We want to take a moment to share an update following the announcement from Senate Majority Leader Chuck Schumer (D-NY) and Sen. Joe Manchin (D-WV), that they have struck a deal on a new reconciliation package.
The bill, the Inflation Reduction Act of 2022, is a largely slimmed-down from the original “Build Back Better” legislation that was introduced late last year. The legislation’s stated goal is to make a historic down payment on deficit reduction to fight inflation while investing in cleaner and more productive energy usage, allow Medicare to negotiate drug prices, lower ACA health care premiums, and other changes to corporate taxation.
The following are the components of the proposal that are a primary focus for the IPA as we continue to advocate for our industry and the best interest of American investors:
- 1031 like-kind exchanges were not included in the bill. The omission of tax treatment of 1031 like-kind exchanges in the bill is a triumph in the IPA’s grassroot effort to oppose any limitation. Since President Biden first included 1031 restrictions in 2021, the IPA has engaged in direct and grassroots advocacy on this front. We are grateful for your continued support and dedication to these efforts that helped get us to this point.
- The bill includes changes to corporate taxation including limitations on carried interest. The proposal’s two main components would re-build the IRS and impose a 15% Corporate Minimum Tax, which would be imposed on corporations that currently pay less than the corporate tax rate. These tax changes would also include a new rule that requires “carried interest” profits to be taxed at a higher rate. We are closely monitoring how this provision is modified in the final package.
- No new taxes on families making $400,000 or less and no new taxes on small businesses. As our industry continually works to support the economic wellbeing and financial health of main street Americans and small businesses, we are encouraged that they will not face a tax increase under this bill.
What’s Next: Currently, the Senate parliamentarian is reviewing the proposal to assure that all sections are in compliance with the Senate rules on the reconciliation process (the so called “Byrd Bath”). Once that is complete next week, the Senate is expected to take up the bill. The bill will not receive any Republican votes, so all 50 Democratic-aligned senators and the Vice President must be present to move the proposal out of the Senate, which has been a challenge during the pandemic. The Senate may make changes to the proposal to bring it into compliance with the rules or to bring on board any reluctant Democrat senators. Assuming the bill passes the Senate, the Speaker will call the House back in session from their August recess. The Democrats currently have only a 3-seat majority in the House and the proposal will get no Republican votes in the House, so the House will narrowly pass whatever bill passes the Senate without change. While it is likely that the proposal will pass, there will be much drama surrounding the approval of the reconciliation package by Congress.
As always, we will continue to keep you informed of new developments on Capitol Hill and in our advocacy efforts as this proposal moves forward over the month of August. To stay up-to-date on our advocacy efforts, please visit our website.
Best,
Anya Coverman
SVP, Government Affairs and General Counsel
Institute for Portfolio Alternatives