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Tax changes keep coming as Democrats seek budget bill votes

New and previously dropped items are back in the bill, including paid leave and drug price negotiation

House Ways and Means Chairman Richard E. Neal, D-Mass., left, speaks with Rep. David Schweikert, R-Ariz., at a markup of the budget reconciliation bill on Sept. 14.
House Ways and Means Chairman Richard E. Neal, D-Mass., left, speaks with Rep. David Schweikert, R-Ariz., at a markup of the budget reconciliation bill on Sept. 14. (Tom Williams/CQ Roll Call file photo)

House Democrats’ latest version of their nearly $2 trillion budget reconciliation bill would add slimmed-down paid leave benefits and other programs dropped from the previous iteration, while trimming the duration of some clean energy incentives and cutting higher-income earners off from tax breaks for buying electric vehicles.

The House Rules Committee released the latest, 2,135-page version of Democrats’ bill Wednesday afternoon, adding in provisions that weren’t part of previous texts, like a House-Senate compromise on prescription drug pricing, and restoring pieces the Ways and Means panel approved that had since been dropped. Those include a crackdown on multimillion-dollar retirement accounts that grow tax-free, new taxes on e-cigarettes and credits for low-income housing.

[House Democrats put paid leave back in budget bill as vote nears]

“You revisit different parts of the bill when you find out that there might be some room on the edges here with money,” Ways and Means Chairman Richard E. Neal, D-Mass., said. “So we went a little bit bigger here or there. And there’s always issues and items that fall in and fall out.”

Several of Democrats’ additions to the bill Wednesday as they worked to finalize the legislation were bigger and seemed to come together just hours earlier. Those were the inclusion of an estimated $200 billion plan to guarantee four weeks of paid family and medical leave and a plan to raise the $10,000 cap on deducting state and local taxes to $72,500, extending the limit through 2031 to make it revenue neutral.

But it’s unclear whether those provisions can pass the Senate. Sen. Joe Manchin III, D-W.Va., has opposed including paid leave in the package, and Sens. Bernie Sanders, I-Vt., and Bob Menendez, D-N.J., announced their own, income-based plan to address the “SALT” cap Wednesday.

[Dueling ‘SALT’ fixes in play as Democrats try to close budget deal]

Neal repeated a refrain he has for weeks — that he would’ve sent his panel’s portion of the sweeping budget package as-is to the Senate if he could have. His panel originally approved 12 weeks of paid leave, for instance.

“We can’t always pull back on our proposals because the other chamber doesn’t want to do this, and they don’t want to do that,” Neal said.

In the evenly divided Senate, however, Democrats can’t lose a single vote to pass the filibuster-proof package. That’s led to cuts in spending and dropping tax plans as Manchin and Sen. Kyrsten Sinema, D-Ariz., blocked or narrowed dozens of provisions.

Electric cars, bicycles

To satisfy Manchin, Democrats lowered the amount someone can earn and still take advantage of tax credits for buying electric vehicles, and they may have to cut access further based on income to satisfy him, according to a source familiar with the discussions. Manchin has called for means-testing of many programs to target them to those most in need and trim spending.

Manchin confirmed Wednesday evening that he “absolutely” had concerns about the House’s original proposal, which allowed individuals making up to $400,000 and married couples filing jointly making up to $800,000 to take full advantage of incentives for buying electric vehicles, worth up to $12,500 per purchase. Republicans had knocked that plan when Ways and Means considered it, criticizing it as a giveaway to the wealthy.

The latest version of the bill allows full access for individuals making up to $250,000 and married joint filers with up to $500,000 in income, though it allows the credits to be used on slightly more expensive vans, SUVs and pick-up trucks with suggested retail prices of up to $80,000.

“The rich don’t need the credits,” Manchin said.

Consumers would also be limited to one annual electric vehicle purchase that qualifies for the tax credits, a change from the earlier version.

The rest of the bill’s provisions for incentivizing renewable energy production, clean fuel, zero-emission vehicles, energy efficient buildings and other forms of clean energy saw some trims, according to summaries and other documents provided by the Rules Committee.

Some credits would end several years earlier than originally proposed or begin later, including those for nuclear power plants, small biodiesel producers and electric bicycles. Some new limits apply to others.

Democrats trimmed a new tax credit for buying electric bikes, for example, from a maximum value of $1,500 to $900, and the total cost of a qualifying bike was slashed in half to $4,000.

‘Little bit here or there’

Neal said that “there’s always a little bit here or there” that gets trimmed, in reference to the clean energy credits, but that the plan encompasses “the most important energy initiative as it relates to the renewables that Congress has ever entertained and is likely to pass.”

The White House estimated before the latest tweaks that the package’s clean energy tax incentives would cost $320 billion.

The House’s latest version of the bill also restored trimmed-down versions of tax credits for low-income housing from Ways and Means’ original proposal, which had been left out of a version Democrats released last week. That includes an incentive for investment in rehabilitating “deteriorated homes in distressed neighborhoods,” which returned to the bill but ends sooner, after 2025.

It also would add back provisions excluding from taxable income certain grants to homeowners for natural disaster mitigation efforts, and providing $175 million per year in tax credits for projects in low-income communities in tribal areas through 2025. But a set of infrastructure-related bond financing tools sought by states and localities, such as a revival of taxable municipal bonds and higher limits on municipal debt banks can buy directly from small borrowers, didn’t get back into the bill.

IRS funding, union dues

Money for the IRS to implement Democrats’ expansion of the child tax credit returned to the bill at a lower amount. Ways and Means originally proposed a four-year expansion of the benefit for families with children and $9 billion to help the IRS implement it.

Now the bill includes a one-year expansion and almost $4 billion available through 2026 for the IRS, along with another $1 billion for the Treasury Department to support enrollment and administration.

House Democrats slipped back into the package a range of specific tax benefits including those for a Wisconsin fuel distributor, sound recording costs, local news outlets to hire journalists and labor union dues.

Tax breaks in the Ways and Means-reported version for beauty parlors and for access to technology for the blind didn’t make it back in. But provisions that weren’t in previous versions would expand the ability for married same-sex couples to take advantage of credits and refunds for married couples from before 2010, and create an above-the-line deduction for work uniforms of up to $250.

Another benefit that fell out of the bill from last week’s version offered a break for what’s charged on investment income from private college endowments based on the scholarships and aid they provide to students, which Republicans had targeted as a gift to elite schools.

Rum producers and governments in Puerto Rico and the U.S. Virgin Islands that host them lost out on a provision, included in the initial Ways and Means bill, that would permanently lift the limit on rum excise taxes that are remitted back to those territories.

House Democrats meanwhile slipped some revenue-raisers back into their bill, including a new nicotine tax on e-cigarettes. But they left out an increase in existing tobacco taxes that Ways and Means originally proposed that ran into static with convenience stores and truck stop operators, not to mention some Democrats who thought the tax increase would disproportionately impact less well-off households.

‘Mega IRA’ limits restored

Limits on “mega IRAs” also found their way back into the package, returning a portion of the tax plan to address an issue Neal and his tax-writing Senate counterpart, Finance Chair Ron Wyden of Oregon, had both championed. Democrats had called for tighter controls of the accounts after ProPublica reporting on billionaire Peter Thiel’s use of a Roth IRA to avoid taxes.

The provision would prevent more money from being put into a Roth or traditional individual retirement account if its value exceeded $10 million, applying to individuals who make over $400,000 and married joint filers with more than $450,000 in income.

Ways and Means originally proposed putting those changes in place next year, but the latest version wouldn’t implement them until 2029. The same delayed timeline would apply to requirements that people with aggregate IRA balances over $10 million take minimum distributions from the accounts, triggering taxes on the withdrawals.

The mega IRA provision was left out of the previous version of the reconciliation bill released last week while Democrats vetted it, and the current form has enough backing to pass the Senate, according to a source familiar with the discussions.

In another effort to crack down on retirement account tax-avoidance strategies, the measure would restore a committee-reported provision to eliminate what critics call a “backdoor Roth IRA” strategy. That’s when account holders with incomes too high to contribute to a Roth account instead park the money in traditional IRAs but then convert it to a Roth, paying taxes at the time of conversion but then watching the money grow tax-free.

Lindsey McPherson contributed to this report.

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