With the President’s infrastructure spending plan clearing the U.S. Senate with a bipartisan vote, Congressional Democrats are turning to a mammoth $3.5 trillion tax and spending package for fall consideration. The package includes the President’s American Families Plan and the fiscal 2022 federal budget wrapped into one bill. It is one of the largest packages proposed by Congress.
Unlike the infrastructure package, Senate Democrats will use the budget reconciliation process to pass the legislation on a party-line vote. This process (used by both political parties) enables Senate Democrats to pass the legislation without Republican support. No Republicans are expected to vote for the legislation.
The reconciliation process is long and difficult and will extend late into the year. The process first requires the Senate and House to each pass a budget resolution. Simply put, the budget resolution is an outline of spending and revenue targets by the House and Senate Committees. The Senate passed its budget resolution (94 pages) on party-line vote on August 11, 2021. And, the House passed theirs on August 24, 2021.
Next, congressional committees must turn the budget resolution’s dollars into legislation. For example, the Senate budget resolution instructs the Senate Finance Committee (tax-writing committee) to draft legislation raising taxes by at least $1 trillion over the next 10 years. The President is proposing tax increases of $3.5 trillion over the next 10 years which is permissible under the resolution.
The House will follow the same process and produce a bill that will look much different than the Senate’s version. House Democrats will likely produce legislation calling for larger tax increases, greater investment in programs like Medicare, childcare, education, housing, and climate change programs.
Last, House and Senate Democrats must then reconcile the differences between the respective bills. Negotiation will be tense and difficult. Over the next few months, expect reports from Washington that the legislation is dead only to see it rise from the ashes at year-end. Many Democrats see the budget legislation as a “once in a lifetime” opportunity to reshape many of our social safety net programs using the tax code to pay for them.
Article by Crestone Wealth Planning team members Alyssa Do, JD, LL.M, Executive Director and Charlie Olson, CPA, Executive Director.
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