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Senate bill boosts tech; other tax legislation being considered

After months of negotiations, the Senate passed legislation aimed at strengthening the artificial intelligence, biotechnology research and semiconductor industries. This $280 billion bill incorporates many parts of the Senate’s previously drafted bipartisan United States Innovation and Competition Act of 2021 (USICA aka CHIPS-plus) including over $52 billion for semiconductor facilities plus a 25% tax credit for semiconductor manufacturing.  

Currently, the House is expected to pass the Senate version of this bill, allowing President Biden to sign it into law before the House adjourns for its August recess. However, there may be a final attempt to resurrect certain provisions from the previous House-passed version. This would delay final passage until the fall and hinder the ability of some members to tout a bipartisan success during the summer campaign season.

Other legislative developments

Build Back Better/reconciliation

Several weeks ago, we believed there was a chance for a scaled-down Build Back Better (BBB) agenda to pass via reconciliation before midterm elections; however, the legislation has now been further paired down to contain only Medicare prescription drug pricing provisions and a two-year extension of certain Affordable Care Act subsidies. After the July inflation report, Sen. Joe Manchin (D-W. Va.) indicated he preferred to delay negotiations on any tax increases until fall. In a 50-50 Senate, with no Republican support for any reconciliation bill, Manchin’s reservations effectively ended all current BBB efforts. Whether the Senate will attempt to revitalize portions of the BBB agenda, including climate provisions or tax increases, is currently unknown.

Tax extenders

The breakdown of any substantial BBB legislation creates an opening for tax extender legislation. The House Ways and Means Committee and Senate Finance Committee have recently begun bipartisan discussions, possibly setting the stage for a return of over 40 temporary tax provisions that expired at the end of 2021. Key tax extenders that may be renewed include:

  • Research and development expensing and/or a refundable credit extension
  • Child and dependent care tax credit enhancement
  • Child tax credit increase
  • Credit for qualified fuel cell motor vehicles expansion and/or enhancement
  • Credit for construction of new energy-efficient homes extension
  • Exclusion for employer-provided dependent care assistance increase
  • Business interest expense deduction under section 163(j) extension of favorable calculation
  • Charitable contribution deduction by non-itemizers extension

There are also five tax extenders terminating at the end of 2022 that may be proactively considered. These include the full deduction for business meals provided by a restaurant as well as incentives for biodiesel and renewable diesel fuel.

Omnibus bill

Preliminary bipartisan talks have begun over a potential omnibus bill. Multiple tax changes are being discussed such as continuing the above-the-line charitable contribution, changing the business interest expense deduction, extending bonus depreciation write-offs, restoring access to the employee retention credit for the fourth quarter of 2021 and boosting retirement savings. As with all potential legislation, it is uncertain whether any proposed omnibus bill would be able to pass both chambers of Congress.

Possible legislation

  • Retirement legislation – The Senate Finance Committee recently advanced the Enhancing American Retirement Now (EARN) Act, the Senate’s bipartisan response to the House-passed Securing a Strong Retirement Act of 2022 (SECURE 2.0).
  • Digital assets/cryptocurrency legislation – Sen. Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) released a bipartisan, comprehensive proposal for the taxation of virtual assets currently stalled in the Senate. In addition, a proposal to exclude gain from the disposition of cryptocurrency in personal transactions not exceeding $200 remains outstanding.
  • Family and Community Inflation Relief Act – Senate Finance Committee Member Chuck Grassley (R-Iowa) recently released a bill that would index certain tax benefits to inflation; including the child tax credit, child and dependent care credit, educational tax credits and deductions, and the charitable mileage deduction.
  • Middle-Class Savings and Investment Act – Grassley also proposed a bill that would expand the 0% capital gains tax bracket, eliminating the marriage penalty inherent in the net investment income tax thresholds, exclude the first $300 ($600 for married filing jointly) of interest income from tax, and expanding the savers credit. His proposal calls for an extension of the $10,000 SALT cap beyond 2025 to pay for the other provisions.

Please reach out to your Baker Tilly advisor if you have questions regarding your tax position. We continue to monitor legislative developments and will issue additional alerts as warranted.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

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