept mostly private after the back-and-forth in 2021 culminated with a stalemate on policy issues and a souring of negotiations after the White House named and blamed Manchin. The Wall Street Journal reported WH Chief of Staff Ron Klain as saying, “One lesson we learned in the first year is, I think, the less we talk about our negotiations with specific senators and congressmen, the better we are, so I’m going to say our talks with Sen. Manchin will proceed directly and privately.”

Climate/Energy – Some Democrats want the BBBA to remain a broad package, and others see the urgency in acting on pieces of it. Senator Edward Markey (D-MA), chairman of the Environment & Public Works Subcommittee on Clean Air, Climate, and Nuclear Safety, said January 19, “The climate and clean energy provisions in [BBB] have been largely worked through and financed, so let’s start there and add any of the other important provisions to support working families that can meet the 50-vote threshold … We need to move from words to action, from negotiation to agreement. Our economy, our health, and the very future of our planet simply cannot wait.”

A January 19 New York Times story suggested that while some Republicans refer to the climate provisions as a far-left agenda, “many of the clean-energy tax credits in Build Back Better have been backed by Republican lawmakers in the past and even written by them. The tax credits, some of which have been law since the 1970s, have typically been extended for just a few years at time. The pending legislation would keep them in place for a decade, lending more certainty to markets, which is designed to spur more investment.” The story further said, “Senator Chuck Grassley of Iowa, who often refers to himself as the ‘father’ of the wind-energy-production tax credit, said he could support provisions in the bill that bolster wind and solar power but is opposed to sections that would help make electric vehicles more affordable.”

Process – President Biden’s suggestion that he would “come back and fight for the rest later” mirrors Senator Manchin’s comment from October that Democrats could move a consensus bill then “come back with it later and they can run on the rest of it later … just not everything at one time.” Democratic leaders at the time continued to pursue an all-in-one bill that clipped the duration of certain provisions to fit within cost constraints, though that approach was eventually rejected by Manchin as disingenuous. The President’s recent comments raised questions about whether a second reconciliation bill will be pursued.

Roll Call said a BBBA in two parts “would likely necessitate a new time-consuming budget reconciliation process, including first adopting a new budget resolution and yet another ‘vote-a-rama.’ Democrats haven’t ruled that out, but they still need to get the original bill done before living to fight again another day. ‘I think that’s gonna be the challenge. I think it requires different reconciliation bills,’” Sen. Jon Tester (D-MT) said.

Global tax – In the BBBA are the 15% GILTI rate and country-by-country calculation to bring the US into compliance with the OECD-led global tax deal. Treasury Secretary Yellen mentioned international provisions in saying of the BBBA January 19, “While we don’t know the final form this will take, it will revolutionize how we care for children in this country, invest in climate change, and overhaul the international tax system to ensure corporations pay their fair share.”

There have been questions about fallback options for enacting those changes, which, outside of reconciliation, would need 60 Senate votes and the support of some Republicans. House GOP members appear wary, including in a January 20 letter from Rep. Kevin Hern (R-OK) and other Ways & Means Republicans expressing concern about the effort to commit the US to global tax policies, saying, “It is extremely troubling that the Administration has made promises to the world without sufficient bipartisan, bicameral consultation. For example, we understand that the Administration has encouraged its foreign negotiating partners not to treat the United States’ Global Intangible Low Tax Income (GILTI) as a qualifying minimum tax under the OECD’s Pillar 2, risking adverse consequences for U.S. headquartered firms.”

Congress – Ways & Means Committee Republicans shuffled some subcommittee assignments following Rep. Devin Nunes’ (R-CA) exit from Congress and selection of Rep. Greg Murphy (R-NC) to replace him on the Committee. Notably, Rep. Mike Kelly (R-PA) has become the top Republican on the Select Revenue Measures Subcommittee, Rep. Vern Buchanan (R-FL) is now the top Republican on the Health Subcommittee, and Rep. Adrian Smith (R-NE) is the top Republican on the Trade Subcommittee.

The House and Senate are both out the week of January 24, then back with a February 18 deadline for government funding. There is expected to be a strong effort to advance the BBBA during February, ahead of President Biden’s State of the Union address on March 1.

Today, 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

Given the congressional recess, What to Expect in Washington won’t be published next week, though Tax Alerts will be issued as events warrant.


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