Authored by Paul Dillon, Michelle Hobbs, Kasey Pittman and Michael Wronsky
On Friday, Nov. 19, 2021, the House voted 220-213, along party lines, to pass the Build Back Better (BBB) Act. The potential legislation, which contains a considerable number of tax provisions, now moves to the Senate for consideration, where they are expected to begin deliberations in early December and vote before the holidays.
Tax provisions included in the BBB Act
Earlier in November, we covered the largest tax provisions included in the BBB Act in an alert, House passes infrastructure bill, advances Build Back Better bill. The potential legislation remains largely unchanged, with no notable changes to relevant tax provisions.
The several week delay in the BBB Act vote was not for continued negotiations, but to allow time for the Congressional Budget Office to “score” the bill, giving legislators a more accurate picture of revenue raised and spent within the bill.
The BBB Act now moves to the Senate, where it will almost certainly encounter changes. At a minimum, the legislation must undergo review by the Senate parliamentarian to ensure it retains its privileged status and does not violate the Byrd rule, meaning each provision included must have a budgetary impact to be eligible for passage via reconciliation.
Two Democratic senators — West Virginia’s Joe Manchin and Arizona’s Kyrsten Sinema — have been the primary drivers of recent changes to the BBB agenda. Sen. Manchin’s objections effectively cut the total cost of the proposed legislation in half from $3.5 trillion to $1.75 trillion in recent negotiations. Sen. Sinema’s objections have removed several planned revenue-raisers, namely individual and corporate tax increases.
While the current House legislation takes into account many of Sen. Manchin and Sen. Sinema’s objections, neither have publicly signaled support for the current legislative text. Consequently, we expect additional changes to the bill in the Senate beyond those required by the Senate parliamentarian. If the Senate does alter the BBB Act, it will need to go back to the House for a final vote before it can be enacted.
Though nothing is certain, it does seem likely some form of the BBB Act will be passed either by the end of the calendar year or in early 2022.
As noted above, we expect some changes in the Senate; however, a number of items are not expected to make it into the final legislation:
We are watching two revenue-raising proposals championed by Democratic Sen. Ron Wyden of Oregon: (1) a billionaire “mark-to-market” requirement and (2) an overhaul of partnership tax rules. While these do not seem to have wide support in the Senate and are unlikely to make it into this bill, they are serious proposals authored by Sen. Wyden (the chair of the Senate Finance Committee) and could be used in future legislation.
Effective dates of tax provisions
If enacted as passed by the House, most tax provisions included in the BBB Act will take effect on Jan. 1, 2022. Several less pervasive tax provisions would take effect as of the date of enactment, but the current projected timeline for passage would place that date close to Jan. 1, 2022.
There is one notable exception: Section 1202 qualified small business stock gain exceptions would go into effect for all sales after Sept. 13, 2021, subject to a binding contract exception.
As you approach year-end tax planning, we recommend working with your Baker Tilly tax advisor to prepare for the potential legislation and act on possible planning opportunities.