Capitol Hill Recap: Lawmakers on Break, Tax Rumors, IRS Plan

House and Senate lawmakers are on a two-week Spring break, staffers gossip about taxes, and IRS to produce a spending plan.

What Went Down:

• Lawmakers left the nation’s capital late last week and are expected to return on April 17th.
• In their absence, staffers did not have to prep for hearings, speeches, or meetings. Instead, they had time to gossip about the tax issues Congress could tackle in the future, like R&D expensing. 
• The IRS spending plan is expected to be delivered to Congress this week, and it will likely prompt a slew of congressional hearings.  

Let’s get to it: 

Lawmakers Hit the Road:

House and Senate lawmakers are on a two-week recess. They are scheduled to return to Washington on April 17^th.

Until they return, the hallways and hearing rooms on Capitol Hill will be quiet. This is a great time to meet with staffers and shoot-the-breeze.

Staffer Rumor Mill:

Taxes are not a front-burner issue, but efforts are underway to pass a tax bill. In a politically divided Congress, there is a desire in both parties to pass legislation on a bipartisan basis. This accomplishment would show that lawmakers with opposing views can work together. So far, there appears to be bipartisan, bicameral support to pass tax incentives for housing.

That being said, the trek to passage will not be easy. Lawmakers may not be on the same page when it comes to providing housing relief.

For example, Senate Finance Chairman Ron Wyden (R-Ore.) reintroduced legislation on March 7th that has bipartisan support and, if enacted, would provide tax incentives to improve the availability and affordability of housing. However, there are questions about whether this bill could pass the House.

As reported in last week’s Recap, Senator Todd Young (R-Ind.) wants to link R&D expensing with tax incentives for affordable housing. Both parties support both provisions, but there are questions as to whether congressional Democrats will abandon linking R&D expensing to an expansion of the Child Tax Credit.

Conversations over housing incentives are at the beginning stage. If lawmakers get their act together and the parties in both chambers agree on a housing tax bill, R&D expensing will likely tag along.

Senate Republicans are expected to oppose any housing measure if it doesn’t also allow R&D costs to be expensed. Expanding the Section 163(j) interest deduction and returning bonus depreciation to 100% could be included as well.

The Child Tax Credit, however, could be an issue.

GOP’s opposition to housing legislation does not extend to an expansion of the Child Tax Credit. In other words, they're fine with the CTC remaining as-is. 

Meanwhile, it is unclear if Democrats will agree to housing incentives for lower-income taxpayers and leave an expansion of the Child Tax Credit on the negotiation table.

Legislative Outlook: Questions regarding passage are many, and include:

1. Can lawmakers agree on housing incentives that can pass both chambers of Congress?
2. Will Democrats sacrifice expanding the Child Tax Credit for providing affordable housing incentives?
3. Will Republicans use the bill to pare back energy provisions in the recently enacted Inflation Reduction Act? (Such provisions are called “poison pills” because they instantly kill any chance to pass the bill.)
4. Will the cost of the bill become too big and lose enough support to not pass?

Currently, it is not expected that a housing bill would extend tax cuts from the 2017 tax reform bill. Folks fear that adding them would make the housing bill too expensive. 

IRS Spending Plan:

IRS Commissioner Daniel Werfel is expected this week to submit to Congress the agency's plan for spending the $80 billion it will receive from the Inflation Reduction Act.

The plan was supposed to be submitted to Congress in February. That didn't happen.

The tax agency will receive the money over a ten-year period.  

Once details of the plan are known, expect congressional hearings on this issue. 

One question that will likely be asked at these hearings is how the IRS will keep its promise to not increase audits on taxpayers earning less than $400,000 a year, when compared to historical norms.  

Legislative Outlook: The House could pass legislation that rescinds the IRS money. The Senate will not pass such legislation. And President Biden would not sign it into law. Consider all talk about defunding the IRS a messaging exercise.  

The IRS spending plan was released after the Recap was posted. The plan is here.