Congress has returned from recess this week to a packed agenda and not much time before their scheduled summer recess. Senate Majority Leader Chuck Schumer, D-New York, and Sen. Joe Manchin, D-West Virginia, have continued to discuss budget reconciliation over the last couple of months, making some progress over the July 4 recess. However, much remains to be done.
In addition, there is other legislation to be considered. The Senate is scheduled to leave D.C. on August 5, and the House leaves on July 29 to begin campaigning for the midterm elections.
Yes, it’s possible that both chambers could be kept in session beyond those dates, but members of both parties are anxious to get out on the campaign trail ahead of the midterm elections in November. Also, keep in mind that a reconciliation bill must be passed before the government fiscal year ends on September 30. Much work needs to be done in a mere few weeks.
Reconciliation bill: where are we?
The following two bill components reportedly have been agreed to by Schumer and Manchin:
1. Drug pricing: This bill provision makes four key changes to drug pricing. Under this provision:
- Medicare is allowed to negotiate drug prices and place caps on drug price inflation.
- Annual out-of-pocket drug costs for Medicare beneficiaries are limited to $2,000.
- Vaccines are free for those on Medicare.
- The government would provide additional help for lower-income seniors to help pay for prescription drugs.
Ten drugs would be subject to bargaining initially, with prices going into effect in 2026. As many as 10 additional drugs would be subject to price negotiation in 2029.
This provision was submitted to the parliamentarian for review to determine if it meets strict rules for inclusion in a budget reconciliation bill requiring a simple majority for passage.
2. Net investment income tax: An expansion of the net investment income tax to cover more income from pass-through businesses is the first tax component of the scaled-down budget reconciliation the two senators agreed to include in their revamped reconciliation bill.
The Affordable Care Act established the 3.8% NIIT. Also known as the unearned income Medicare contribution, it currently applies to individual filers making more than $200,000 or $250,000 for joint filers, trusts and estates.
Under the proposal, the NIIT would apply to individual filers making more than $400,000 or $500,000 for joint filers, trusts and estates and be expanded to apply to income derived in the ordinary course of a trade or business.
Additional revenues generated from this increase will be used to shore up the government-run Medicare health care program for the elderly and disabled.
What remains to be agreed upon?
As of this writing, there is still no agreement between the senators on what many consider the most difficult portion of the reconciliation package: a provision on tackling climate change. Topics being discussed include:
- An energy incentive;
- A broader tax increase on corporations;
- A potential 15% corporate alternative minimum tax; and,
- An additional tax on wealthy individuals.
Uncertainty remains on whether other pieces of the original Build Back Better agenda — such as extending Child Tax Credits, additional funds for education, and senior long-term home care — will be included.
The same uncertainty exists for federal subsidies for electric vehicles and new infrastructure spending to support them.
There is also no word yet on any agreement regarding relief for the $10,000 limit on the federal deduction for state and local taxes, known as SALT.
Sam Runyon, spokesperson for Sen. Manchin, summed up where things sit in a statement late last week: “Sen. Manchin still has serious unresolved concerns, and there is a lot of work to be done before it’s conceivable that a deal can be reached he can sign onto.”
Other legislation in play
1. Innovation — USICA vs. COMPETES: Over 100 lawmakers from both the House and Senate are continuing their negotiations on an innovation bill, currently in conference. The Senate passed a version of the United States Innovation and Competition Act, or USICA, while the House-passed bill is known as “America COMPETES.”
However, hopes that the committee will restore expensing of research and experimentation costs and create a tax credit for semiconductors before the summer recess seem increasingly unlikely.
2. SECURE 2.0: The Senate Finance Committee on June 23 unanimously approved a $45 billion package of bipartisan retirement tax provisions, clearing the way for lawmakers to begin reconciling the bill with separate House and Senate versions.
There are now three separate bills in the House and Senate covering retirement tax incentives. The House passed the Securing a Strong Retirement Act of 2022 in a 414-5 vote in March. Two Senate committees have now passed versions of the bill.
This legislative effort is commonly referred to as SECURE 2.0. The bills have significant differences, however, which means it’s unlikely they will be reconciled and put to a vote before the summer recess begins. SECURE 2.0 does have strong bipartisan support and a good chance of passage, but if the bill is passed, it’s not likely to be until the end of the year.
What to expect
Congress faces a heavy lift to get anything accomplished before the summer recess just a few short weeks away, whether in budget reconciliation or on a bipartisan basis. There is still much to be agreed upon, with differing views and little time to resolve them. That being said, negotiations continue despite health and political challenges.
