Capitol Hill Recap: R&D Expensing, SALT Cap get Lawmakers' Attention this Week

March 31, 2023

Lawmakers touched upon several tax issues this week, from a possible solution for R&D expensing to raising the SALT cap.

What Went Down:

  • Senator Todd Young (R-Ind.) wants to link R&D expensing with tax incentives for affordable housing. Both parties support both provisions.
  • Lawmakers are discussing raising the SALT cap to possibly $20,000. Offsetting this cost will be a big deal.
  • Senator Joe Manchin (D-W.Va.) threatened to fight Treasury over electric vehicle tax credits rules that could benefit foreign suppliers and hurt U.S. fossil energy producers.
  • Senate Finance Chairman Ron Wyden (D-Ore.) blasted Swiss bank Credit Suisse for helping wealthy U.S. taxpayers hide taxable assets from the IRS.

Let’s get to it:

R&D Expensing:

The effort to expense R&D outlays could gain momentum.

Senator Young’s plan to pair R&D expensing with housing incentives could provide enough bipartisan support to pass the legislation from Congress.

For over a year, several lawmakers (who support R&D expensing) warned they would oppose the measure if the legislation did not include an increase the Child Tax Credit. Other lawmakers opposed the CTC inclusion because they said the increase in payments would worsen inflation. This disagreement has blocked R&D expensing from becoming law for over a year.  

Young's proposal could close the political divide by swapping the Child Tax Credit with housing incentives. 

Legislative Outlook: There is broad bipartisan, bicameral support for R&D expensing and housing incentives. If the legislation can be written that doesn’t offend anyone, we might see R&D expensing become law. 

That being said, nothing comes easy in Congress. Assuming the bill is written to everyone’s liking, there will still be procedural hurdles (like requiring the bill to start in the House), parliamentarian inquiries, points of orders, and lawmakers wanting to add provisions to the bill that will lower its odds for passage.

I'm looking at you, Senator Paul.


Raising or eliminating the SALT cap has been a Democratic priority since the cap became law, but not every Democrat supports this endeavor. Some of them represent poorer districts and contend that wealthy landowners should not be able to deduct all their state and local taxes. (These lawmakers probably don't know that the AMT likely gobbled up the SALT deduction prior to the 2017 tax reform bill.)

To get most Democrats onboard with modifying the SALT cap, the cost for amending the deduction will likely need to be offset. What sort of offsets would be germane? Tax increases on wealthy landowners. (Give with one hand, take away with the other.)

As for Republicans (who invented the SALT cap), many of them support it as is. However, some of their members now represent districts in high tax states, and many of them support some sort of SALT cap relief. Offsetting the cost, however, is likely not high on their list.

Legislative Outlook: Murky. Passage will likely take support from both parties. Injecting offsets into the conversation could kill the chance for passage. 

EV Credits:

Senator Manchin told an audience that the Biden administration is not following how lawmakers envisioned the Inflation Reduction Act being regulated.

“I think they’re going to try to screw me on this,” Manchin said at the SAFE conference, as reported by Bloomberg.

Manchin fears that the Biden Administration will instruct regulators to make electric vehicle tax credits widely available, which will benefit foreign car makers.

Fossil fuel regs are also a concern. From his Wall Street Journal opinion piece:

Specifically, they are ignoring the law’s intent to support and expand fossil energy and are redefining ‘domestic energy’ to increase clean-energy spending to potentially deficit-breaking levels.

The Senator argues that leaving fossil fuel regulations behind hurts U.S. energy security.

Legislative Outlook: It is hard seeing Congress addressing this issue since the chambers are politically divided.

In related news, Treasury on March 31 proposed guidance for EV tax credits, which is here.

Manchin was not happy about the release of this guidance, as reported by Punchbowl News ($):

‘It is horrific that the administration continues to ignore the purpose of the law which is to bring manufacturing back to America and ensure we have reliable and secure supply chains.

‘American tax dollars should not be used to support manufacturing jobs overseas. It is a pathetic excuse to spend more taxpayer dollars as quickly as possible and further cedes control to the Chinese Communist Party in the process.’

Credit Suisse:

Staffers working for Chairman Wyden produced a report this week showing that Credit Suisse Group violated a 2014 criminal plea agreement by continuing to help wealthy Americans hide assets from U.S. tax authorities.

From Wyden’s press release on the report:

Based on the committee’s findings, the total amount concealed in violation of Credit Suisse’s 2014 plea agreement is more than $700 million.  

The report states that the bank helped one U.S.-Latin American family hide $100 million from tax authorities.

Legislative Outlook: A bill addressing this issue is unlikely to occur, but there could be long nights for regulators at the Justice Department and IRS. 

From the report:

The Committee believes that the findings of this report merit immediate, rigorous investigations by DOJ and the IRS into whether Credit Suisse should face additional penalties for violating its plea agreement.

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

Adios amigos!

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