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February 2, 2022

What to expect in Washington (February 2)

“There is no Build Back Better bill, I don’t know what you’re all talking about,” Senator Joe Manchin (D-WV) said February 1, Business Insider reported. “It’s dead.” Senator Manchin suggested instead that “whatever we come up with” will be a different bill. He later said, “If we’re talking about the whole big package, that’s gone.” It’s unclear whether this is a new development given that Manchin previously said negotiators would start with a clean slate, and other Democrats have said it needs a name different than the infrastructure-invoking BBB. Some say it should go in the other direction: “Infrastructure 2.0 is what I’m calling it,” Senator Brian Schatz (D-HI) tweeted.

HuffPost earlier reported Senator Jon Tester (D-MT) as saying Democrats have been having informal conversations on resurrecting the BBBA without leadership involved, focused on “what people could live with. Could you live with means testing? Could you live with a 3-year program, a 10-year program?” Bloomberg reported senators are expected to have informal talks this week. Senator Manchin told reporters January 31 there haven’t been any sit-down meetings but there have been discussions of what “could and could not be done, we have things that could be done later on.”

Roll Call reported that Senator Manchin “said Tuesday that Democrats will need to start talking about the package again, but that he wants to address government funding, which is set to run out Feb. 18, and efforts for bipartisan election overhaul legislation first.” Further, “Manchin offered two broad areas he’ll expect to be in any bill: a ‘fair and equitable’ tax code that makes sure ‘everybody [pays] their fair share and especially the wealthy,’ and provisions that address drug costs.” (The story noted that the absence of Senator Ben Ray Luján (D-NM) leaves Democrats without a 50th vote for the time being.)

Senate Majority Leader Chuck Schumer (D-NY) said February 1, “We want to get as much done on Build Back Better as we can and you will see us move forward on it.”

Climate/energy – Regarding moving BBBA proposals through committees, including the Energy & Natural Resources Committee he chairs, Senator Manchin said of climate items: “We need reliability in the energy [sector] and that means building pipelines … and I’m not going to sit back knowing that our country could be left in limbo not having the reliability, let’s say by 2030; and not knowing that we have the storage for renewables, we need that; we need transmission for the new renewables coming on. But we also have to make sure we take care of what we have and that means you are going to use all the fossil industries in the cleanest, absolute possible versions that you can. And that will help clean up the climate in the world. If the United States has the innovation, then we can use that and disperse it around the world. But other than that, you take the United States of America out of the fossil industry right now, I guarantee you the world – the climate will get more and more challenged and dirtier. No one is going to put the money that we will put into it, finding the new innovation technology.”

Congress is focusing on other issues while the climate/social spending bill, and what to call it, are reconsidered, namely the looming expiration of government funding on February 18 and a House vote on the America COMPETES Act of 2022 competitiveness/supply chain measure, which could happen on Friday.

Competitiveness/supply chain – The House COMPETES Act is comparable to the U.S. Innovation and Competitiveness Act (USICA) that passed the Senate in 2021 and includes over $50 billion in funding for CHIPS Act semiconductor R&D. The House bill includes Trade Adjustment Assistance (TAA) for workers and dozens of country-specific provisions, some of which are nonbinding Sense of Congress items. It also includes a tax provision to make permanent the Health Care Tax Credit for health insurance costs, raising some speculation over whether other tax provisions could be added down the line.

Unlike the USICA, which drew the support of 19 Republican senators when it passed on a 68-32 vote in the Senate last June, the COMPETES Act is shaping up to be partisan. House Ways & Means Committee Republicans said February 1 they oppose the inclusion of TAA and the Health Care Tax Credit (for TAA workers), as well as the fact that “Democrats mandate poor countries’ compliance with climate commitments under the Paris Agreement, rather than working with more targeted environmental criteria that earned bipartisan support in USMCA.”

Tax – Politico February 1 reported on defense companies pushing for relief from the TCJA requirement for amortization of R&D expenses beginning this year, which the Build Back Better Act would delay until after 2025. The story said, “Top U.S. defense companies are urging lawmakers to allow them to continue immediately writing off their research and development costs and preserve a generous tax benefit that’s been on the books the past several years. But the outlook for a change in the law is murky now that Democrats’ Build Back Better mega bill is on the ropes.” Further, “If BBB can’t be revived, House and Senate tax panels could rectify the tax issue in a standalone bill. Lawmakers could also include the change in a year-end package that renews expiring tax breaks and credits.”

The House Ways and Means Oversight Subcommittee announced a “Hearing with the National Taxpayer Advocate on Challenges Facing Taxpayers” on Tuesday, February 8, 2022 (at 2:00 p.m.).

Government funding – Top Democratic and Republican appropriators met February 1 regarding an agreement on discretionary spending levels and policy riders, and talks are set to continue over the coming days. It’s possible a short-term funding patch will be required beyond February 18 when current funding expires. Punchbowl: “Sources close to the talks suggested a deal on a topline number may be possible by the end of this week. That would include a ‘framework’ to begin drafting the 12 individual spending bills.”

There has been some discussion of including COVID relief in a funding bill. Law360 February 1 reported, “House Ways and Means Committee Chair Richard Neal, D-Mass., said some lawmakers had begun to discuss the idea of additional coronavirus-related tax breaks, which could be moved on a separate track from talks aimed at advancing parts of the BBB Act. ‘I am open to that. The restaurants have made a very good case.’ … Among the options backed by some members of Neal’s panel include a reshaped version of the employee retention tax credit and other incentives designed to help restaurants, hotels and other businesses… Rep. Stephanie Murphy, D-Fla., a member of the Ways and Means Committee, said she planned to renew a push for a bipartisan proposal, H.R. 6161, to revive a limited version of the employee retention tax credit.” The ERTC was terminated as of September 30 under the infrastructure bill enacted in November.

Congress – Former Senator Doug Jones (D-AL) has been chosen as the “Sherpa” to accompany President Biden’s eventual Supreme Court nominee to meetings with Senators, the New York Times reported. It is customary for former members to act in that role. The President said he intends to settle on a nominee by the end of the month.

Check out the latest edition of Washington Council EY’s podcast, DC Dynamics! In Episode 8: “Which way is up?” host Ray Beeman interviews Rebecca Burch to examine the intersection of US and international tax policy; specifically, how the US and US-based multinational companies will be treated under the OECD two-pillared global tax agreement, which is very connected to the currently stalled BBBA.

Friday, February 4 (12:00 p.m.) is the EY Webcast, “Tax in the time of COVID-19: Update on legislative, economic, regulatory and IRS developments.” Register.


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