Still waiting on BBB, but the states are moving

Jan 31, 2022

SO YOU WERE SAYING ABOUT BBB? Now there's something else to potentially overshadow Democrats' efforts to clinch a big climate and safety net measure — the looming effort to confirm a replacement for Justice Stephen Breyer.

But at some point, Democrats are going to have to speed the process along on President Joe Biden's Build Back Better agenda — or perhaps more to the point, get to figuring out what parts of that measure are salvageable.

Biden is scheduled to give his first State of the Union address on March 1, and lots of his fellow Democrats would love for a social spending measure to be wrapped up in time for him to brag about it in the House chamber.

"We can do that by March 1st. You can do it next week," House Majority Whip Jim Clyburn (D-S.C.), who has been talking about means testing the expanded Child Tax Credit to appeal to Sen. Joe Manchin (D-W.Va.), said on CBS's "Face the Nation."

"What I'm talking about could be done in several days, if not several hours," Clyburn added, before tapping the brakes a bit. "I didn't say I was going to be done. It can be done."

MORE ON EVERYTHING IN A BIT, but first thanks for joining the "well, I guess Canada got us again" version of Weekly Tax. Also, we hope no one has too much of a Manic Monday. (Did you see what we did there?)

Have you heard about the payroll tax? Today marks 82 years since the U.S. government sent out its first Social Security check. That first recipient, Ida M. Fuller of Vermont, lived for another 35 years — or until 100 — after collecting her first check for $22.54.

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HAVE WE SAID ALL EYES ON MANCHIN? To Clyburn's point, Manchin — whose opposition to the previous version of the BBB has left everything in limbo for more than a month now— has suggested that any further talks on the White House's climate and safety net agenda haven't gotten that serious in recent weeks.

But the West Virginia Democrat has left something of a roadmap for a potentially slimmed-down BBB, including on both the big picture construction of the legislation and its individual parts. (Manchin has also pushed for work requirements to be paired with the Child Tax Credit, which seems to be a tougher sell among his fellow Democrats.)

At the same time, congressional leaders don't seem to be overpromising on Build Back Better these days. Congress has a mid-February deadline for government funding, and Speaker Nancy Pelosi is teeing up a China competitiveness bill as the House waits to see what develops with Manchin.

Something else worth watching: The business lobby by and large has spent months and months trying to kill the BBB.

But there could be at least a bit of downside for some companies if that actually happens. For instance, multinationals could get double taxed on foreign profits if other countries implement the minimum tax engineered by the global tax agreement, and the U.S. doesn't make any changes to its existing minimum tax as part of its social spending package, as The Wall Street Journal's Andrew Duehren noted.

Further reading: " A Biden ally takes over one of Build Back Better's main opponents," via our Hailey Fuchs.

A SWING AROUND THE STATES: The trend is quite clear, and it's practically nationwide — states from coast to coast are cutting taxes in their new legislative sessions, helped in no small part by federal pandemic relief funds.

But how states are deciding to cut taxes can vary quite a bit. And though it can be a bit too easy to fall into the red state/blue state divide when discussing tax cuts, there are some big-picture differences between how states run by Democrats and those run by Republicans are seeking to offer tax relief.

And this is probably the biggest one: It's the red states that are really interested in income tax cuts. Idaho would drop its top rate as part of a record-setting tax cut currently moving through the legislature. Lawmakers in Utah are wasting no time in doing something similar, by cutting the state's single income tax rate.

Meanwhile, Republicans in Iowa want to move to a flat income tax , with some hoping to scrap the income tax altogether. A number of GOP officials in Mississippi also want the income tax gone for good, while Arkansas already beat some of their fellow red states to the punch — cutting taxes in a special session in December. (And this isn't even getting into the possibilities in Indiana, South Carolina, West Virginia and other states.)

There might be a blue state here or there looking at cutting income taxes — Gov. Kathy Hochul in New York has proposed accelerating middle-class tax cuts already on the books, for example, as the Tax Foundation's Jared Walczak pointed out.

This hasn't gone unnoticed among progressive groups, either. The Center on Budget and Policy Priorities and others have come out swinging against tax cut proposals they believe would essentially leverage temporary funding infusions into permanent tax cuts heavily weighted toward the rich and business interests.

More sympathetic groups would say that income tax cuts are good for the economy, and there's a longstanding argument over how much lower state taxes can lure new residents.

But back to the point at hand: It's also interesting that the kind of tax cuts generally associated with blue states, more targeted exemptions and credits, are being embraced by red, blue and purple states.

Both California and Idaho, for instance, are looking into direct payments. Officials in Iowa, Nebraska and New Mexico have examined exempting retirement or Social Security income from taxation.

And as Richard Auxier of the Urban-Brookings Tax Policy Center has noted, state versions of the Earned Income Tax Credit are all the rage all around the country. Michigan, with a Democratic governor and Republican legislature, are looking into expanding their version, while Connecticut and Hawaii are thinking the same.

More on this below, but Arizona — fully controlled by Republicans — is also thinking about an EITC, after Indiana, Missouri and Oklahoma all expanded theirs last year.

Around the World

ALRIGHT. WE'LL DO IT: Prime Minister Boris Johnson's government will move forward with a planned tax hike in April, despite objections from rank-and-file members of the ruling Conservatives, Bloomberg reported. Johnson and Rishi Sunak, the chancellor of the exchequer, wrote in a Sunday Times opinion piece that the government needed to implement a 12 billion pound ($16 billion) increase in national insurance contributions, even as they stressed that they were "tax-cutting conservatives." The government believes the payroll tax increase is needed to help the National Health Service clean up a backlog aggravated by the pandemic. But some Conservative members of parliament are unsure about any tax hikes while inflation, and particularly energy bills, are rising — and there has been some debate about whether the party would be better off pushing the increased contributions for a year. Johnson hadn't sounded so firm on going through with the tax increase in recent weeks, a span when the prime minister has come under increasing criticism for his personal conduct during the coronavirus.

Around the Nation

MAYBE A LITTLE BIPARTISANSHIP? An Arizona Senate committee cleared a new state version of the Earned Income Tax Credit last week, The Associated Press reports — a proposal sought by Democrats and embraced by the Republican governor, Doug Ducey. There are some reasons for optimism: Ducey included a state EITC in his latest budget, and the tax credit for working low-income people easily passed the state Senate during the last legislative session, before stalling in the Arizona House. The proposal in Arizona would cost about $74 million a year, and offer a credit worth 5 percent of the federal EITC — giving the average family in the state around $128 a year and helping more than a half-million Arizonans. Still, two Republicans on Arizona's Senate Finance Committee objected to the proposal, and lobbyists for conservative groups are urging the legislature not to adopt any refundable tax credits.

Quick Links

NBC News: "Parents say the child tax credit worked. Can Congress bring it back?"

Insider: "The IRS is wildly understaffed, and it could make for a hellish tax season."

CNBC: "This tax season is your last chance to get your $1,400 stimulus check."

Did you know?

Prince wrote "Manic Monday" for Apollonia 6, a singing group he created, before it was eventually recorded by The Bangles.

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