Democratic Lawmakers Set Sights on Passing Reconciliation Tax and Spending Bill

On July 27, 2022, Senate Democratic leaders released a modified version of the reconciliation tax and spending bill that the House of Representatives passed last year, which is commonly referred to as “Build Back Better.”

Watch this webinar recording to listen to our National Tax Office Legislative Affairs team provide an in-depth overview of the Inflation Reduction Act of 2022.

Inflation Reduction Act of 2022

The Senate has renamed the legislation to the “Inflation Reduction Act of 2022” and includes the following provisions expected to raise or save revenue for the federal government:

• Corporate Minimum Tax
  Corporations with an average annual adjusted financial statement income in excess of $1 billion would be subject to a minimum tax equal to 15% of their adjusted financial statement income over their AMT foreign tax credit, effective for taxable years beginning after 2022. Adjusted financial statement income would include dividends received from non-consolidated domestic corporations, the distributive share of financial statement income from partnerships and a pro rata share of financial statement income from controlled foreign corporations. Broad discretion would be given to Treasury in implementing the corporate minimum tax.
• Carried Interest
  The proposed legislation extends the general holding period to achieve long term capital gains for an Applicable Partnership Interest from three to five years and expands the scope of the current legislation to include section 1231 gains (generally gain from the sale of business property, like real estate) and qualified dividend income.
• Medicare and Increased IRS Funding
  Allow Medicare to negotiate the price of prescription drugs and increased IRS funding.

The amount of revenue raised or saved by these provisions is expected to cover the cost of enacting several energy-related provisions, extend to 2025 the Affordable Care Act’s enhanced premium tax credit (currently scheduled to expire at the end of this year), and reduce the federal government’s deficit by at least $300 billion.

• A summary of the energy-related provisions in the bill can be found here.
• We have accumulated reporting on the Senate’s legislation from several news organizations that can be viewed here.
• Click here to read the legislative text of the senate bill.

The Senate bill means that the Build Back Better legislation that passed the House last year will probably not pass the Senate and will probably not become law.

Background on the Legislation

The Senate bill is protected by a budget process called “reconciliation.” This protection allows the legislation to pass the Senate with a simple majority of 51 votes instead of the normal 60 votes. This means the bill can pass the Senate with the support of all 50 Senate Democrats and Vice President, Kamala Harris.

Next Steps for the Senate Bill

Before Senators can vote on the bill, the chamber’s parliamentarian must review its provisions to ensure that they comply with the rules of reconciliation. If a provision falls outside these rules, it can be modified or deleted from the legislation. In other words, all provisions are subject to change.

The parliamentarian’s review is expected to be completed the first week of August. After approval, the legislation can be debated in the Senate’s chamber. Once the bill is on the Senate’s floor, it will be subjected to debate where lawmakers can offer legislative amendments (a process that can take several days to complete). Upon conclusion of the debate, Senators will vote on passing the bill from the chamber. Again, passage is dependent on support from all Senate Democrats and Vice President, Kamala Harris.

Assuming Senate Passage

To become law, the House must approve the same legislation that the Senate has passed. The Democrats currently hold a slim majority in the House, and although some congresspeople may vocalize certain objections, commentators expect House approval.

Timeline

President Biden states he will sign the bill once it passes the Senate and House. However, due to the evenly divided Senate, passage is not guaranteed. We will provide further updates as the legislative process moves forward.