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There is some new hope for progress on a retooled post-Build Back Better reconciliation package, as Senator Joe Manchin (D-WV) suggested March 2 he could accept a bill that splits revenue, raised from both reforming the tax system and lowering prescription drug costs, between deficit reduction and spending on 10-year policies, probably dealing mostly with climate change. He repeated that Democrats’ unanimous dissatisfaction with the 2017 TCJA tax reform should spur agreement on rolling back some of its provisions to provide revenue, and that reconciliation is for “getting your financial house in order.”

“The one thing that we as Democrats all agreed on was the 2017 [Trump-era] tax cuts were weighted unfairly. So if you want to fix the tax cuts and make everyone pay their fair share, whether it’s the very wealthiest or the corporations that pay nothing — I think the president identified that last night — then you have to fix the tax code,” he said, as reported by The Hill. “Then you find out what revenues you have from that if you fix it,” he added. He said, “Half of that money should be dedicated to fighting inflation and reducing the deficit,” though it isn’t clear what measures would counter inflation.

Immediately following the State of the Union Address – during which President Biden, without mentioning the Build Back Better Act (BBBA) by name, recast the bill’s planks on climate change, health care, and social spending as measures that could cut consumer costs to respond to inflation concerns – Manchin said, “Nothing’s changed… There might be parts they want to talk about. I don’t know. That was a little bit far.” He said March 2 there are no ongoing negotiations with the Administration, but they know where he stands.

The Hill story said Senator Manchin declined to take a position on the wealth surtax included in the House-passed BBBA amid Senator Kyrsten Sinema’s (D-AZ) objection to rate increases. The New York Times cited a Sinema spokeswoman as saying the Senator’s stance on tax issues shouldn’t be an impediment to a deal because she “embraced tax increases large enough to finance a ‘narrow plan.’” The story said President Biden’s pivot away from describing a large package as Build Back Better was a welcome change to some lawmakers, including Senator Jon Tester (D-MT), who said while the moniker had garnered opposition, its elements like childcare and climate change were appealing to constituents. “So I think he struck the right tone,” he said.

The Washington Post reported March 2, “Many mainstream Democrats hailed President Biden’s first State of the Union address as a sorely needed course correction eight months before the midterm elections, charting a populist, pro-American message that some hope will resonate with voters turned off by the left wing of the party. But some in the party said they fear it may be too late to undo the damage Democrats have already sustained… For much of last fall, Biden was consumed with negotiations over a sweeping climate and social spending bill… The protracted talks stalled the rest of the Democratic agenda and showcased the party’s divisions.”

A separate Post story cited Rep. Pramila Jayapal (D-WA), chair of the Congressional Progressive Caucus and one of several House leaders who called for a reconciliation bill in a letter earlier this week, as saying progressives are ready to talk to Manchin about his framework, and signaled a deal is possible. She said there should be agreement on specifics of what revenue generators can get Senator Manchin’s support and 50 votes in the Senate, and then talk about what to fund with them.

Global tax – At the Federal Bar tax conference March 3, Treasury Assistant Secretary for Tax Policy Lily Batchelder said, “One of the biggest accomplishments of the Administration to date has been the global agreement to stabilize the international tax landscape.” She provided some background on the BEPS 2.0 project and discussed benefits of the deal for the US. The 15% GILTI rate and country-by-country calculation necessary to bring the US into compliance with Pillar Two of the OECD-led global tax deal were embedded in the House-passed BBBA and remain stalled along with it. Asst. Sec. Batchelder said, “There is broad support across the Democratic caucus for these international tax proposals. And we are optimistic that we will meet our commitment to enact Pillar Two in 2022, as the many, many other countries that have joined the agreement move forward with their plans to do so as well.” She also said, “we remain entirely committed to working with Congress to ensure that tax credits and other tax incentives that promote US jobs and investment are protected.”

Government funding – It looks increasingly possible that an additional continuing resolution (CR) will be necessary to fund the government past the current March 11 deadline. Punchbowl reported there are “hundreds of riders – individual policy issues – that are still outstanding in the negotiations” and that “raises the possibility of another CR being needed to allow the two sides to finish up.” Bloomberg reported that the Administration has requested a $32 billion emergency supplemental, including $22.5 billion in additional COVID relief along with Ukraine funding, and that Senate Appropriations Committee Ranking Republican Richard Shelby (R-AL) said the weekend will be crucial to sealing a deal on the omnibus and another CR is not off the table. One snag with the supplemental: 36 Republican Senators, led by Mitt Romney (R-UT), sent a letter to the President March 2 seeking more information about the allocation of previous COVID funds, and said answers are vital before Congress considers additional funding requests.

Lawmakers continue to eye attaching other measures to the omnibus bill. Roll Call reported that House Ways & Means Committee Chairman Richard Neal (D-MA) and Ranking Member Kevin Brady (R-TX) are readying their bipartisan retirement bill and, while Brady said the omnibus is “plan A,” Neal said it could move as part of a larger package, through a stand-alone floor vote or under suspension of the rules. The story noted that, ”including the retirement bill in the spending package would mean adding a tax title, which could open up other tax issues” like delaying the TCJA cliff involving the IRC Section 174 requirement for five-year R&D amortization rather than expensing and extension of the Employer Retention Tax Credit. “But the outlook for those efforts was dimmer as of Wednesday,” it said.

A Bloomberg Tax story on the challenges for including tax provisions in the omnibus said, “Even the inclusion of the SECURE 2.0 retirement reform package, which enjoys strong bipartisan support, ‘would be a heavy lift,’ [Senate Finance Chairman] Wyden told reporters on Thursday.”

Ways & Means approved by unanimous voice vote May 5, 2021, the Securing a Strong Retirement Act (H.R. 2954), which included an expansion of auto-enrollment and auto-escalation by requiring all newly created plans to incorporate both features, and an increase in the ‘catch-up’ contribution limit for individuals age 62-64, among other provisions. Senators Ben Cardin (D-MD) and Rob Portman (R-OH) sponsor a similar bill. The House Education & Labor Committee November 10 approved its own bill, the Retirement Improvement and Savings Enhancement (RISE) Act (H.R. 5891), which would establish a Labor Department “Retirement Lost and Found” database to help workers locate their retirement savings as they move from job to job.

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