This bill — known as the Build Back Better Act — would enact a more than $1.635 trillion social spending plan, containing tax reforms to provide relief to taxpayers in high-tax states or who have dependent children; create entitlement programs, including a federal paid leave and childcare; expand preschool programs; subsidize the deployment of green energy technologies; and provide temporary parole protection for certain unauthorized immigrants. The bill is estimated to increase budget deficits by more than $357 billion over the fiscal year 2022-2031 period. A breakdown of its various major provisions can be found below.
This section would make a number of changes to the tax code, including raising certain tax rates, altering some deductions, and changing several tax credits. A breakdown of the major provisions can be found below.
State and Local Tax Deduction (SALT): This bill would raise the cap on the state and local tax deduction from $10,000 to $72,500 for individual filers (or $36,250 for estates, trusts, or married spouses filing separately). The increased SALT deduction limit would apply to tax years starting after 2020 and be in effect through 2031. It’s projected to cost the federal government roughly $230 billion from fiscal year 2022 through 2026 due to foregone tax revenue relative to current tax policy. (The SALT deduction allows taxpayers to deduct sales, income, and property taxes paid to their state and local governments up to the limit.)
Child Tax Credit (CTC): This bill would extend for one year the increased child tax credit as enacted in the American Rescue Plan, and continue advance payments through 2022. For 2022, the CTC would be $3,000 (or $3,600 for children under age 6), and for most taxpayers the credit would be advanceable. The Social Security Number requirement for qualifying children, which was added by the Tax Cuts and Jobs Act, would be eliminated, thus allowing the CTC to be claimed for children who aren’t American citizens.
Under this bill, the CTC would begin to phase out households with income above $150,000 for joint filers, $112,500 for heads of household, and $75,000 for all other filers. A “look-back rule” for the phaseout threshold would allow taxpayers to use prior-year income for purposes of determining the phaseout of the credit.
After 2022, the CTC would be reinstated as fully refundable, and would no longer be subject to either the $1,400 limit on refundability nor the earned income phase-in.
These changes to the child tax credit would cost an estimated $167 billion over the FY2022-2026 period.
Earned Income Tax Credit (EITC): This section would permanently extend the earned income tax credit for taxpayers with no qualifying children (the “childless EITC”) as enacted in the American Rescue Plan. The minimum age to claim the childless EITC would be reduced from 25 to 19 (except for certain full-time students) and the upper age limit would be eliminated. The childless EITC amount would also be increased due to an increased credit percentage and phaseout percentage from 7.65% to 15.3%; increasing the maximum credit amount to $9,820; and increasing the income threshold at which phaseout begins to $11,610 for non-join filers. Those provisions would increase the maximum credit amount from $543 to $1,502 in 2021. These changes would cost an estimated $13 billion over the FY2022-2026 period.
Nicotine Tax: A new excise tax would be imposed on nicotine that has been extracted, concentrated, or synthesized. The amount of tax would be the greater of the dollar amount specified for small cigarettes or $50.33 per 1,810 milligrams of nicotine.
Payroll Credit for Local News Journalists: This section would allow an employment tax credit for each calendar quarter wages, not to exceed $12,500, paid to local news journalists by an eligible news organization or qualifying broadcasting station. The credit for each calendar quarter couldn’t exceed the total amount of employment taxes paid by respect to all employees. Any excess would be treated as overpayment and allowed as a refund.
Tax Enforcement: This bill would provide $21 billion to the Internal Revenue Service (IRS) to increase its tax enforcement efforts over the FY2022-2031 period, which are projected by the CBO to bring in $207 billion in revenue over the same period.
Tax Increases on High-Income Individuals: The net investment income tax would be expanded to cover net investment income derived in the ordinary course of a trade or business for taxpayers with greater than $400,000 in taxable income for individuals or $500,000 for joint filers, as well as for trusts and estates. This tax wouldn’t be assessed on wages on which FICA is already imposed, and would apply beginning after December 31, 2021.
This section would also prohibit taxpayers from making further contributions to IRAs if it would cause the total value of an individual’s IRA and defined contribution retirement accounts to exceed $10 million.
Corporate Tax Rates: This section would impose a 15% corporate alternative minimum tax (AMT) on adjusted financial statement income for corporations with such income in excess of $1 billion. An applicable corporation’s minimum tax would be equal to the amount by which the tentative minimum tax exceeds the corporation’s regular tax for the year. Tentative minimum tax would be calculated by applying a 15% tax rate to the adjusted financial statement income of the corporation for the taxable year (after taking into account the AMT foreign tax credit and the financial statement net operating losses).
An excise tax of 1% would be imposed on publicly traded U.S. corporations for the value of any of its stock that is repurchased by the corporation during the taxable year. The amount of repurchases subject to the tax is reduced by the value of any new issuance to the public and stock issued to the employees of the corporation. This would apply to stock repurchases after December 31, 2021.
GREEN ENERGY PROVISIONS
This section contains a number of provisions aimed at increasing the deployment and use of green energy technologies through tax provisions. In total, the section would cost a total of $114 billion over the FY2022-2026 period. A breakdown of its various provisions can be found below.
Green Energy Tax Credits & Incentives: This bill would create, expand, or modify a number of clean energy-related tax credits and incentives, including:
Production tax credits (PTC) for energy sourced from wind would be increased through 2026; the PTC for solar energy would be reinstated and extended through 2026; the PTCs for municipal solid waste, qualified hydropower, marine and hydrokinetic renewable energy facilities, and geothermal would also be extended through 2026.
Investment tax credits (ITC) for solar, geothermal, and energy storage or transmission facilities would also be extended through 2026.
Production credits for zero-emission nuclear power would be provided through 2027.
Credits for carbon capture would be extended for facilities that begin construction before the end of 2031 that capture at least 1,000 metric tons of carbon oxide each year. Electricity generating facilities must capture at least 18,750 metric tons of carbon oxide and 75% of total carbon emissions. Other facilities must capture no less than 12,500 metric tons of carbon oxide.
Income and excise tax credits would be extended for biodiesel ($1 per gallon through 2026); small agri-biodiesel ($0.10 per gallon through 2026); and alternative fuels ($0.50 per gallon through 2026).
Electric Vehicle Tax Credits: This bill would establish, increase, or modify a number of tax credits for electric vehicles, including:
New plug-in electric vehicles for individuals would be eligible for a credit of $4,000 plus an additional $3,500 for vehicles placed into service by January 1, 2027, with battery capacity of at least 40 kilowatt hours and a gasoline tank capacity of no more than 2.5 gallons. The amount of credit would be increased by $4,500 if the final assembly is at a facility in the U.S. operating under a union-negotiated collective bargaining agreement. The credit would also increase by $500 if the vehicle model is powered by battery cells manufactured in the U.S. Starting in 2027, the credit would only apply to vehicles for which final assembly was in the U.S.
No credit would be given for vehicles with a manufacturer’s suggested retail price of more than $80,000 for vans, SUVs, and pick up trucks; or $55,000 for other vehicles. The credit phases out by $200 for each $1,000 of a taxpayer’s modified adjusted gross income exceeding $250,000 for individuals, $375,000 for head of household, and $500,000 for married joint filers.
Previously-owned plug-in electric vehicles would be eligible for a base credit of $2,000 for qualifying used EVs with an additional $2,000 credit based on battery capacity.
A 30% refundable tax credit would be established for qualified electric bicycles placed into service before January 1, 2026. Starting in 2022, taxpayers could claim a credit of up to $900 for electric bicycles.
SOCIAL PROGRAMS & ENTITLEMENTS
This section would create a number of new federal entitlements, including universal pre-kindergarten, paid leave and childcare. A breakdown of those programs can be found below.
Paid Leave: This section would entitle full-time and part-time workers, including gig workers and other self-employed workers, in both the private and public sectors to receive a federal comprehensive paid leave benefit based on their past earnings if they satisfy several criteria after filing an application, including that they:
Have (or anticipate having) 4 or more hours of qualified caregiving during a week in the 90-day period prior to submitting the application, or up to 90 days after submitting the application if based on an anticipated need.
Have any wages or self-employment income at any time during the period beginning with the most recent calendar quarter that ends at least 4 months prior to the start of the individual’s benefit period and ending with the month before the benefit period ends.
Have at least $2,000 in wages during the most recent 8-quarter period that ends at least 4 months prior to the start of the individual's benefit period. (This dollar amount would be indexed by the Social Security Average Wage Index for years after 2024.)
Workers would be covered without regard to tenure on their current job, so long as they meet eligibility criteria. Coverage would be provided either through a federal benefit, a qualifying “legacy state” or a comprehensive employer-sponsored plan for which the state or employer is reimbursed by the federal government.
If workers receive wages, self-employment income, or other compensation (including paid sick leave, paid vacation, or other paid time off) while performing caregiving, such time generally doesn’t constitute qualified caregiving under this section. However, an employee may receive compensation from their employer to supplement or “top up” their weekly federal benefit amount, so long as the employer compensation plus the federal paid leave benefit combined don’t exceed the worker’s regular rate of pay. Additionally:
Leave for caregiving from employment covered under an employer-sponsored plan or a legacy state plan doesn’t constitute qualified caregiving for the purpose of the federal benefit.
Individuals who are no longer employed but recently had covered employment under the law of a legacy state for all or some of their regular workweek would be treated as taking leave from legacy state covered employment for the corresponding share of their regular workweek.
The restrictions above would apply only to the specific hour of qualified caregiving for which paid leave is sought. The restrictions wouldn’t prevent workers with multiple jobs covered by different programs from taking leave in lieu of work and receiving benefits from the program that covers each job. Similarly, the restrictions wouldn’t prevent a worker from receiving benefits for the qualified caregiving leave they take from one job, while they continue to work a second job during other hours of the day.
Individuals would be ineligible for comprehensive paid leave benefits for five years after any finding that they used false statements to secure such benefits.
Childcare and Universal Preschool: This bill would establish a birth through five childcare and early learning entitlement program, along with universal preschool, which would provide subsidized childcare and preschool for eligible families. The program would end at age six. The birth through five childcare and early learning program would cost a total of $273 billion over the FY2022-2031 period; while the universal preschool program would cost $109 billion over the same period.
This section would provide unauthorized immigrants who entered the U.S. before January 1, 2011, have continuously resided in the U.S. since then, and aren’t inadmissible under the Immigration and Nationality Act an opportunity to request and receive a grant of parole if they take several steps successfully, including:
File an application for parole;
Pay an administrative fee to cover processing costs; and
Complete background and security checks to the satisfaction of the Secretary of Homeland Security.
If approved, parole would be granted by the Dept. of Homeland Security to provide employment and travel authorization to paroled individuals, and to make them eligible for a REAL ID compliant driver’s license or state identification card. Parole would be granted for 5 years and could be extended until September 30, 2031, if the individual continues to qualify for parole based on the policies and implementing guidance that were in effect when the individual was initially granted parole. The Secretary of Homeland Security would be prohibited from revoking parole unless they determine an individual to be ineligible for parole. Individuals granted parole under this section wouldn’t be counted for the purpose of calculating the annual worldwide level of family-sponsored immigrants.
Unused employment visas from fiscal years 1992 through 2021 would be recaptured. Certain individuals selected to apply for diversity visas in fiscal years 2017 through 2021 but were refused or denied admission because of certain executive orders or COVID-19 restrictions would be permitted to reapply.
This section would make several changes to federal financial aid programs, including Pell Grants, in addition to providing funding for certain classifications of colleges and universities, including:
The maximum Pell Grant would be increased by $550 at public and private non-profit institutions of higher education.
Dependent students who file a FAFSA application for federal financial aid would automatically be eligible for a maximum Pell Grant if their parents have received a means-tested federal benefit in the last 24 months.
Eligibility for certain federal financial aid programs, including Pell Grants, would be extended to individuals with a grant of deferred departure under the Deferred Action for Childhood Arrivals (DACA) policy, as well as those with temporary protected status (TPS) or deferred enforced departure).
An increase of $6 billion in mandatory appropriations would be made to historically black colleges and universities (HBCUs), tribal colleges and universities (TCUs), and minority serving institutions (MSIs).
An additional $3 billion would be provided for a competitive grant program to improve the research capacity and research and development infrastructure at four-year HBCUs, TCUs, and MSIs; the program would consist of planning grants for a period of one to two years and implementation grants for a period of one to five years. Institutions would receive priority when applying for an implementation grant if they previously received a planning grant.