Tax Day fell on Tuesday, but lawmakers in both chambers took time all week to talk about taxes and introduce tax legislation.
What Went Down:
- On the final day of tax season, lawmakers shared their feelings about the Internal Revenue Code.
- The day after the filing deadline, IRS Commissioner Daniel Werfel urged lawmakers to regulate tax preparers.
- House GOP leaders introduce legislation that lifts the debt ceiling. The measure also defunds the IRS and modifies the energy tax incentives in the Inflation Reduction Act.
- House tax-writers say tax incentives in the Inflation Reduction Act benefit China.
- House tax-writers heard from Georgia small business owners about how to make their lives easier.
- Lawmakers introduced “high priority” tax bills this week. Will it matter?
Let’s get to it:
Tax Day:
April 18th was this year's deadline for taxpayers filing their tax returns without needing an extension. During this day, lawmakers spent plenty of time talking about the current set of tax laws:
- Senate Budget Chairman Sheldon Whitehouse (D-R.I.) would like to change withholding rules to ensure everyone pays their fair share.
- Senator John Kennedy (R-La.), a member on the Senate Budget Committee, thinks taxes are already too high and should be reduced.
- House Ways and Means Chairman Jason Smith (R-Mo.) said the 2017 tax reform bill lowered taxes for lower and middle-income taxpayers and suggested that its provisions be extended.
- Representative Richard Neal (D-Mass.), the Ranking Member on the House Ways and Means Committee, said more revenue will come to federal coffers because of the $80 billion given to the IRS, most of which goes toward enforcement.
- Several members of the House Small Business Committee would like to see the 199A pass-thru deduction extended beyond its 2025 expiration date. The Committee members also cautioned against raising the estate tax or lowering its exemption level.
Legislative Outlook: Lawmakers talk a lot. So far, there are few signs that a tax bill will pass Congress this year. If one does, tax increases are unlikely to be a part of it.
A link to an Eide Bailly article on this issue is here.
Regulating Tax Pros:
IRS Commissioner Daniel Werfel on April 19th called for Congress to pass legislation that would allow the Treasury Secretary to regulate tax preparers.
He proposed this idea while testifying before the Senate Finance Committee about the current tax filing season, which went smoother than past seasons.
President Joe Biden proposed in past budgets giving Treasury oversight power over tax preparers. So far, no such bill has passed Congress.
Legislative Outlook: Given that the current Congress is politically divided, it is unlikely that legislation regulating tax preparers will advance from Capitol Hill and be signed into law.
A link to an Eide Bailly article on this issue is here.
Debt Ceiling bill:
House Republicans included provisions in their debt limit legislation that would defund the IRS and scale back energy tax credits.
Both provisions were enacted as part of the Inflation Reduction Act.
Legislative Outlook: The House GOP debt limit bill is not expected to pass the Senate or become law. In fact, some are calling it an “unserious proposal.”
A link to an Eide Bailly article on this issue is here.
IRA helps China:
The House Ways and Means Committee held a hearing on April 19th on how the energy tax incentives in the recently enacted Inflation Reduction Act (IRA) benefit China over ordinary Americans.
“Solar cells manufactured in China and assembled into panels in the U.S. will qualify for these special interest tax breaks – even if they are implicated in human rights abuses,” Committee Chairman Jason Smith (R-Mo.) stated.
The Inflation Reduction Act created tax credits for buying new and used electric vehicles and using energy efficient heat pumps and solar panels for construction projects, just to name a few of the energy incentives.
Smith contends that these tax incentives profit China because the country dominates in providing minerals needed to make equipment like batteries, solar panels and wind turbines. Businesses in China are also teaming up with U.S.-based companies to garner these tax credits.
“The world’s largest solar manufacturer is a Chinese company that just had its solar shipments confiscated at the border last fall over forced labor concerns. They are now planning to partner with a business in Ohio to utilize these very credits to build a facility here in the United States. Are these the type of businesses we should be rewarding?” Smith asked.
Republicans on the Ways and Means Committee would like to curb the size of these tax credits and construct them in a way that China could not profit from them.
Legislative Outlook: A bill that undoes IRA’s energy tax incentives will not pass the Senate, which would be required for the legislation to become law.
A link to an Eide Bailly article on this issue is here.
Field Hearing:
Members onthe House Ways and Means Committee took to Peachtree City, Georgia, to hear from small business owners on how Washington can make their lives better. (Ever hear the joke “I’m from Washington D.C. and I’m here to help”? It’s a joke because Washington rarely helps.)
Business owners who testified before the Committee said lower taxes would better their lives.
Committee Chairman Jason Smith (R-Mo.) warned that the expiration of the 2017 tax reform bill would be a tax increase on individuals.
“If they expire it will increase your taxes by over $3 trillion,” he said.
The top tax issues discussed at the hearing were:
- Expensing R&D costs,
- Expanding the 163(j) interest deduction,
- Allowing for 100% Bonus Depreciation,
- Extending the 199A pass-thru deduction,
- Reforming 1099K filing rules,
- Lowering the estate tax, increasing its exemption.
Legislative Outlook: Passage of these measures will depend on how Chairman Smith writes the bill. House passage should be easy. The focus will be on constructing legislation that can pass the Senate (and passing in the upper chamber could depend on doing something with the Child Tax Credit).
Inside Baseball alert: House leaders fear passing a tax bill and sending it to the Senate. The reason is the Senate could modify the provisions in the House-passed bill, and then send it back to the House. The House would have to approve those changes, which could have political consequences that House leaders prefer to avoid.
Bill Introductions:
A bipartisan group of lawmakers in the House and Senate introduced legislation in their respective chambers that would modify the 163(j) interest deduction. Specifically, the bill shifts from EBIT to EBITDA for interest deductibility.
There was also a bipartisan, bicameral group of lawmakers who introduced legislation in their respective chambers that would allow R&D expensing.
Legislative Outlook: It is unclear if Congress will approve these measures. The answer could hang on the fate of the Child Tax Credit (CTC).
Expanding the CTC was linked to the business tax breaks last year, which is why none of the provisions became law. (CTC support was lacking.)
This year, some lawmakers say that this link has been broken. Others, like staff and lobbyists, say the link is still there.
House Republicans this summer are expected to introduce an “economic package” that will include R&D expensing, EBITDA for 163(j) and 100% Bonus Depreciation.
This package is not expected to extend any tax cuts from the 2017 tax reform bill. Their exclusion is because extending them would cost too much.
This package will likely pass the Republican controlled House. If/when the bill moves to the Senate, where Democrats are in control, we will see if the CTC expansion is still linked to the business provisions.
In other words, if the economic bill passes the Senate without a CTC provision, then the link has been broken. If it doesn't pass, then the link might still exist.
Pardon if this recap missed a monumental moment, but we can recap it next time!
Adios amigos!
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