Coming off the July 4 recess, Democrats were projecting cautious optimism about their ability to pass a broad economic package (colloquially being referred to as “Build Back Better Again”) before the August 8 recess. Majority Leader Chuck Schumer (D-NY) was in close negotiations with Senator Joe Manchin (D-WY) whose opposition stymied earlier efforts at a package following the House’s November 2021 passage of the Build Back Better Act. While the new package was not expected to be as broad and sweeping as the Build Back Better Act, it was expected to cover a broad range of items including prescription drug pricing, Medicare solvency, climate related energy spending and corporate tax reforms.
The progression towards a Senate draft bill came to an abrupt halt last week. Following the July 13 release of the latest inflation report, Senator Manchin announced that he would not support the passage of a broad economic package before the August recess. Instead Senator Manchin has indicated that he will only support a very scaled back bill to address prescription drug pricing and the extension of expanded Obamacare subsidies. Given that these provisions are both considered must pass items for the Democrats before the mid-term elections, Majority Leader Schumer and the White House appear to be poised to take the bird in the hand and the Senate has now pivoted passing a limited bill with Senator Manchin’s support.
While Senate Manchin did express that he would be open to considering a broader tax and spending bill after the August recess if inflation slows – passing a bill at that time would pose logistical challenges even if Senator Manchin is on board. To avoid a filibuster and proceed to a vote on party lines, the Democrats will need to rely on the reconciliation process to pass the Manchin-supported prescription drug and Obamacare subsidies bill. Assuming that the Senate parliamentarian confirms that the scaled back bill can be passed through reconciliation and it is passed through reconciliation, the Democrats will, likely have used up their bite at the reconciliation apple for the 2022 budget year. There is some debate as to whether the existing 2022 budget resolution could be amended to allow for another bill this fall but even if that were deemed permissible it would still require the Senate to undergo the process of amending the bill. The other and clearer approach would be for the Democrats to pass a 2023 budget resolution with new reconciliation instructions to allow action on another broader reconciliation bill. This would be technically possible but with the process that goes into a budget resolution and the timing of the Senate’s return from August recess and the mid-terms, the Senate would be very hard pressed to get this done.
While anyone who has been in Washington long enough knows that even the wildest bets are still a possibility, at this juncture it very unlikely that Congress will pass a bill that would go into climate/energy provisions or any major tax changes before the midterms.
There is still talk of a stand-alone retirement plan bill being passed. Though it had been hoped it would have been folded into the smaller bill that would take the place of the Build Back Better bill - as mentioned above that avenue is now probably blocked at least for the next few months. Even though the proposed retirement plan legislation in the Senate (the EARN Act) and in the House is heralded as legislation that would significantly help out small business retirement plan formation and coverage, the pay-for (as of now) is aimed squarely at small business key employees and owners. Under the current version of the EARN Act, starting January 1, 2023, the additional contributions that employees who are 50 or older can make to a 401(k) plan (called “catch-up” contributions) would be forced to be after-tax. Currently, catch-up contributions are usually made pre-tax, though some plans allow employees to elect to have these contributions be tax deferred (pre-tax) or immediately taxed (after-tax). It is probable that this legislation will curtail catch-up contributions, thus hurting the retirement security for all of the older Americans who are finally in a position to make additional 401(k) contributions. Catch-up contributions were designed to allow older individuals to make slightly more contributions. The idea was that the major financial drains of student loans, children and purchase of homes are generally finished by the time individuals reach the age of 50 or older. As a group, this is especially true for many small business owners who have to put their own financial wealth on the line in the early days of starting up a small business. TIA will be working to educate the members of Congress on the concerns raised by this provision.