It's 2022. How does the BBB look now?

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Jan 03, 2022 View in browser   By Bernie Becker NEW YEAR, SO NOW WHAT? It's now been more than two weeks since Sen. Joe Manchin (D-W.Va.) basically pulled the plug on the version of President Joe Biden's Build Back Better agenda that passed the House. Since then, leading Democrats don't appear to have made a lot of progress toward constructing a climate and safety net package that would win Manchin's approval. It's also not clear how much progress will be made this coming week, especially with lots of attention likely to be focused on the one-year anniversary of the Jan. 6 riot at the Capitol. Majority Leader Chuck Schumer has said the Senate will vote on the social spending package early this year, though he hasn't offered many more details than that. (Axios reported that Senate Democrats will start working through that question as soon as today.) But there are plenty of people who still believe there's a chance for Manchin, Biden and Democratic congressional leaders to find some sort of agreement, by choosing just a handful of the policy initiatives currently in Build Back Better and enacting them more long-term. For months now, lobbyists and aides have thought that the most likely fallback option for Democrats would center around climate provisions and the newly expanded Child Tax Credit, though those monthly child payments might need some changes to get Manchin's approval. But there's definitely incentive for Senate Democrats to move quickly, with it already a midterm election year and their House counterparts not pleased that they passed a big tax-and-spend package only to see it stall across the way. MORE ON ALL THIS IN A BIT, but first — welcome to the "Welcome to 2022" version of Weekly Tax. And he didn't even have the internet to amuse himself: Today marks 75 years since the death of a New Jersey man named Al Herpin — who lived to 94 and claimed to have never slept. (His New York Times obituary said that he did admit to resting.) Give us a wake up call. Send your best tips and feedback. Email: bbecker@politico.com, alorenzo@politico.com, bfaler@politico.com and teckert@politico.com. You can also reach us on Twitter at @berniebecker3, @aaronelorenzo, @tobyeckert, @Brian_Faler, @POLITICOPro and @Morning_Tax.   STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president's ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.     Want to receive this newsletter every weekday? Subscribe to POLITICO Pro. You'll also receive daily policy news and other intelligence you need to act on the day's biggest stories. COMPLICATIONS AHEAD? As you might recall, Sen. Kyrsten Sinema (D-Ariz.) has been more of a problem for Democrats on tax increases than Manchin. So there's another reason that Democrats might not want to dawdle on Build Back Better — they might not want to give Sinema much time to have any potential second thoughts on the Democrats' tax hike menu. Late in December, lobbyists said there had been some vague chatter over just that. Around that time, The Washington Post's Jeff Stein reported that Sinema was wondering about a carveout for pass-through businesses on the proposed surtax on individual income over $10 million. (Keep in mind: Democrats only put that idea in the package after Sinema vetoed straight increases in the corporate and top individual rate.) Still working it: Democrats on the Senate Finance Committee already have been making some tweaks to the House-passed Build Back Better — to the point that they're raising about $60 billion less in revenue for the moment, according to Roll Call's Laura Weiss. That's in part because the Senate has dropped the House's approach to offering relief to the $10,000 cap on state and local deductions, which technically raises around $15 billion. Even so, Democrats still would seem to have enough offsets in the Finance panel's current plan, as long as they can find some common ground with Manchin on the benefit side. Some real world impact: It is now 2022, which means that some of the timing quirks from the 2017 GOP tax law are coming into effect. Starting this year, companies will face a less generous method for writing off research and development costs, and stricter limits for deducting their interest. Generally speaking, Democrats have shown more interest in offering relief to the research change — to the point that it was delayed by several years in the House's social spending package, as Bloomberg Tax's Michael Rapoport noted. Did we say real world impact? If it's a new year, that also means a new tax filing system is right around the corner. And it might come as not too much of a surprise, but tax professionals are far from pumped about what awaits them when the IRS starts accepting returns, as Pro Tax's Aaron Lorenzo noted. This will actually be the third filing season to be affected by the pandemic, which has led or contributed to record backlogs at the the IRS and all-time lows in certain areas of taxpayer service (like answering the phone). In fact, tax preparers are openly wondering when, if ever, the filing and return process will return to the way it was before the pandemic. They'll start finding out how this filing season shapes up pretty soon, with the IRS expected to roll out a start date as soon as this week. And don't forget: Another question hanging over this coming filing season is the fate of the Democrats' climate and safety net measure, which includes tens of billions of dollars in new funding for the IRS. Around the World NEW TAX CUTS FOR A NEW YEAR: The new German government says it plans to offer more than 30 billion euros in new tax cuts , Reuters reports. Christian Lindner, the new finance minister, told Bild that his draft for a 2023 budget would include tax relief for smaller companies and individuals, including by scrapping a surcharge on electricity and giving more preferential treatment to pension insurance contributions. The new government — which is led by Olaf Scholz, who was finance minister under former Chancellor Angela Merkel — also plans to allow companies to offset losses for this year and next against previous profits, to offer a boost to businesses hurt by the pandemic. Also ringing in the new year: Singapore says new tax details are coming soon, Bloomberg noted. China is extending income tax breaks for individuals, via Bloomberg as well. And Brazil is keeping incentives for labor-heavy parts of the economy, from Reuters.   DON'T MISS CONGRESS MINUTES: Need to follow the action on Capitol Hill blow-by-blow? Check out Minutes, POLITICO's new platform that delivers the latest exclusives, twists and much more in real time. Get it on your desktop or download the POLITICO mobile app for iOS or Android. CHECK OUT CONGRESS MINUTES HERE.     Around the Nation GIVING IT ANOTHER GO: GOP lawmakers in Arizona just enacted a big income tax cut in last year's legislative session. But they're already looking potentially to repeal and replace that measure — a move, The Associated Press reports, that would essentially preempt a voter referendum that could roll back the current tax cuts. A judge in Arizona rejected a challenge from a conservative group on that referendum, which is scheduled for November. The plan currently in place would cut taxes by about $1.9 billion, with most of the benefits going to the better off — by putting a 2.5 percent flat state income tax rate into place for most residents, instead of a system with rates ranging from 2.59 percent to 4.5 percent. The Republicans who passed last year's tax cuts say the referendum isn't the only reason to regroup on the matter. The GOP passed those tax cuts to undercut a referendum that Arizona voters passed in 2020 that placed a 3.5 percent surtax on high earners to boost education funding. But the state Supreme Court later tossed out key parts of the surtax referendum, giving Republicans another reason to rethink their tax cut plans. Quick Links NYT: "Child Tax Credit's Extra Help Ends, Just as Covid Surges Anew." Also NYT: "A Lavish Tax Dodge for the Ultrawealthy Is Easily Multiplied." The Guardian: "There's a new tax rule for US small business owners. What to make of it?" Did You Know? Hypnos is the Greek god of sleep.   Follow us on Twitter Toby Eckert @tobyeckert Bernie Becker @berniebecker3 Brian Faler @brian_faler Aaron Lorenzo @aaronelorenzo   Follow us

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