All Eyes on the Senate After House Passes President’s Signature Social Spending Bill
After months of haggling, House Democrats today passed President Biden’s signature social spending package, the Build Back Better Act, by a vote of 220-213. The focus now moves to the Senate where action could take weeks or even months, and changes to the package will undoubtedly be made.
Much of the focus continues to be on two key Senate democrat holdouts—West Virginia's Joe Manchin III and Arizona's Kyrsten Sinema—who have yet to offer a public endorsement of the package. Senate Majority Leader Charles Schumer (D-NY) set a Christmas deadline for final passage.
The sweeping $1.64 trillion House-passed “human infrastructure” bill includes the following provisions: a $150 billion investment in affordable housing, provisions to address climate challenges, improvements to grid reliability, upgrades to water infrastructure and a one-year extension of the Child Care Tax Credit—among other proposals.
The plan is offset by tax increases on corporations and wealthy Americans. Following months of NMHC advocacy, several previously considered tax increases have been left out of the package—including any changes to like-kind exchanges, increases in the ordinary income tax rates, the general 20 percent capital gains tax rate, the tax treatment of carried interest, the 20 percent pass-through deduction, and the taxation of unrealized capital gains at death. A provision in the Ways and Means bill that would have restricted the ability to use IRAs to make certain types of real estate investments is also not included.
Following introduction in the House, the Congressional Budget Office (CBO) released the attached summary of its complete cost estimate for the Build Back Better Act (H.R. 5376), saying that "enacting this legislation would result in a net increase in the deficit totaling $367 billion over the 2022-2031 period, not counting any additional revenue that may be generated by additional funding for tax enforcement." CBO took a more cautious approach on how it counted additional revenue that could come in from a hotly debated provision aimed at increasing IRS tax enforcement. However, despite the discrepancy between the White House and CBO, moderate Democrats agreed to count on more generous estimates on IRS tax enforcements.
Although timing and passage in the Senate remains uncertain, NMHC will continue to update this article as the Senate bill comes together.
Use the drop down features below to review the key provisions currently in play that would impact the multifamily industry.
- a 5 percent surtax on taxpayers earning over $10 million in modified adjusted gross income (AGI) (i.e., adjusted gross income less investment interest expense) and an additional 3 percent surtax on taxpayers earning over $25 million in modified AGI.
- a 5 percent surtax on taxpayers earning over $10 million in modified adjusted gross income (AGI) (i.e., adjusted gross income less investment interest expense) and an additional 3 percent surtax on taxpayers earning over $25 million in modified AGI.
Individual Income Tax Rates
Although the Framework does not increase the top 37 percent tax bracket, it imposes:
Notably, there are no changes made to the 20 percent Section 199A pass-through deduction.
In sum, the top marginal income tax rate would rise to 41.4 percent from today’s 29.6 percent when the impact of the net investment income tax (see below) is included in calculations.
Capital Gains Income Tax Rates
Although the Framework does not increase the top 20 percent capital gain tax, it imposes:
In sum, the top capital gains tax rate would rise to 31.8 percent from today’s 20 percent when the impact of the net investment income tax (see below) is included in calculations.
Net Investment Income Tax
The proposal would expand the current-law 3.8 percent net investment income tax to include net investment income (i.e., capital gains, interest, dividends, annuities, royalties, and rents) earned in the ordinary course of a trade or business by single filers earning over $400,000 and married couples earning over $500,000. It would not apply to any wages on which FICA is currently imposed.
Excess Businesses Losses
This proposal would make permanent a provision limiting excess business losses that was otherwise set to expire at the end of 2026. Under current law, a non-corporate taxpayer is considered to have an excess business loss if their total business deductions exceed business income plus $250,000 for single filers and $500,000 for joint filers. Additionally, while current law allows excess businesses losses to be treated as a net operating loss, a House-passed version of the proposal would modify this treatment and require such losses to be carried forward and subject to the $250,000 / $500,000 limitation in future years.
Low-Income Housing Tax Credit
The modifications to LITHC would increase credit authority for 2022-2024 but reduce credit authority in 2025 to levels below 2021. In addition, the proposal would for years 2022-2026 reduce to 25 percent from 50 percent the portion of a project that must be financed by tax-exempt bonds to access 4 percent LIHTCs. Finally, at least 8 percent of LIHTCs would have to be used to develop buildings serving extremely low-income households. Such projects would also receive a 50 percent basis boost.
The measure would increase the $10,000 cap on the state and local income tax deduction to $80,000 for the years 2021 through 2030.
Energy Tax Incentives
The proposal would modify energy tax incentives available to the multifamily industry. Firms meeting baseline requirements would receive a base credit, but they would have to meet prevailing wages and apprenticeship requirements to receive a bonus credit.
Specifically, firms can quintuple the base credit if they pay all contractors and subcontractors prevailing wages. Projects would also have to be staffed by apprentices (5 percent of labor hours must be performed by apprentices for projects commencing construction in 2022, 10 percent in 2023, and 15 percent thereafter, with a minimum of one apprentice for each contractor or subcontractor employing at least four workers. Exemptions would be permitted if apprentices are unavailable.
Energy Efficient Commercial Buildings Deduction
Beginning in 2022, the base credit for buildings with four or more stories that exceed 25 percent of ASHRAE standards in effect three years before a building is placed into service would be $0.50 per square foot for energy savings. It would increase by $0.02 per square foot for every percentage point by which energy savings exceed the 25 percent baseline threshold, up to $1.00 per square foot. Bonus amounts, as described above, are available for taxpayers meeting applicable labor requirements.
Additionally, taxpayers would be able to take a deduction for energy efficient lighting, HVAC and building envelope costs placed in service as part of a retrofit. The value of the deduction would be based upon how much energy savings is achieved. A minimum 25 percent reduction would be required to realize a $0.50 per square foot gain in the base credit.
The base credit would be increased by $0.02 per square foot for each additional percentage point in energy savings, up to $1.00 per square foot. Bonus amounts, as described above, are available for taxpayers meeting applicable labor requirements. NMHC has long sought a provision to address investment in building energy retrofits that result in significant energy savings relative to building’s own baseline energy performance to be eligible for the credit. The provision would be effective through 2031.
New Energy Efficient Home Credit
The proposal would extend the New Energy Efficient Home Credit (which applies to buildings of three or fewer stories) through 2031. For multifamily units acquired after 2022, a base credit of $500 is provided for units that participate in the ENERGY STAR Multifamily New Construction Program while meeting both national and regional program requirements. It is, however, unclear whether units will decide to participate in this program. A credit of $2,500 per unit is available if the building meets the applicable labor requirements described above. Finally, a base credit of $1,000 is available to multifamily homes certified as zero energy ready under the Department of Energy Zero Energy Ready Home Program.
Paid Family and Medical Leave
The legislation would provide up to four weeks of paid leave for the birth or adoption of a child, to care for a family member with a serious health condition or to recover from one’s own health condition that prevents them from working. Starting in 2024, eligible workers would be entitled to the benefit within a one-year period and the benefit amount would be tied to an individual’s average weekly earnings and hours.
A provision that would end the employer tax credit for paid family and medical leave in 2024 rather than 2026 is also included.
- $65 billion for public housing programs.
- $25 billion for the HOME Investment Partnerships Program
- $750 million for a new Housing Investment Fund to support private-sector investments in affordable housing
- $24 billion to further fund Section 8 Housing Choice Vouchers (HCV)
- $3.05 billion for the Community Development Block Grand (CDBG) program
- $2 billion for rural rental housing
The legislations calls for:
Flood Insurance
The legislation would eliminate $20.5 billion in debt owed by the Federal Emergency Management Agency (FEMA) for money it borrowed to pay NFIP claims, provide $600 million for flood mapping and $600 million for FEMA flood insurance discounts to low-income policyholders.
Data Privacy
The legislation puts aside $500 million for the Federal Trade Commission (FTC) to establish a new bureau focused on data privacy.
Small Business Support
The legislation would provide additional funding to the Small Business Administration (SBA). Specifically, it would provide $1.96 billion for a small dollar direct loan product under the 7(a) Loan Program, $1 billion for a new grant program to support startups and small businesses and $950 million to temporarily reduce waiver fees for 7(a) and 504 lending program loans that are $2 million or less.
