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Will Democrats Trade USICA for a New BBB?

Congress is back from their holiday recess, and winds are shifting on Capitol Hill as Democrats will have to decide what policies to advance this month: a budget reconciliation package or the semiconductor/domestic manufacturing legislation (USICA)—because it looks like there is only enough political capital to get one of these passed during this session. 

  • Senate Minority Leader Mitch McConnell tweeted: “Let me be perfectly clear: there will be no bipartisan USICA as long as Democrats are pursuing a partisan reconciliation bill.”
    • This could be problematic for the reinstatement of full R&D expensing since there was a lot of pressure to include this provision in the domestic manufacturing bill.  
  • Meanwhile, Senate Majority Leader Chuck Schumer and Sen. Joe Manchin are continuing to hash out a $1 trillion budget reconciliation package to replace the Build Back Better Act (BBB) with hopes of reaching a deal before the August recess. If a deal is reached, Congress may keep working into the August recess to get the bill passed. 
    • To start, Schumer introduced legislative text reflecting a new agreement among all 50 Senate Democrats to allow Medicare to negotiate prescription drug costs and to cap patient out-of-pocket costs at $2,000 per year, with the ability to make monthly payments.
    • Next, the Senate Parliamentarian will review the proposal to make sure it conforms with Senate budget reconciliation rules.
    • As a reminder, a budget reconciliation bill would only need 50 votes in the Senate.
  • This proposed text does not yet include any tax policy or energy provisions. 
    • However, Senate Democrats allegedly have a deal to impose a 3.8% health surcharge on “pass-through” income for business owners who make more than $400,000 annually ($500,000 for couples) to generate revenue to boost Medicare’s solvency. 
    • The Senate Finance Committee is allegedly working on language to rework the 15% domestic book tax included in the Senate version of the Build Back Better Act
    • The proposed 1% excise tax on stock repurchases by publicly traded companies that was in the House version of the BBB could also survive. Here is the original proposal on this, but it is likely to be further modified.
    • No deal has yet been reached on SALT cap relief. 

Keep in mind that Congress only has until July 29 to finish up their business before they recess for the month of August. They’ll come back in September for two weeks to likely pass a continuing resolution to fund the government through early December. So, if a new BBB is going to happen, it has to happen this month. 

In Other News

  • Rep. Jackie Walorski introduced the Fostering Innovation and Research to Strengthen Tomorrow (FIRST) Act, which proposes to double the R&D tax credit and to allow more small business startups to access the credit. 
    • Specifically, the bill would: 
      • Double the “traditional” R&D tax credit from 20% to 40%.
      • Double the Alternative Simplified Credit (ASC) from 14% to 28%.
      • For companies with no history of U.S. research in the past three years, the credit would increase from 6% to 14% of R&D spending. 
      • Startup companies with relatively low income in the past five years would be able to take one of the above credits as a credit against Social Security payroll taxes. The limit on the amount they may claim would double from $250,000 to $500,000.
    • Note, this bill is unlikely to pass in the current Congress as legislators focus on other priorities. However, it could gain traction in Congress in 2023.
  • Reps. Debbie Dingell and Haley Stevens reintroduced the Vehicle Innovation Act of 2022, which seeks to promote investments in research and development of clean vehicle technologies.
    • Bipartisan companion legislation has been introduced in the Senate.

In Case You Missed It

  • The Electronic Tax Administration Advisory Committee released its annual report to Congress. The report includes recommendations focused on budget support for the IRS and enhancements to e-filing.
  • The Office of Inspector General at the U.S. Small Business Administration (SBA) issued a report of its review of the SBA’s award and payment practices used to administer the Shuttered Venue Operators Grant (SVOG) program. 
  • The Joint Committee on Taxation published a document titled “Overview of the Federal Tax System as in Effect for 2022,” with five sections: individual income tax; corporate income tax; estate, gift, and generation skipping transfer taxes; social insurance taxes; and major excise taxes.
  • Senate Finance Committee Chair Ron Wyden released an interim report from his investigation into Big Pharma’s tax practices.
  • The IRS announced tax relief for victims of storms, tornadoes, and flooding in Oklahoma and Montana.
  • The IRS released proposed regulations that say foreign-currency options shouldn’t be considered foreign-currency contracts for tax purposes.
  • The IRS also released Rev. Proc. 2022-32 with a new, simplified method for obtaining an extension to make a “portability” election which allows a surviving spouse to apply a deceased spouse’s unused exclusion amount to their own transfers during life or at death. 

This newsletter features developing content that is subject to change at any time. It does not constitute legal or tax advice. Consult your professional advisors prior to acting on the information set forth herein. 

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