Corporate Minimum Tax May Be Falling Out of Favor as One of the Payfors to Fund Smaller Build Back Better Bill

By Stuart E. Leblang, Michael J. Kliegman and Amy S. Elliott

There are still some Americans who remain hopeful that a sizable portion of President Joe Biden’s Build Back Better (BBB) initiative may yet win Congressional approval this year despite the challenges it has faced to-date in getting 50 senators (including, in particular, Sen. Joe Manchin III (D-WV) and Sen. Kyrsten Sinema (D-AZ)) on board. The House of Representatives passed a $1.75 trillion version of BBB on November 19, 2021. ¹  Then on December 11, 2021, the Senate Finance Committee released a modified version of BBB’s tax title that raised $59 billion less revenue. ² But when Sen. Manchin went on Fox News Sunday December 19, 2021 and announced that he “cannot vote to continue with this piece of legislation” ³ —a development that left many Democrats frustrated ⁴ despite the fact that most of Sen. Manchin’s objections to the bill were not new^[5]—BBB negotiations with the lawmaker largely went quiet.

After a cooling-off period, many Democrats now seem open to making substantive changes to the package to address Sen. Manchin’s objections. At a press conference on January 19, 2022, President Biden acknowledged that BBB had to be broken up, and he remained optimistic that Congress will work with him to “get pieces—big chunks of the Build Back Better law signed into law.”^[6] On February 1, 2022, Sen. Manchin confirmed as much, indicating that the House-passed BBB is “dead,” while leaving the door open for a potentially smaller deal.^[7]

While the majority of press accounts paint a fairly pessimistic view of whether the “mostly dead” ^[8] BBB might be resuscitated in some form in the coming weeks or months, by some accounts there are actually hundreds of billions of dollars in both spending and payfors that (at points) Sen. Manchin has expressed a willingness to support.

In this report, we will explain why we think one of the largest payfors—the 15 percent corporate alternative minimum tax (AMT) on book income—may be falling out of favor as a potential revenue raiser were a smaller deal to be struck. Up to this point, it has actually been the spending—not the payfors—creating friction as Democrats attempt to strike a deal. While much of this report is focused on the views of Sen. Manchin, we would be remiss not to acknowledge that Sen. Sinema will surely continue to have an outsized role in the negotiations. (Recall that in October 2021, her views motivated an overhaul of BBB’s payfors away from the planned statutory income tax rate increases on corporations and individuals. ^[9] )  While Sen. Sinema has not publicly weighed in on the latest negotiations, we suspect her vote is still uncertain.

Any potential compromise deal that includes a “big chunk” of BBB would be a win for Democrats. While there remains a path to such a smaller deal, executing it will be extremely tricky. What is fairly clear to most everyone is that a deal in the $1.8 trillion range that looks similar to the offer Sen. Manchin made to President Biden on December 14, 2021 ¹⁰ is effectively off the table. The senator has since retracted the offer, ¹¹ and the concerns he cited in December 2021 (“the pandemic surges on, inflation rises and geopolitical uncertainty increases” ¹² ) are not expected to evaporate in the near-term. Our prediction is for a possible climate-change focused deal in the $500+ billion range, with one or more add-ons (most likely, healthcare). ¹³ 

As a quick reminder of what is at stake in the BBB negotiations, we have included a table below setting forth some of the major areas of spending ($1.598 trillion worth) and identifying the likely sticking points for the West Virginia senator (according to various press reports):

Although all of the details of Sen. Manchin’s December 14, 2021 offer to President Biden have not been made public (unlike the July 28, 2021 written offer²⁰Sen. Manchin made to Senate Majority Leader Chuck Schumer (D-NY)), press reports indicate that Sen. Manchin wanted to:

1. fund universal pre-K for 10 years (presumably at a cost of about $752 billion);
2. expand healthcare subsidies for 10 years for those who buy their insurance on the ACA marketplace (presumably at a cost of about $400 billion ²¹ ); and
3. include a modified version of the climate portion of the House-passed BBB bill (but, potentially, still keep it at between $500 billion and $600 billion ²² )

for a package that reflected total spending of as much as $1.8 trillion.

To pay for such a package (which is now off the table), Democrats could have used the payfors from the $1.75 trillion House-passed BBB bill (since updated to reflect minor Senate Finance Committee changes). Major payfors ($1.434 trillion worth) and Sen. Manchin’s likely position:

Climate-Change Focused Deal

Sen. Manchin, who chairs the Senate Energy and Natural Resources Committee, insists he is interested in finding “a path forward on important climate legislation” ³⁵ and has said he wants “to ensure our country is well positioned to remain the super power of the world while we inspire the rest of the world towards a cleaner environment.” ³⁶ On January 4, 2022, Sen. Manchin told reporters that—with regard to BBB—“the climate thing is one that we probably can come to agreement much easier than anything else” and there is reportedly agreement on about 95 percent of what is in the climate portion of the bill. ³⁷ 

BBB’s climate portion costs between $500 billion and $600 billion—which is also reportedly in the range of the climate-related provisions that Sen. Manchin included in his December 14, 2021 offer to President Biden. While it is possible that some smaller provisions may tag along with a more climate-focused package (for more on our predictions on healthcare versus preschool, see “Why We Think Healthcare Is Likely”), increasing the size, we wanted to explore what the payfors might be for a climate package.

Not Likely—15% Corporate Min Tax

We are hearing that the least likely offset (at least in its current form) is actually what turned out to be the largest House-passed BBB payfor and one that both Sen. Manchin and Sen. Sinema ³⁸ specifically supported: the 15 percent corporate AMT or so-called book min tax.

Congressional tax writers, including House Ways and Means Chair Richard Neal (D-MA), have cautioned that a tax calculated by reference to numbers disclosed on the financial statements of large corporations will cause complications. The American Institute of Certified Public Accountants said that the proposal “violates numerous elements of . . . good tax policy,” stressing that, if enacted, the proposal could have “many significant and potentially negative implications.” ³⁹ And the Tax Executives Institute (which represents in-house tax lawyers at some of the country’s largest corporations) wrote that introduction of a new book-based corporate AMT “would be neither simple nor administrable and would pose a competitive disadvantage to U.S.-headquartered businesses while increasing the incidence of unrelieved double taxation.” ⁴⁰ 

On February 2, 2022, all 14 Republican members of the Senate Finance Committee⁴¹penned a letter⁴²urging their Senate colleagues to reject efforts to impose a book minimum tax on U.S. companies, noting that such a tax “would have a devastating impact on many companies and sectors, including manufacturing, insurance, renewable energy, wireless, and projects relying on state and local financing.” ⁴³ 

Such criticism has motivated staff on the tax writing committees to work to tweak the proposal—which is 25 pages long—with the aim of lessening some of the perceived challenges. The new tax was slated to go into effect for taxable years beginning after December 31, 2022 and would have likely required the promulgation of regulations to help taxpayers comply with the new regime (a process that can take several months if not years for the Internal Revenue Service (IRS) and Treasury to accomplish). We think that if the proposal is still not ready for primetime, then there is a good chance it will be passed over. That is why the 15 percent corporate AMT may not end up as a payfor in a smaller, climate-focused BBB compromise.

While certain groups, including the Tax Foundation, have argued that the 15 percent book minimum tax was “the most economically damaging provision in [the House-passed BBB], reducing GDP by 0.1 percent and costing about 27,000 jobs,” ⁴⁴ its impact would not have been widespread. The tax only applies to corporations that report over $1 billion in annual profits averaged over a three-year testing period (taking into account aggregation rules that could apply the tax to a group of portfolio companies under common fund ownership). It is expected to especially impact those firms that rely on accelerated depreciation to reduce the cost of machinery and equipment (such as manufacturers).

According to an analysis by The Wall Street Journal, ⁴⁵  more than 60 companies in the S&P 500 reported more than $1 billion in book pretax income and had effective tax rates below 15 percent in 2019 or 2020. While not all of them would necessarily be subject to the book min tax—given the intricacies of how the tax is calculated—some of the companies named in the article as potentially at-risk include Amazon.com, Inc. (NASDAQ: AMZN), Pfizer Inc. (NYSE: PFE), Stanley Black & Decker, Inc. (NYSE: SWK), Archer-Daniels-Midland Company (NYSE: ADM) and Xcel Energy Inc. (NASDAQ: XEL). A similar analysis by The Washington Post ⁴⁶ also identified companies potentially at-risk, including: Verizon Communications Inc. (NYSE: VZ), Alphabet Inc. (NASDAQ: GOOGL), Morgan Stanley (NYSE: MS), Comcast Corporation (NASDAQ: CMCSA), Intel Corporation (NASDAQ: INTC), JPMorgan Chase & Co. (NYSE: JPM), PepsiCo, Inc. (NASDAQ: PEP), The Procter & Gamble Company (NYSE: PG), The Coca-Cola Company (NYSE: KO) and Facebook (now Meta Platforms, Inc.) (NASDAQ: FB).

A still rough but more considered approximation by Tax Analysts’ Martin Sullivan ⁴⁷ (that took into account expected increased foreign taxes) only resulted in about nine companies likely having to pay the proposed minimum book tax over a period of three years, including Berkshire Hathaway Inc. (NYSE: BRK.A), Bank of America Corporation (NYSE: BAC), Intel Corporation (NASDAQ: INTC), Verizon Communications Inc. (NYSE: VZ), Federal National Mortgage Association (Fannie Mae), Amazon.com, Inc. (NASDAQ: AMZN), AT&T Inc. (NYSE: T), The Goldman Sachs Group, Inc. (NYSE: GS) and NextEra Energy, Inc. (NYSE: NEE).

Likely—International Tax Changes

The most likely large payfor is actually the international tax changes—some $280 billion worth of tweaks to (among other things) the GILTI regime to ensure that the United States is on course to implement a 15 percent global minimum tax with a target effective date of 2023⁴⁸that is more compatible with what is required under the Organisation for Economic Co-operation and Development’s (OECD’s) Pillar Two model rules. This is necessary if the United States intends to live up to the global tax agreement commitment made by Treasury Secretary Janet Yellen in October 2021. ⁴⁹ 

Currently, GILTI is noncompliant with the global tax agreement both because the rate is currently too low (the effective rate, taking into account the foreign tax credit haircut, is currently set at 13.125 percent and is not scheduled to increase above the required 15 percent until 2026) and because it is calculated on an aggregate or blended basis (not the required jurisdictional or country-by-country basis). Failure to make changes to the GILTI regime by 2023 will mean that other countries can then impose top-up taxes on certain foreign income of U.S. multinationals—taxes that would not give those multinationals credit for the GILTI tax they pay to the United States (creating a double tax situation, a phenomenon that U.S. companies are anxious to avoid). ⁵⁰ However, even if lawmakers were to enact the proposed changes to GILTI, more changes may be required to ensure that the U.S. regime is fully compatible with the model rules. It is expected that by early February, the OECD will release commentary addressing this uncertainty. ⁵¹ 

While we expect that most of the international tax changes will be included as payfors, there is a good chance that one in particular will end up on the chopping block. We do not think that the new Section 163(n) limitation on interest expense in a worldwide group has a good chance of making it into the package this time around. If Section 163(n) applies to an entity in a multinational group, it would cap allowable interest expense deductions when the group’s debt is disproportionately located in the United States. Stakeholders have raised concerns about the breadth of the proposal. It applies across-the-board to U.S.- and foreign-parented multinationals and impacts borrowing both among related and unrelated parties. (Because of this, we did not include the estimated $23.5 billion in Section 163(n) revenue in any of our estimates.)

Likely—8% Surcharge on the Wealthy

The second most likely large payfor is probably the new Section 1A surcharge (also referred to as a surtax) on the wealthy. Raising an estimated $228 billion over 10 years, this surcharge would not only apply to wage or business income over the stated thresholds (a 5 percent surcharge on modified adjusted gross income (MAGI) over $10 million for married filing jointly or single individuals and an additional 3 percent surcharge on MAGI over $25 million) but also to any capital gains. Importantly, keeping the surcharge in as a payfor will ensure that the distributional effects of BBB’s revenue provisions will fall largely on high-income individuals.

The surcharge should not be confused with the proposed mark-to-market tax on billionaires that Senate Finance Committee Chair Ron Wyden (D-OR) unveiled October 27, 2021. ⁵² According to a preliminary revenue estimate by the Joint Committee on Taxation (JCT), the “Billionaires Income Tax” would have raised about $557 billion over 10 years. ⁵³ 

For those needing a quick refresher on the billionaires’ tax—it would impose a new mark-to- market (like) regime on the top 0.1 percent of taxpayers (those with more than $100 million in annual income or more than $1 billion in assets). Those impacted would have to pay tax each year (at the preferential 23.8 percent long-term capital gains plus net investment income tax rate (if eligible)) on any unrealized gains in tradeable, liquid assets (such as stocks traded on an established securities market).

A $1 billion exception would be provided for tradable stock in a single corporation so that such stock could instead be treated as a nontradable, illiquid asset. Nontradable assets (such as real estate, business interests and art) would only be taxed upon sale or transfer, but an additional interest tax (a so-called lookback charge or deferral recapture amount) would be charged (at a rate of about 1.22 percent, allocating the gain pro rata over the holding period). The amount of interest tax would be capped so that the total amount of interest tax plus the regular tax due could not be more than 49 percent of the gain.

While Sen. Manchin, upon seeing the details of the Wyden billionaires’ tax plan in late October, initially criticized it as divisive,⁵⁴there are reports that he may have since gotten comfortable with a modified version of the tax, actually including it in his December 14, 2021 offer to President Biden. ⁵⁵ Sen. Sinema, on the other hand, has seemed “open to soaking the rich with a ‘mark-to-market’ scheme,”⁵⁶but has raised concerns about the surcharge (specifically, she thinks owners of passthrough entities should be exempt from having to pay the surcharge on their passthrough income ⁵⁷ ).

If Sen. Manchin is back on board with the mark-to-market tax on billionaires and Sen. Sinema has soured a bit on the surcharge, then why do we think the surcharge is more likely?

First of all, the surcharge passed the House whereas the billionaires’ tax didn’t make it into either the House or Senate (Finance Committee) version of BBB. Second, the surcharge’s $228 billion revenue could largely be sufficient for what is needed to pay for a smaller, climate- change focused deal (between it and international—totaling $508 billion—you would be mostly there on revenue).

While we could see Sen. Manchin supporting using any excess revenue to pay down the deficit, we doubt that most Democrats would be willing to give up such a sizable payfor (the billionaires’ tax raises about $557 billion on its own) to cover past administrations’ fiscal excesses.

Finally, we generally agree with House Speaker Nancy Pelosi’s (D-CA) take on the billionaires’ tax—that the 107 pages of legislative language needs additional vetting, especially given that it could be subject to legal challenge.^[58]We suspect between the two—the surcharge and the billionaires’ tax—the surcharge will attract the least amount of backlash.

Effective Date and Timing Expectations

While the international tax changes generally had a delayed effective date (of 2023 in the case of GILTI, for example), the surcharge was drafted to be effective for taxable years beginning after December 31, 2021. If enacted in 2022 without modification, the surcharge provision would have retroactive effect. While lawmakers could raise taxes on the income and gains of certain individuals retroactively, we do not think they will do so in this situation. ⁵⁹ 

The main reason why we think that the effective date of the surcharge (assuming it is included as a payfor in a potential future scaled-down BBB package this year) will likely be pushed back a year (effective for taxable years beginning after December 31, 2022) is because we do not think lawmakers will be able to enact such legislation in the near future. The later into the calendar year we get, the easier if will be for lawmakers to simply push the effective date back to 2023.

Lawmakers’ to-do list in the coming weeks and months is hefty. There is the February 18 deadline to fund the government (which will likely result in another short-term stopgap ⁶⁰ ); President Biden’s first State of the Union address March 1; President Biden’s eventual nominee to replace retiring Justice Stephen G. Breyer will need to meet with and be confirmed by senators; and Democrats are working on conference negotiations to reconcile the separate manufacturing and global competitiveness bills (addressing, among other things, domestic semiconductor chip production) passed in the Senate (referred to as USICA ⁶¹) and the House (the America COMPETES Act ⁶² ).

Add to the complicated schedule the fact that Sen. Ben Ray Luján (D-NM) is not expected to return to work for some four to six weeks after suffering a stroke.⁶³Democrats cannot afford to lose even one member if they hope to pass a scaled-down version of BBB using reconciliation.

Speaking of the streamlined budget reconciliation process that could allow a mini BBB to pass without any Republican support, it is worth mentioning that Democrats still plan to use the same vehicle for this effort. That is, the smaller bill must comply with the reconciliation instructions contained in the FY2022 budget resolution (which should not, as a general matter, be difficult).⁶⁴ 

What lawmakers should be aware of, however, is that the clock is ticking to act on those instructions this fiscal year, which ends September 30, 2022. Further, there is some uncertainty as to whether Congress can adopt a FY2023 budget resolution without invalidating the current reconciliation bill (assuming it has not yet been enacted). ⁶⁵ Congress generally introduces a budget resolution for the coming fiscal year well before the start of the fiscal year, and if Democrats identify another legislative priority that they want to advance using reconciliation, they would effectively have to put it on pause if the ongoing BBB effort remains in limbo.

All that is to say that we do not think that a to-be-negotiated mini BBB will get Congress’s full attention until late spring or early summer. We would generally expect that such a mini BBB will either have been enacted or will be put to rest by August recess.

Why We Think Healthcare Is Likely

We predict that while there remains a chance that a potential climate-focused BBB deal could come together over the next several months, there could very well be non-climate focused spending included in such a deal. Two of the top front-runners are spending on healthcare (specifically, extending and enhancing the Affordable Care Act premium subsidies and closing the Medicaid coverage gap for low-income populations, which—combined—could cost between $277 billion and $400 billion over 10 years) and spending on preschool (specifically, funding universal preschool for 3- and 4-year-olds, which could cost about $752 billion over 10 years).

The reason why we think a healthcare add-on is more likely than a preschool add-on is because it has its own healthcare related revenue source that Democrats (especially Sen. Manchin and Sen. Sinema) seem prepared to support. After much negotiation with Sen. Sinema in particular, a combination of prescription drug price control provisions (largely centered around lowering prices through drug price negotiations, prescription drug inflation rebates and repeal of the prescription drug rebate rule) have been agreed to that would raise an estimated $297 billion over 10 years. While that may not be enough to pay for a full 10 years of the healthcare related spending detailed above, it gets close, and the spending could easily be dialed down in certain areas to fit the available revenue.

Note, however, that the $297 billion prescription drug price control score could shrink somewhat as a result of review by the Senate parliamentarian. Elizabeth MacDonough is reportedly still deliberating over whether any of the BBB provisions might be considered extraneous—in violation of the so-called Byrd Rule. ⁶⁶ For example, it is expected that capping the insurance co-pays associated with insulin (a prescription drug used by diabetics) at $35 per month may violate the Byrd Rule in-part, because—at least to the extent that it applies to private insurers as opposed to Medicare—it does not produce a change in federal spending. ⁶⁷ 

Prescription drug inflation rebates (a provision that would require drug manufacturers to pay rebates to the government if they increase the prices of their non-generic drugs faster than inflation) could also be similarly challenged, as the rebates may be calculated in a way that effectively imposes a price cap on what manufacturers can charge commercial insurers. ⁶⁸ 

SALT and Controlling Expectations

It is still very much unclear whether a BBB spending deal utilizing the available reconciliation vehicle will come together this year. But if an agreement coalesces, we would be surprised if it does not include some modification to the $10,000 limitation on deducting state and local taxes (the SALT deduction), as that is a make-or-break issue for some lawmakers. The $10,000 cap on the SALT deduction is currently scheduled to last for four more years (it goes away in 2026).

Many Congressional Democrats (especially those st-of-living states such as New York, New Jersey ⁶⁹ and California) have been pushing for either a full or partial repeal of the cap. While a full repethat represent high-coal of the cap would be costly (and would not look good on JCT’s distributional tables, as much of the benefit of such a repeal would accrue to the wealthy), lawmakers have been debating a partial repeal of the SALT cap (in one proposal, it would be raised from $10,000 to $80,000) that would actually raise revenue (about $15 billion of revenue over 10 years, by extending the cap out through 2031). ⁷⁰ Many rich people who would still be hurt by the proposed higher cap may be able to take advantage of passthrough entity (PTE) owner SALT cap workarounds that about 20 states have enacted. ⁷¹ 

We would also expect that other, smaller payfors may also be included in the deal—namely the 1 percent stock buyback excise tax (which raises about $124 billion and generally resonates with Democrats who think there are better ways for corporations to spend their profits).

We suspect Sen. Manchin’s concerns about inflation will continue to be a factor in the negotiations. In general, prices rise (inflation occurs) when demand (caused in part by the 2021 economic impact payments, which enabled many households to spend more) outpaces supply. Supply is not something that can be fixed overnight, as supply chain disruptions at ports continue (leaving store shelves bare) and as increasing numbers of individuals choose to leave the workforce (creating labor shortage issues exacerbated by the pandemic). Whether these pressures can be alleviated in part by a BBB bill (or at least will not be made worse by a BBB bill) remains a point of contention.

And, we should mention that there are at least two tax provisions that may end up in a lame duck (after the mid-term elections) “extenders” package if they are not fixed before then: retroactively repealing the 2022 change to Section 163(j) ⁷² (this was not included in the larger BBB bill) and retroactively repealing the 2022 change requiring 5-year amortization of research and development (R&D) expenses under Section 174 (this was included in the larger BBB bill). While it is theoretically possible that the Section 174 change—which, currently contemplated, would keep full expensing through 2025 before it would switch back to 5-year amortization— might sneak into a mini BBB bill ⁷³  (it would cost $4 billion), that is less likely for the Section 163(j) change (as it is much more expensive at around $80 billion over 10 years ⁷⁴ ).

As the pressure to make a deal and the behind-the-scenes dynamics between Sen. Manchin, Sen. Sinema and the rest of the Democratic caucus seem to change daily, we will continue to follow prospects and issue updates as warranted.

^{[1] Congress has not released a complete version of the House-passed Build Back Better Act (H.R. 5376) that incorporates the First and Second Managers Amendments (dated 11/6/2021 and 11/18/2021). Instead, you must refer to the 11/3/2021 Rules Committee Print 117-18 (here: https://rules.house.gov/sites/democrats.rules.house.gov/files/BILLS-117HR5376RH-RCP117- 18.pdf) and the subsequent modifications to it reflected in the First Manager’s Amendment, now Rules Committee Print 117-19 (here: https://rules.house.gov/sites/democrats.rules.house.gov/files/BILLS-117HR5376-RCP117-19.pdf) and the Second Manager’s Amendment (here: https://amendments-rules.house.gov/amendments/YARMUT_026_xml211118163438621.pdf).}

^{[2] https://www.finance.senate.gov/imo/media/doc/12.11.21%20Finance%20Text.pdf; According to an analysis by Doug Sword, the “tax provisions in the Senate version would raise $59 billion less than the House bill over 10 years. The JCT scores are the same on nearly 90 tax provisions, but different on 24,” in House and Senate Reconciliation Bills Differ on 24 Tax Provisions, Tax Notes, Feb. 1, 2022 (subscription required).}

^{[3] Ronn Blitzer, Manchin says he 'cannot vote' for Build Back Better: 'I've done everything humanly possible', Fox News Sunday, Dec. 19, 2021 (https://www.foxnews.com/politics/manchin-says-he-cannot-vote-for-build-back-better-ive-done-everything- humanly-possible); later the same day, Sen. Manchin released a statement that read, in part, “I have always said, ‘If I can’t go back home and explain it, I can’t vote for it.’ Despite my best efforts, I cannot explain the sweeping Build Back Better Act in West Virginia and I cannot vote to move forward on this mammoth piece of legislation” (https://www.manchin.senate.gov/newsroom/press-releases/manchin-statement-on-build-back-better-act).}

^{[4] John Wagner and Cleve R. Wootson Jr., Democratic bitterness, rage follow Manchin’s ‘no’ on Biden bill, Wash. Post, Dec. 20, 2021 (https://www.washingtonpost.com/politics/schumer-vote-despite-manchin/2021/12/20/dcdd202c-6186-11ec-bf70- 58003351c627_story.html).}

^{[5] “He had said a lot of this before,” reported Mike DeBonis, What you need to know about Joe Manchin’s hold on the Democratic agenda, Wash. Post, Dec. 20, 2021 (https://www.washingtonpost.com/politics/2021/12/20/manichin-bbb-hold/).}

^{[6] https://www.whitehouse.gov/briefing-room/speeches-remarks/2022/01/19/remarks-by-president-biden-in-press- conference-6/}

^{[7] “Still, Manchin cracked open the door for future talks on the bill, telling reporters: ‘Whatever we come up with, anything on the table — you talk about,’” reported Joseph Zeballos-Roig, Joe Manchin says Biden's Build Back Better package is 'dead' but cracks the door open to future talks, Insider, Feb. 1, 2022 (https://www.businessinsider.com/joe-manchin-says-bidens-build- back-better-package-is-dead-2022-2). Some reports indicate that Sen. Manchin has recently restarted conversations with Democrats on a new version of BBB. Manchin “recently restarted discussions over the bill and has indicated that he might support a scaled-back plan,” as reported by Karl Evers-Hillstrom, 72 percent of West Virginia voters back Manchin's call to suspend Build Back Better talks: poll, The Hill, Jan. 27, 2022 (https://thehill.com/homenews/senate/591678-72-percent-of-wv- voters-back-manchins-decision-to-suspend-build-back-better); “In a West Virginia broadcast interview, Mr. Manchin said talks had restarted on the bill,” as reported by Andrew Deuhren, Democrats Put Build Back Better in Joe Manchin’s Court, Wall St. J., Jan. 30, 2022 (https://www.wsj.com/articles/democrats-put-build-back-better-in-joe-manchins-court-11643554801); “Senator Joe Manchin said during an interview on 27 January that he is in discussions with Democrats regarding a new version of the Build Back Better Act (BBBA). He said: ‘There's a lot of conversation going on now. They've been reaching out.’ The Senator said that while he is open to negotiations, he also pointed to inflation in saying he ‘wants to be realistic.’” (https://taxnews.ey.com/news/2022-0161-us-international-tax-this-week-for-january-28).}

^{[8] Paul, Kane, Mostly dead or slightly alive? Democrats don’t yet know if Build Back Better can be revived, Wash. Post, Jan. 29, 2022 (https://www.washingtonpost.com/politics/2022/01/29/build-back-better-democrats/).}

^{[9] In the latest BBB draft, the top corporate and individual income tax brackets will remain at 21 percent and 37 percent, respectively—rates put in place by the Tax Cuts and Jobs Act and that most Democrats pledged to reverse.}

^{[10] Jeff Stein and Tyler Pager, Manchin’s private offer to Biden included pre-K, climate money, Obamacare — but excluded child benefit, Wash. Post, Dec. 20, 2021 (https://www.washingtonpost.com/us-policy/2021/12/20/manchin-biden-child-tax-credit/).}

^{[11] Jeff Stein, Manchin’s $1.8 trillion spending offer appears no longer to be on the table, Wash. Post, Jan. 8, 2022 (https://www.washingtonpost.com/us-policy/2022/01/08/manchin-white-house-talks/).}

^{[12] https://www.manchin.senate.gov/newsroom/press-releases/manchin-statement-on-build-back-better-act}

^{[13] Jacqueline Alemany and Theodoric Meyer, Moderate House Democrats urge Biden to pass climate provisions in Build Back Better, Wash. Post, Jan. 31, 2022 (https://www.washingtonpost.com/politics/2022/01/31/moderate-house-democrats-urge- biden-pass-climate-provisions-build-back-better/).}

^{[14] The descriptions are pulled in part from the White House’s Build Back Better resource (https://www.whitehouse.gov/build- back-better/ ) and many of the estimates in this table are from the Analysis of Potential Modification to Selected Section of H.R. 5376 prepared by the Congressional Budget Office, dated Dec. 10, 2021 (https://www.cbo.gov/system/files/2021-12/57673- BBBA-GrahamSmith-Letter.pdf)} 

^{[15] Sources include: Jeff Stein and Tyler Pager, Manchin’s private offer to Biden included pre-K, climate money, Obamacare — but excluded child benefit, Wash. Post, Dec. 20, 2021 (https://www.washingtonpost.com/us-policy/2021/12/20/manchin-biden- child-tax-credit/); Jeff Stein, Manchin’s $1.8 trillion spending offer appears no longer to be on the table, Wash. Post, Jan. 8, 2022 (https://www.washingtonpost.com/us-policy/2022/01/08/manchin-white-house-talks/); Emily Cochrane and Michael D. Shear, Biden Tries to Salvage Domestic Policy Bill After Rift With Manchin, N.Y. Times, Dec. 20, 2021 (https://www.nytimes.com/2021/12/20/us/politics/build-back-better-schumer-manchin.html); Congress returns as Build Back Better Act faces uncertain path following Manchin objections, EY, Jan. 3, 2022 (https://taxnews.ey.com/news/2022-0001- congress-returns-as-build-back-better-act-faces-uncertain-path-following-manchin-objections).}

^{[16] Specifically, Sen. Manchin recently said he wants to “use all the fossil industry in the cleanest, absolute possible versions that you can,” as reported by Alan Fram, Manchin, key Dem, says Build Back Better bill is 'dead', Associated Press, Feb. 1, 2022 (https://abcnews.go.com/Politics/wireStory/manchin-key-dem-build-back-bill-dead-82603192).}

^{[17] https://www.cbo.gov/system/files/2021-11/57631-Paid-Leave.pdf}

^{[18] It is possible that the 10-year cost of these provisions may end up scoring closer to $277 billion.}

^{[19] “Whatever we raise, I want to ensure there’s money going towards paying down debt, we have to start taking care of our debt and be responsible,” Sen. Manchin said, as reported by Eli Okun and Garrett Ross, Manchin taps the brakes on BBB again, Politico Playbook PM, Dec. 13, 2021 (https://www.politico.com/newsletters/playbook-pm/2021/12/13/manchin-taps-the- brakes-on-bbb-again-495444); see also https://www.manchin.senate.gov/newsroom/press-releases/manchin-statement-on- build-back-better-act.}

^{[20] In Sen. Manchin’s July 28, 2021 written offer to Sen. Schumer, Sen. Manchin indicated that he would support a reconciliation bill that spent $1.5 trillion but could raise more than that, with any excess used for deficit reduction. With respect to any climate provisions, Sen. Manchin insisted that the bill be fuel neutral, with “spending on innovation, not elimination.”}

^{[21] It is possible that the 10-year cost of these provisions may end up scoring closer to $277 billion.}

^{[22] https://taxnews.ey.com/news/2022-0001-congress-returns-as-build-back-better-act-faces-uncertain-path-following- manchin-objections}

^{[23] Most of the revenue estimates (those not otherwise marked) are from the Joint Committee on Taxation (JCT) (JCX-46-21) (https://www.jct.gov/publications/2021/jcx-46-21/).}

^{[24] This number comes from the “Very Preliminary” JCT score, dated Dec. 20, 2021, of the Finance Committee’s BBB tax title (as published by Tax Notes, subscription required), which is $21 billion less than the JCT score in JCX-46-21.}

^{[25] This number comes from adding up the Outbound International Provisions and the Inbound International Provisions in the “Very Preliminary” JCT score, dated Dec. 20, 2021, of the Finance Committee’s BBB tax title (as published by Tax Notes, subscription required).}

^{[26] Changes involve the global intangible low-taxed income (GILTI) rules, the deduction for foreign derived intangible income (FDII), the deduction for qualified business asset investment (QBAI) and the base erosion and anti-abuse tax (BEAT) regime.}

^{[27] Erik Wasson and Laura Davison, Democrats Wrestle With Where to Cut Wish List to Satisfy Manchin, Daily Tax Report, Dec. 20, 2021 (https://news.bloombergtax.com/daily-tax-report/democrats-wrestle-with-where-to-cut-wish-list-to-satisfy-manchin).}

^{[28] Sen. Manchin said that “there’s a patriotic duty that you should be paying something to this great country to give you the protection and the support and the opportunities…Everyone should pay their fair share,” as reported by Jonathan Ponciano, Billionaire Tax Dead On Arrival After Manchin Blasts Proposal Mere Hours After Its Release, Forbes, Oct. 27, 2021 (https://www.forbes.com/sites/jonathanponciano/2021/10/27/billionaire-tax-dead-on-arrival-after-manchin-blasts-proposal- mere-hours-after-its-release/).}

^{[29] “‘I don’t like the connotation that we’re targeting different people.’ People, he added, that ‘contributed to society’ and ‘create a lot of jobs and invest a lot of money and give a lot to philanthropic pursuits.’” Sen. Manchin said, as reported by Jonathan Weisman, Manchin denounces the Democrats’ plan to tax billionaires as divisive, N.Y. Times, Oct. 27, 2021 (https://www.nytimes.com/2021/10/27/us/politics/manchin-billionaires-tax.html).}

^{[30] See the tab for Subtitle I. Drug Pricing, 2022-2031 at https://www.cbo.gov/publication/57626.}

^{[31] “Manchin said that he would only support a $1.75 trillion bill that truly overhauls the U.S. tax code to make it fairer and that lowers the cost of a broader array of prescription drugs than the current bill…‘If you’re going to negotiate then negotiate. Don’t start picking and choosing and playing games,’ Manchin said of the drug provisions,” as reported by Erik Wasson, Manchin Outlines Tax, Policy Changes He’d Want in Biden Bill, Bloomberg, Dec. 20, 2021 (https://www.bloomberg.com/news/articles/2021-12-20/manchin-outlines-tax-policy-changes-he-d-want-in-biden-bill).}

^{[32] Sen. Sinema “negotiated a prescription drug reform deal that’s being added to the roughly $1.75 trillion spending bill. Though it falls short of progressive hopes of huge reform, [the senator] believes it balances lowering costs for seniors without stifling innovation, according to an aide,” as reported by Burgess Everett and Marianne Levine, Sinema strikes back, Politicopro, Nov. 17, 2021 (subscription required).}

^{[33] CBO letter: https://www.cbo.gov/system/files/2021-12/hr5376_letter.pdf}

^{[34] Erik Wasson and Laura Davison, Democrats Wrestle With Where to Cut Wish List to Satisfy Manchin, Daily Tax Report, Dec. 20, 2021 (https://news.bloombergtax.com/daily-tax-report/democrats-wrestle-with-where-to-cut-wish-list-to-satisfy-manchin).}

^{[35] Michael Kranish and Anna Phillips, Manchin cites a blind trust to justify climate votes, Wash. Post, Dec. 13, 2021 (https://www.washingtonpost.com/politics/2021/12/13/manchin-blind-trust-enersystems-stock-climate-change/).}

^{[36] https://www.manchin.senate.gov/newsroom/press-releases/manchin-statement-on-infrastructure-and-reconciliation- negotiations}

^{[37] Maxine Joselow, Sen. Manchin voiced his strongest support yet for Democrats' climate provisions. Will it be enough?, Wash. Post, Jan. 5, 2022 (https://www.washingtonpost.com/politics/2022/01/05/sen-manchin-voiced-his-strongest-support-yet- democrats-climate-provisions-will-it-be-enough/).}

^{[38] Sen. Sinema tweeted Oct. 26, 2021 that the proposal “represents a commonsense step toward ensuring that highly profitable corporations . . . pay a reasonable minimum corporate tax” (https://twitter.com/SenatorSinema/status/1453104201463123973).}

^{[39] https://s3.amazonaws.com/files.formstack.com/uploads/2805976/56175896/879802280/56175896_aicpa_comments_on_corp_min_tax_on_book_income_10_28_21_submit_cees.pdf}

^{[40] https://www.tei.org/sites/default/files/advocacy_pdfs/TEI%20Comments%20on%20BBBA%20Corporate%20and%20International%20Tax%20Reforms_FINAL_12.9.21.pdf}

^{[41] John Barrasso, M.D. (R-WY), Richard Burr (R-NC), Bill Cassidy (R-LA), M.D., John Cornyn (R-TX), Mike Crapo (R-ID), Steve Daines (R-MT), Charles E. Grassley (R-IA), James Lankford (R-OK), Rob Portman (R-OH), Ben Sasse (R-NE), Tim Scott (R-SC), John Thune (R-SD), Pat Toomey (R-PA), Todd Young (R-IN)}

^{[42] Press Release, Senate Finance Committee Ranking Member, Finance Committee Republicans: Congress Should Close the Book on the Failed Book Minimum Tax (Feb. 2, 2022) (https://www.finance.senate.gov/ranking-members-news/finance-committee- republicans-congress-should-close-the-book-on-the-failed-book-minimum-tax).}

^{[43] Letter: https://www.finance.senate.gov/imo/media/doc/finance_republicans_on_book_minimum_tax.pdf}

^{[44] House Build Back Better Act: Details & Analysis of Tax Provisions in the Budget Reconciliation Bill, Tax Foundation, Dec. 2, 2021 (https://taxfoundation.org/build-back-better-plan-reconciliation-bill-tax/).}

^{[45] Theo Francis and Kristin Broughton, Who Could Pay More With a 15% Corporate Minimum Tax? Not Just Amazon, Wall St. J., Oct. 28, 2021 (https://www.wsj.com/articles/who-could-pay-more-with-a-15-corporate-minimum-tax-not-just-amazon-11635429418).}

^{[46] Kevin Schaul, Democrats’ minimum tax proposal could hit these ultra-profitable corporations, Wash. Post, Nov. 5, 2021 (https://www.washingtonpost.com/business/2021/11/05/minimum-corporate-tax-rates/).}

^{[47] Martin A. Sullivan, Estimated Effects of Proposed 15 Percent Minimum Tax on Individual Companies, Tax Notes, Nov. 1, 2021 (subscription required).}

^{[48] Pillar Two is technically comprised of three rules: the income inclusion rule (this is essentially GILTI with changes), the undertaxed payment rule and the subject to tax rule. Countries that voluntarily adopt the rules are targeting a 2023 effective date for the income inclusion and subject to tax rules and 2024 for the undertaxed payment rule.}

^{[49] Paul Hannon and Richard Rubin, Corporate Taxes Poised to Rise After 136-Country Deal, Wall St. J., Oct. 8, 2021 (https://www.wsj.com/articles/countries-agree-to-global-deal-to-curb-tax-avoidance-11633709979).}

^{[50] Andrew Duehren, Democrats Put Build Back Better in Joe Manchin’s Court, Wall St. J., Jan. 30, 2022 (https://www.wsj.com/articles/democrats-put-build-back-better-in-joe-manchins-court-11643554801); Richard Rubin, Global Tax Deal Would Undercut U.S. Tax Breaks, Businesses Warn, Wall St. J., Feb. 3, 2022 (https://www.wsj.com/articles/global-tax- deal-would-undercut-u-s-tax-breaks-businesses-warn-11643896802).}

^{[51] Press Release, OECD, OECD releases Pillar Two model rules for domestic implementation of 15% global minimum tax (Dec. 20, 2021) (https://www.oecd.org/tax/beps/oecd-releases-pillar-two-model-rules-for-domestic-implementation-of-15-percent- global-minimum-tax.htm).}

^{[52] Press Release, Senate Finance Committee Chairman, Wyden Unveils Billionaires Income Tax (Oct. 27, 2021) (https://www.finance.senate.gov/chairmans-news/wyden-unveils-billionaires-income-tax); legislative text: https://www.finance.senate.gov/imo/media/doc/Billionaires%20Income%20Tax.pdf}

^{[53] Press Release, Senate Finance Committee Chairman, Wyden Statement on Billionaires Income Tax Score (Nov. 5, 2021) (https://www.finance.senate.gov/chairmans-news/wyden-statement-on-billionaires-income-tax-score).}

^{[54] “‘I don’t like the connotation that we’re targeting different people.’ People, he added, that ‘contributed to society’ and ‘create a lot of jobs and invest a lot of money and give a lot to philanthropic pursuits.’” Sen. Manchin said, as reported by Jonathan Weisman, Manchin denounces the Democrats’ plan to tax billionaires as divisive, N.Y. Times, Oct. 27, 2021 (https://www.nytimes.com/2021/10/27/us/politics/manchin-billionaires-tax.html).}

^{[55] “Manchin’s offer to the White House — details of which The Washington Post reported earlier this week — included a list of spending and revenue proposals that he supports. Manchin listed the tax on billionaire wealth as an option toward the bottom of his list, the people said. It is unclear whether Manchin’s plan included a revenue estimate. The people spoke on the condition of anonymity to discuss the private offer,” as reported by Jeff Stein, Manchin told White House he would support version of tax on billionaires, Wash. Post, Dec. 24, 2021 (https://www.washingtonpost.com/us-policy/2021/12/24/manchin-sinema-biden- bbb/).}

^{[56] As reported by John Bresnahan, Anna Palmer and Jake Sherman, NEW: Inside the plan to isolate Sinema, Punch-Bowl News Am, Oct. 21, 2021 (https://punchbowl.news).}

^{[57] Jeff Stein, Manchin told White House he would support version of tax on billionaires, Wash. Post, Dec. 24, 2021 (https://www.washingtonpost.com/us-policy/2021/12/24/manchin-sinema-biden-bbb/).}

^{[58] Jeff Stein, Democrats’ lofty tax agenda imperiled by resistance from within, Wash. Post, Nov. 11, 2021 (https://www.washingtonpost.com/us-policy/2021/11/11/billionaire-tax-democrats-wyden/).}

^{[59] Although the surcharge is a new tax and not a statutory rate increase, it will nevertheless essentially result in an increase in the effective tax rate paid on ordinary income and capital gains by certain individuals. As we have previously reported, past increases to the capital gains tax rate have generally been prospective (see “Handicapping Potential Effective Dates for Tax Reform Based on Historical Precedent” (Feb. 8, 2017); “Predicting How Biden’s Tax Hikes Would Impact Business” (Sept. 10, 2020); and “Uncertainties Associated with Biden’s Capital Gains Tax Proposal Likely to Weigh on Markets” (April 4, 2021)}

^{[60] “A stopgap spending bill likely, even as 'topline number' is close,” as reported by John Bresnahan, Anna Palmer and Jake Sherman, Will the RNC up pressure on House Republicans?, Punchbowl News Am, Feb. 4, 2022 (https://punchbowl.news).}

^{[61] S. 1260 United States Innovation and Competition Act of 2021 (USICA), which the Senate passed back in June 2021, but as the House is considering its own version, a lengthy conference process is expected.}

^{[62] H.R. 4521, the America Creating Opportunities for Manufacturing Pre-Eminence in Technology and Economic Strength (America COMPETES) Act of 2022, which the House passed Feb. 4, 2022.}

^{[63] Lisa Mascaro and Farnoush Amiri, Sen. Luján to be out at least 4 weeks, Biden agenda at risk, Associated Press, Feb. 2, 2022 (https://www.abqjournal.com/2466755/sen-lujan-to-be-out-at-least-4-weeks-biden-agenda-at-risk.html).}

^{[64] See the Concurrent Resolution on the Budget for Fiscal Year 2022 (S. Con. Res. 14), which was agreed to in the House Aug. 24, 2021 and in the Senate Aug. 11, 2021 (https://www.congress.gov/117/bills/sconres14/BILLS-117sconres14es.pdf).}

^{[65] Paul M. Krawzak, Splitting up budget package carries procedural risks, Roll Call, Jan. 21, 2022 (https://rollcall.com/2022/01/21/splitting-up-budget-package-carries-procedural-risks/)}

^{[66] Codified at 2 USC §644}

^{[67] Dan Diamond, Democrats’ plan to cap consumer insulin costs faces GOP threat, skeptical advocates, Wash. Post, Dec. 13, 2021 (https://www.washingtonpost.com/health/2021/12/13/35-dollar-cap-insulin-build-back-better-act/).}

^{[68] Alice Miranda Ollstein and Megan Wilson, Dems’ plan to limit drug price inflation faces test in Senate, Politico, Nov. 13, 2021 (https://www.politico.com/news/2021/11/13/democrats-drug-prices-521213);}

^{[69] Sen. Bob Menendez (D-N.J.), who wants the SALT cap repealed, is “raising the specter of making his own Manchin-esque stand, he scoffs at suggestions his colleagues can walk away from the issue,” as reported by Brian Faler, SALT cap still bedevils Democrats as they plot next move on spending bill, Politicopro, Feb. 4, 2022 (subscription required).}

^{[70] A SALT cap compromise is still actively being negotiated. One proposal (as reflected in Rules Committee Print 117-19) would have increased the cap from $10k to $80k but extended it to apply through 2031 instead of 2025. However it has been reported that that proposal “was dead before the legislation reached the Senate [as critics say] it gave too much to the well-to-do,” as reported by Brian Faler, SALT cap still bedevils Democrats as they plot next move on spending bill, Politicopro, Feb. 4, 2022 (subscription required).}

^{[71] Notice 2020-75; 2020-49 IRB 1453.}

^{[72] So that the limit is not reduced to 30% of earnings before interest and taxes (EBIT) but remains at 30% of EBITDA, adding back in depreciation and amortization.}

^{[73] Note that there is also an effort to get this change added to either an omnibus spending bill or a continuing resolution, but there is a concern that in doing so, Democrats could be sending the message that they “are giving up on their signature package.” Alternatively, it could be added to the USICA/America COMPETES Act, which could take long to conference, giving lawmakers more time “to see what happens with Build Back Better,” as reported by Doug Sword, Build Back Better Clouds Path for Rolling Back R&D Amortization, Tax Notes, Feb. 4, 2022 (subscription required).}

^{[74] Although this is not an official JCT score, the Tax Foundation has estimated as much (see Cody Kallen, The Interest Limitation Pile-On, Tax Foundation, Dec. 10, 2021 (https://taxfoundation.org/biden-interest-limitation/)). An extension for a shorter period would cost less but may meet resistance from Sen. Manchin.}