Build Back Better: Law Or No?

The Build Back Better Act was a legislative framework proposed by US President Joe Biden between 2020 and 2021. The Act was divided into three parts: the American Rescue Plan, the American Jobs Plan, and the American Families Plan. The first part was passed as the $1.9 trillion American Rescue Plan Act of 2021 and was signed into law in March 2021. The Build Back Better Act passed the Democratic-controlled House of Representatives but failed to gain the support of Democrats Joe Manchin of West Virginia and Kyrsten Sinema of Arizona in the evenly divided Senate. The Act was reworked into the Inflation Reduction Act of 2022, which was signed into law in August 2022 and incorporated some of the Build Back Better Act's climate change, healthcare, and tax reform proposals.

The Build Back Better Act's cost

The Build Back Better Act was a $3.5 trillion reconciliation bill that included measures related to climate change, family aid, and expansions to Medicare. The bill was passed 220–213 by the House of Representatives on November 19, 2021. The original version of the bill was estimated to cost $3.5 trillion, but following negotiations, the price was lowered to approximately $2.2 trillion. The White House's legislative framework, the costs of which were disputed by nonpartisan estimates, includes:

• 555 billion for clean energy and climate change provisions
• 400 billion for childcare and preschools
• 200 billion for child tax and earned income tax credits
• 150 billion for home care
• 150 billion for housing
• 130 billion for Affordable Care Act credits
• 90 billion for equity and other investments
• 40 billion for higher education and workforce
• 35 billion to expand Medicare to hearing services

The Build Back Better Act offsets these costs with tax increases on high-income earners and corporations, increased Internal Revenue Service (IRS) funding, prescription drug pricing reforms, and other revenue increases. The Build Back Better Act is expected to generate $1.5 trillion in revenue from corporations and the wealthy.

The Build Back Better Act was a bill introduced in the 117th Congress to fulfill aspects of President Joe Biden's Build Back Better Plan. It was spun off from the American Jobs Plan, alongside the Infrastructure Investment and Jobs Act, as a $3.5 trillion Democratic reconciliation package that included provisions related to climate change and social policy.

The Build Back Better Plan was divided into three parts: the American Rescue Plan (a COVID-19 pandemic-relief bill), the American Jobs Plan (a proposal to address long-neglected infrastructure needs and reduce America's contributions to the destructive effects of climate change), and the American Families Plan (a proposal to fund a variety of social policy initiatives).

The Act's social safety net

The Build Back Better Act, proposed by President Joe Biden, is a legislative framework that sought the largest nationwide public investment in social, infrastructural, and environmental programs since the 1930s Great Depression-era policies of the New Deal. The Act is divided into three parts: the American Rescue Plan (ARP), the American Jobs Plan (AJP), and the American Families Plan (AFP).

The social safety net of the Build Back Better Act includes:

Universal Preschool

The Act provides for universal and free preschool for all 3- and 4-year-olds, enabling parents of young children to return to the workforce earlier. This is the largest expansion of universal and free education since public high schools were established across the country 100 years ago.

Childcare Cost Cap

The Act limits childcare costs to 7% of income for parents earning up to 250% of a state's median income. This will save most American families more than half of their spending on childcare.

Paid Parental Leave

The Act provides for four weeks of federal paid parental, sick, or caregiver leave.

Expanded Child Tax Credits

The Act extends Child Tax Credits for a year. This has raised over 3 million households with children out of poverty and cut overall child poverty in America by 25%.

Affordable Care Act Subsidies

The Act extends pandemic-era Affordable Care Act subsidies, increasing enrollment by more than 2 million.

Hearing Benefits for Medicare Beneficiaries

The Act includes new hearing benefits for Medicare beneficiaries, such as coverage for a new hearing aid every five years.

Insulin and Prescription Drug Cost Cap

The Act limits the cost of insulin under Medicare to $35 per month and caps out-of-pocket prescription drug costs at $2,000 per year.

Climate Change Mitigation

The Act includes $500 billion to combat climate change, largely through clean energy tax credits. This represents the largest-ever federal investment in clean energy.

State and Local Tax Deduction Limit Increase

The Act increases the State and Local Tax deduction limit from $10,000 to $80,000.

The Act's climate change initiatives

The Build Back Better Act is the largest effort to combat climate change in American history. The Act involves a $555 billion investment in clean energy and climate initiatives over 10 years.

The Act will cut greenhouse gas pollution by over one gigaton in 2030, reduce consumer energy costs, and create hundreds of thousands of high-quality jobs. It will also advance environmental justice by investing in a 21st-century clean energy economy. This includes buildings, transportation, industry, electricity, agriculture, and climate-smart practices across lands and waters.

The Act will deliver substantial consumer rebates and ensure middle-class families save money as they shift to clean energy and electrification. The consumer rebates and credits included in the Build Back Better Act will save the average American family hundreds of dollars per year in energy costs. This includes enhancements and expansions of existing home energy and efficiency tax credits, as well as the creation of a new rebate program focused on electrification. The Act will also cut the cost of installing rooftop solar for homes by around 30%, and the framework's electric vehicle tax credit will lower the cost of an electric vehicle made in America with American materials and union labor by $12,500 for a middle-class family.

The Act will also help rural communities tap into clean energy opportunities through targeted grants and loans through the Department of Agriculture. It will ensure that clean energy technology, from wind turbine blades to solar panels to electric cars, will be built in the United States, creating hundreds of thousands of good jobs. The Build Back Better Act will also boost the competitiveness of existing industries, like steel, cement, and aluminum, through grants, loans, tax credits, and procurement to drive capital investment in the decarbonization and revitalization of American manufacturing.

The Act will also advance environmental justice through a new Clean Energy and Sustainability Accelerator that will invest in projects around the country, while delivering 40% of the benefits of investment to disadvantaged communities as part of the President's Justice40 initiative. The Act will also fund port electrification, facilitate the deployment of cleaner transit buses and trucks, and support critical community capacity building, including grants to environmental justice communities. In addition, the Act will create a new Civilian Climate Corps with over 300,000 members that will conserve public lands, bolster community resilience, and address the changing climate, while putting good-paying union jobs within reach for more Americans.

The Act will also bolster resilience and natural solutions to climate change through a historic investment in coastal restoration, forest management, and soil conservation. The Act will provide resources to farmers, ranchers, and forest landowners, supporting their efforts to reduce emissions. At its peak, the increased investments in climate-smart agriculture alone could reach roughly 130 million cropland acres per year, representing as many as 240,000 farms. The Act will also make strategic conservation investments, including the Environmental Quality Incentives Program, the Regional Conservation Partnership Program, Soil Conservation, and the Conservation Stewardship Program.

The Act's healthcare provisions

The Build Back Better Act includes several provisions aimed at expanding access to affordable healthcare for Americans.

The Act seeks to strengthen the Affordable Care Act and reduce premiums for around 9 million Americans. It is estimated that this would reduce premiums by an average of $600 per person per year. For instance, a family of four earning $80,000 per year would save nearly $3,000 per year on health insurance premiums. This measure is expected to provide health insurance coverage to more than 3 million people who would otherwise be uninsured.

Additionally, the Act addresses the Medicaid coverage gap by providing healthcare coverage to up to 4 million uninsured individuals in states that have excluded them from Medicaid. It ensures $0 premiums, making healthcare more accessible and affordable for those who need it.

The Act also includes provisions for expanding Medicare to cover hearing benefits for older Americans. Currently, only 30% of seniors over the age of 70 who could benefit from hearing aids have ever used them. The Act will make hearing care more accessible and affordable for this vulnerable population.

Furthermore, the Act aims to lower prescription drug prices and limit out-of-pocket expenses. It proposes to cap the cost of insulin under Medicare at $35 per month and set a maximum out-of-pocket limit on prescription drug costs at $2,000 per year. These measures will provide significant financial relief to individuals and families struggling with high healthcare costs.

The Build Back Better Act also includes provisions for addressing the opioid crisis, investing in rural healthcare, and improving maternal health outcomes. These measures demonstrate a comprehensive approach to improving healthcare access and affordability for Americans, especially those in vulnerable populations.

The Act's impact on taxes

The Build Back Better Act was passed by the House of Representatives in November 2021 but failed to win the support of conservative Democrats and Republicans. The bill was reworked into the Inflation Reduction Act of 2022, which was signed into law in August 2022. Here is a summary of the Act's impact on taxes:

Individual Income Taxes

• A new surcharge on modified adjusted gross income (MAGI) is created, defined as adjusted gross income less investment interest expense, equal to 5% on MAGI in excess of $10 million plus 3% on MAGI above $25 million.
• The American Rescue Plan Act (ARPA) Child Tax Credit (CTC) expansion is extended through 2022, and the entire CTC is made fully refundable on a permanent basis.
• The ARPA's temporary expansion of the Earned Income Tax Credit (EITC) eligibility, phase-in rates, and amount are extended through 2022.
• Individual Retirement Accounts (IRAs) contributions are limited when balances reach $10 million, and required minimum distributions for those accounts are accelerated.
• The cap on the state and local tax (SALT) deduction is raised from $10,000 to $80,000 and extended through 2030. The $80,000 SALT cap amount also applies to the 2021 tax year, reverting to $10,000 in 2031.

Pass-through Business Taxes

• The base of the 3.8% Net Investment Income Tax (NIIT) is expanded to apply to active business income for pass-through firms.
• The active pass-through loss limitation enacted in the 2017 Tax Cuts and Jobs Act (TCJA) is made permanent.

Corporate and International Taxes

• A 15% minimum tax is imposed on corporate book income for corporations with profits over $1 billion, effective for tax years beginning after December 31, 2022.
• A 1% excise tax is created on the value of stock repurchases during the taxable year, net of new issuances of stock, effective for repurchases after December 31, 2021.
• The Global Intangible Low-Taxed Income (GILTI) regime is changed, effective for tax years beginning after December 31, 2022, including a reduction in the deduction for GILTI to 5%, resulting in a tax rate of 15%.
• The deduction for Qualified Business Asset Investment (QBAI) is reduced to 5%.
• The foreign tax credit (FTC) haircut is reduced to 5% and can be carried forward for 5 to 10 years, but FTC carrybacks are disallowed.
• GILTI is exempted from expense allocation rules.
• Foreign oil and gas extraction income (FOGEI) is included.
• The deduction for Foreign-Derived Intangible Income (FDII) is reduced to 21.875%, resulting in a tax rate of 15.8%, effective for tax years beginning after December 31, 2022.
• A new limitation is created on interest expense deductions for certain multinational corporations, effective for tax years beginning after December 31, 2022.
• The base erosion and anti-abuse tax (BEAT) for multinational corporations is modified.
• A new limitation is created on foreign company base sales and services income.

Other Modeled Tax Proposals

• The requirement to amortize research and development (R&D) expenses over five years is delayed until 2025.
• A variety of tax credits for green energy and other efforts are modified, extended, and created, primarily through 2031 or 2033.
• The federal Superfund program is reinstated, and a Superfund tax on crude oil and imported petroleum is doubled.
• A federal excise tax on nicotine is levied, specified at $50.33 per 1,810 milligrams.

Significant Proposals Not Modeled

• Certain ARPA expansions of premium tax credits are extended or made permanent, including allowing higher-income households to qualify for the credits and boosting the subsidy for lower-income households.
• Tax changes targeted at cryptocurrency are made, including imposing rules related to common control and wash sales.

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