Skip to Content
November 19, 2021 Article 5 min read
On November 19, the House passed the Build Back Better Act, which is now heading to the Senate for further consideration. This concludes a lengthy period of deliberation in the House and is a significant milestone in the legislative process.
Person at government buildingOn November 19, the House passed the Build Back Better Act (BBBA), which is now on its way to the Senate for further consideration. This concludes a lengthy period of deliberation in the House and is a significant milestone in the legislative process. The Senate is expected to make additional changes as the bill continues to evolve. Here are our initial reactions to what the most recent developments mean and what we expect in the coming weeks.

What happened?

The House Ways and Means Committee approved an initial draft of the tax provisions of the BBBA on September 15, after which progress slowed considerably due to continued negotiations among Democratic members of Congress and the White House. On October 28, a high-level framework deal was released alongside an updated draft of the full legislation, including significantly slimmed-down tax proposals. The House Rules Committee released a further revised version of the BBBA on November 3, and a vote on the new version was postponed until the Congressional Budget Office (CBO) compiled a revenue impact analysis of the revised bill. Following the release of the CBO analysis and the adoption of limited procedural amendments, the bill was passed on November 19 along a party-line vote by Democratic members.

The BBBA: What’s in the bill?

The BBBA includes social, environmental, and economic investment programs, in addition to tax changes. We previously concluded a detailed analysis of the BBBA tax proposals based on the legislative text that emerged from the House Rules Committee on November 3, which was amended further on November 5. The bill’s tax proposals are essentially unchanged from that version, with major tax changes like the increased individual, corporate, and capital gain rates continuing to be excluded.

Several significant changes remain in the BBBA, and the most impactful proposals include:

  • A 5% tax surcharge on individual taxpayers with annual modified adjusted gross income (MAGI) exceeding $10 million and an additional 3% tax surcharge on MAGI exceeding $25 million. Significantly lowered thresholds would apply to estates and trusts. This surcharge, which is applicable to all types of income, replaced prior proposals to alter the top tax rates on ordinary income and capital gains.
  • An expansion of the 3.8% net investment income tax to active business income of trusts and high-income individual taxpayers.
  • An increased state and local tax (SALT) deduction cap of $80,000 for 2021 through 2030, and a cap of $10,000 for 2031.
  • A 15% alternative minimum tax on the profits of corporations reporting over $1 billion in annual book income.
  • A 1% surcharge on corporate stock buyback transactions made by publicly traded corporations.
  • IRA limitations for high-income taxpayers who have annual income exceeding $400,000, including a cap on IRA contributions, a minimum distribution requirement for IRA accounts with balances over $10 million, and restrictions on converting traditional IRAs into Roth IRAs.

The BBBA continues to provide for investment in IRS enforcement funding, extend the child tax credit and make refundability of the credit permanent, and keep a permanent limitation on excess business losses.

See our November 5 alert for further details of the tax provisions currently included in the BBBA.

Remaining questions

Because the BBBA is included as part of the budget reconciliation package, it will have to be evaluated in the Senate for compliance with stringent procedural requirements that restrict the provisions that can be included in the bill. It’s largely believed that the reconciliation package as passed by the House does not fully comply with these restrictions, and amendments to the bill are expected in the Senate.

Key Biden administration tax proposals that didn’t make it into the House-passed version of the BBBA face a similar uphill battle in the Senate, making it unlikely that they’ll be reintroduced. This includes proposals such as limiting deferral of gain in like-kind exchanges, recognizing capital gains on the transfer of many assets by gift or at death, and creating a comprehensive bank account reporting regime. Proposals such as Senator Ron Wyden’s changes to partnership tax allocations, basis adjustments, and allocation of partnership liabilities are more likely to be considered during ongoing negotiations and redrafting. However, the overall goal of moving the BBBA through the Senate quickly may make it more difficult to include complex items such as the partnership provisions. Reworking the House’s changes to the SALT cap is also likely, as several senators have voiced concerns over raising the cap for taxpayers of all income levels.

Although many of the original tax proposals are excluded from the BBBA, increased funding for IRS enforcement remains, and is likely to remain in the final version of the bill. This provision reflects a continuing trend toward increasing IRS enforcement resources, and taxpayers will likely continue to see developments on this front.

What’s next?

The House passage of the BBBA is a significant step toward final passage of the bill. However, there are several possible paths to move the BBBA toward enactment, depending on the actions taken by the Senate and the House in the coming weeks. It still appears that there is a lack of consensus within the Democratic Party over the acceptable cost of the BBBA and the tax increases that would fund such spending. As such, we expect to see additional changes made to the bill and some of the prior tax proposals revisited in the coming weeks. However, the final details for most tax proposals are coming into clearer focus, so additional changes will likely be incremental.

The debt ceiling and government funding deadlines arrive in early December, before the BBBA is expected to become law. As a result, passing a continuing resolution to prevent an interruption in federal funding and an increase to the government’s borrowing limit will also be key parts of negotiations in the coming weeks. Assuming the Senate amends the bill to address procedural requirements and to bridge the policy gap between moderate and progressive Democratic senators, the BBBA is expected to be passed by the Senate sometime in December and sent back to the House for a final vote. If the House wants to make additional changes to the bill, the House and Senate will hold a conference to bridge those differences and both chambers will need to vote again on the bill that emerges from that conference. Each of these steps takes considerable time, meaning that any passage of the BBBA would likely not occur any earlier than mid-to-late December.

Continue to monitor our Outlook on Tax Rates and Policy Changes resource center for updates as the BBBA works its way through Congress.