While it is still early in the legislative process, passage of the $3.5 trillion budget resolution sets the stage for broader action next month that could include retirement policy changes.
The House of Representatives approved the budget outline by a party-line vote of 220-212, following an agreement between House Speaker Nancy Pelosi (D-CA) and a group of 10 moderate Democrats to vote on the bipartisan infrastructure bill by Sept. 27.
The Infrastructure Investment and Jobs Act (H.R. 3684) was approved by the Senate Aug. 10 in a 69-30 vote. It includes an extension of pension smoothing relief to help offset the cost of $550 billion in new spending to rebuild the nation’s highways, roads, bridges, railways, transit systems and other infrastructure projects. The bill also expands information reporting requirements to include “digital assets,” including cryptocurrency, and terminates the employee retention tax credit three months early.
The House’s approval of the fiscal year 2022 budget outline also clears the way for the congressional committees to begin drafting legislation under the budget reconciliation process, which provides expedited procedures for consideration and cannot be filibustered in the Senate. The underlying budget agreement calls for the $3.5 trillion in long-term investments to be offset by a combination of new tax revenues, health care savings and presumed long-term economic growth. The bill that emerges will essentially be the legislative vehicle for President Biden’s “Build Back Better” agenda and will include provisions to address climate change, provide free community college, expand Medicare and provide paid family and medical leave, among other things.
Tax-Writing Committees
The budget outline also calls for tax increases directed at corporations and high-income individuals. The tax section of the bill will be drafted by the House Ways and Means Committee and the Senate Finance Committee, which are charged with drafting legislation to reduce the deficit by $1 billion over 10 years while also implementing a tax cut for Americans making less than $400,000 a year, among other things.
While there are no specific instructions regarding retirement policy, it’s possible that Ways and Means Chairman Richard Neal (D-MA) and Senate Finance Committee Chairman Ron Wyden (D-OR) could include provisions they have championed in the past. It’s unclear, however, whether the SECURE Act 2.0 or similar retirement security legislation will be attached to the budget bill. In any event, that legislation would likely move on a bipartisan basis and would not need the reconciliation protection to be enacted.
As to revenue raisers in the budget bill, one area that will probably be targeted is the elimination of so-called mega-Roth IRAs. Shortly after the recent Senate Finance Committee hearing on ways to boost retirement savings incentives, the chairmen released updated data from the Joint Committee on Taxation on the prevalence of mega-IRAs. Another item that will likely be targeted is elimination of the carried interest loophole.
The Timeline
The FY 2022 budget resolution includes a Sept. 15 deadline for each of the congressional committees to draft their respective tax and spending legislation and report their changes to the budget committees. With the lawmakers on break until mid-September, that appears to be a tight timeframe, though the date is nonbinding and could slip.
Democratic leaders in the House hope to have the reconciliation package ready for floor action by the end of September, allowing both the infrastructure and budget bills to be passed around the same time. Whether that can be accomplished is another matter, however. Like the moderate Democrats, progressive Democrats may insist on their own stipulations before supporting the legislation. Moreover, it’s not clear whether moderate Democrats in both the House and Senate will balk at the budget bill’s topline cost of $3.5 trillion or any new tax increases that may emerge.
