Given that the Democrats can only use the reconciliation process one time per fiscal year, we’re not convinced that the talk of breaking BBB into smaller chunks and passing them separately has legs given our jaded views on the current partisan environment.
Instead, we believe a pared-back BBB (the House passed a massive $2.2 trillion version in November, which stalled in the Senate) will focus on fewer priorities over a 10-year span. A few possibilities:
- Climate Provisions — about $550 billion
- ACA Subsidies and additional healthcare provisions — about $500 billion
- Universal Pre-K and, potentially, additional child and elder care — about $250-300 billion
Offsets to pay for BBB will likely align with those outlined in 2021, but again, this depends on the final price tag. What to watch in this space: Manchin’s comments on the Trump tax cuts of 2017 and State and Local Tax (SALT) caps. Northeast Democrats in the House have pledged “No SALT, No Deal” and won’t provide votes for the bill until the $10,000 cap is expanded.
Unless you happen to be in the top 700 US taxpayers and qualify for the billionaires tax (even that prospect is slim), we don’t foresee changes to capital gains or personal income-tax rates.
Child Tax Credit
The Child Tax Credit (CTC) expansion from March’s $1.9 trillion American Rescue Plan expired on December 31, 2021. Approximately $70-75 billion in lump-sum payments remains to be disbursed in the first quarter of 2022 as the approximately 40 million taxpayers who qualify file their tax returns.
We currently don’t see the CTC expansion being a component of the BBB, and while there is some Republican support for a standalone measure, any final legislation will likely need to address income thresholds and work requirements, to name a few.
US Innovation and Competition Act of 2021
(USICA): The $250 billion measure (with $52 billion slated for the semiconductor industry) aimed squarely at competing with China passed the Senate last summer and is waiting on action in the House before advancing to a conference between the two bodies to resolve the differences.
Federal Reserve Appointments
President Biden’s announcement of three additional board appointments will potentially chart a new course for the Federal Reserve. Sen. Banking Committee Chairman Sherrod Brown (D-OH) has pegged early February to begin confirmation hearings for nominees Sarah Bloom Raskin, Lisa Cook, and Philip Jefferson. Don’t expect a smooth confirmation process.
With just under 10 months until the midterm elections, Washington’s political and chattering classes are already consumed by the reverberations. History favors the Republicans in the 2022 midterm, as the party of the newly elected President has lost an average of 26 House seats in midterm elections since 1946. Redistricting, presidential approval (or disapproval)—and now record sums of money—are all Republican tailwinds for a takeover of the House and portend a toss-up for control of the Senate despite Republicans having to defend more turf than Democrats.
From taxation to spending, budget to pandemic oversight, implications for President Biden and the Democrat agenda hang in the balance. It’s certain the president will seek to press his agenda through regulatory agencies. Examples of reforms already being pursued include the Securities and Exchange Commission evaluating enhanced environmental, social, and governance disclosures, rewriting proxy advisor rules, and money-market fund reforms; and the Department of Labor’s work on private-equity investments within 410(k) plans and other defined-contribution plans. We’ll continue to highlight developments in this area given their importance to the financial-services industry.
Meanwhile, the Republican party has its sights set on recapturing the White House in 2024.