Capitol Hill Recap: SALT Helps Reopen The House

After 22 days of a rudderless House, Rep. Mike Johnson (R-La.) was elected the chamber’s Speaker on October 25^th – and the SALT cap helped make this happen.

What Went Down:

• House Republicans finally agreed on naming a Speaker and the SALT cap played a role in making it happen.
• Roundup of recent tax hearings.

Let’s Get To It:

Ring in the New King:

After 22 days of a rudderless House, Rep. Mike Johnson (R-La.) was elected as the chamber’s Speaker on October 25^th – and the SALT cap helped make this happen.

Johnson vowed to his Republican colleagues that under his leadership a tax bill would not be voted on the House floor unless it increased the SALT cap. This promise is why some GOPers voted for his speakership.

Given that this is Congress and the truth is sometimes slippery, Johnson’s promise can be taken two ways:

1. Literally: He will only bring a tax bill to the floor that includes an increase in the SALT cap.
2. Figuratively: He was never going to bring a tax bill to the floor so why not say it was because a SALT cap fix was not included in the legislation.

Johnson is new to House leadership and might not know that anti-SALT-cap Republicans were already offered a $20,000 increase in the SALT cap, making the cap $30,000. The anti-cappers turned it down, according to lawmakers on the tax-writing House Ways and Means Committee. They wanted the cap increased to $100,000, which these lawmakers said was not possible.

Johnson also might not know that congressional tax writers want to extend the SALT cap to help pay for continuing other tax provisions in the 2017 tax reform bill that are set to expire at the end of 2025. 199A tops the list on what tax-writers want to extend, which benefits owners of pass-thru entities – i.e., employers, some of whom that rely on the tax savings from 199A to make payroll.

Johnson might also be in the dark that tax staffers have been discussing the fate of the SALT cap for quite a while. They understand that the $10,000 is not much.

The current thinking among these staffers is to increase the SALT cap to dodge the “marriage penalty.” Currently, married couples filing jointly can only deduct $10,000 for their SALT deduction. If the marriage penalty is removed, joint filers would be able to deduct $20,000.

Staffers say that removing the marriage penalty is the best they can do for increasing the SALT cap. Any increase above $20,000 that would cut into revenue offsets needed to extend other tax measures from the tax reform bill.

Congress voting on tax legislation before year-end remains a longshot, but if a vote does occur Johnson’s promise to increase the cap will make it more difficult to extend other tax measures from the tax reform bill – assuming he keeps his word.

Still, House lawmakers are not expected to focus on taxes in the immediate future. Instead, they will focus on spending, which includes:

• A “supplemental” that will provide money to Israel, Ukraine, and possibly the U.S. border, among other things.
• A spending agreement that funds the Federal government beyond November 17^th.
  • The agreement could be twofold: Extending a short-term spending deal (aka: a continuing resolution) that would give lawmakers more time to pass a long-term spending deal (aka: appropriation bills).

Legislative outlook: Lawmakers in both chambers are unlikely to focus on taxes until all spending issues have been resolved for the rest of the calendar year. This means that lawmakers would likely have to extend federal funding into 2024 before they could focus on advancing tax legislation this year.

Lawmakers could also add tax legislation to a spending vehicle. But adding tax provisions to a spending measure could be tricky if both parties don’t support the tax measures. Opposition to tax measures could equate to disapproval for the spending vehicle, making the tax measures a “poison pill” for passing the overall bill.

Lawmakers usually shy away from attaching controversial provisions to must-pass legislation like a spending bill. The only way tax measures would be added to a spending bill would be if they enjoyed broad, bipartisan support from members in both chambers.

If a tax bill is voted upon in the House and Senate before year-end, the most likely measures included in the legislation would be R&D expensing, expanding the 163(j)-interest deduction, increasing Bonus Depreciation to 100%, and enlarging the Child Tax Credit. There could also be a fix for the SALT cap.

Will a tax bill pass this year? Don’t hold your breath. Most watchers of tax legislation continue to think that Congress will not pass a tax bill this year, but you never know.

Congressional Tax Action:

Several committees held tax-related hearings this week. The topics covered in the hearings are not expected to be active pieces of legislation this year.

Here is a quick rundown on what the hearings covered:

• The House Ways and Means Work & Welfare Subcommittee held a hearing on October 24th about how to measure poverty.
  • Much of the discussion during the hearing was focused on the “Supplemental Poverty Measure,” which is a way to determine if a family needs federal assistance because they live below the poverty line.
  • Some members on the Subcommittee highlighted that this calculation provides more relief to families living in poverty when compared to the measure for poverty assistance that the federal government currently uses.
  • Also mentioned during the hearing was how the expanded Child Tax Credit from the American Rescue Plan reduced the number of children living in poverty.
  • This provision has expired, and some members on the Subcommittee called for it to be renewed.
• A House Subcommittee a part of the Oversight and Accountability Committee held a hearing on October 24th about IRS operations. The hearing covered several tax-related issues, including:
  • Tax return processing delays,
  • Phone calls not being answered by agency employees,
  • How the agency will use the billions it is set to receive from the Inflation Reduction Act,
  • How the agency will focus on auditing wealthier taxpayers over poorer taxpayers, namely the correspondence audits on taxpayers receiving the EITC, American Opportunity Tax Credit, Health Insurance Premium Tax Credit, and the Additional Child Tax Credit,
  • The implementation of the Direct File Pilot program,
  • Securing taxpayer information.
    • Here’s the thing: The House Oversight and Accountability Committee, along with its Subcommittees, has no legislative jurisdictional power over the IRS. That authority falls squarely with the House Ways and Means Committee. Wednesday’s hearing was basically a House committee conducting a check-up on the IRS. If it discovered a problem, it unlikely would have the authority to fix it.
• The House Ways and Means Committee held a hearing on October 25th about education tax policy.
  • The hearing sought to highlight how funding opportunities should exist for non-traditional forms of education.
  • One idea presented at the hearing was broadening the type of education that could be paid using a 529 plan, like for:
    • Homeschooling
    • Additional K-12 expenses that are not already covered
    • Skilled trade or licensing programs (It was noted in the hearing that by 2030 America will have a skilled labor shortage of over 2 million)
  • There was also talk about allowing donations to that would fund scholarship for students K-12.
• The Senate Finance Committee held a hearing on October 25^th on creating a national paid leave program.
  • This would be a huge undertaking, like creating another Social Security Administration.
  • The hearing basically gave a high-level view of the challenges that the federal government would face if it creates a national paid leave program.
    • One of the biggest questions is how to fund a paid leave program.
    • Tax increases on businesses and wealthier individuals would likely be a part of the revenue pool.
  • No revenue solution was reached during this hearing.

Legislative outlook: These issues are not expected to be debated in Congress this year. But in future Congresses they could to take-up debate space. Stay tuned.

Pardon if this recap missed a monumental moment, but we can recap it next time!

Adios amigos!