Continuing developments on tax provisions in the reconciliation bill

Negotiations on President Joe Biden’s Build Back Better (BBB) agenda have been heating up in recent days. There have been a multitude of proposed changes, as congressional Democrats work to craft a plan that satisfies not only Sens. Kyrsten Sinema of Arizona and Joe Manchin of West Virginia but the remainder of the Democratic caucus. With a 50-50 split in the Senate, every Democratic vote is needed to pass the BBB legislation, which can only succeed using the reconciliation process given there is no bipartisan support.

On the morning of Oct. 28, 2021, the White House released its framework for a $1.75 trillion BBB legislation, following weeks of intense negotiations. There is a sense of urgency for all Democrats to agree to the outline so the House can pass the bipartisan infrastructure bill (already passed in the Senate) as President Biden prepares to leave for the G-20 summit.

The BBB framework has not been agreed to by all House or Senate Democrats, and many House progressives are adamant they will not vote on the bipartisan infrastructure bill until both bills can be voted out of the House simultaneously. This proposal is not yet final and no legislative text has been released, so negotiations remain somewhat fluid.

Sen. Manchin’s primary concerns center around total spending costs, coming down significantly from the originally proposed $3.5 trillion framework, and narrowing provisions so the economy doesn’t overheat. Sen. Sinema opposes raising tax rates — both corporate and individual. We see these concerns reflected in the White House framework and expect, as details are finalized, these priorities will remain.

Below, we cover the tax proposals in the framework and the status of previously introduced provisions:

What is in the framework:

• High-income surtax: Annual individual earnings above $10 million would have a new 5% surtax applied and earnings above $25 million would have an additional 3% surtax applied. Although uncertain, we believe this is regardless of the character of the income (it will also apply to capital gains).
• Expansion of net investment income tax: Taxpayers with income over $400,000 ($500,000 if married filing jointly) would be subject to net investment income tax on income derived in the ordinary course of a trade or business, regardless of whether the taxpayer materially participates.