State of Play: Will Congress Pass a Tax Bill this Year?

By Jay Heflin
August 29, 2023

Tax legislation passing Congress by year-end currently seems unlikely, but things could change.

Pessimism is King on Capitol Hill: There is a saying on the Hill that goes something like this: “All bills are considered DOA until they pass.”

The “DOA” refers to “Dead on Arrival” and the tax bill that several lawmakers have tried for over a year to pass through Congress is definitely in the DOA category. Few are expecting the bill to rise from the grave, but unforeseen events can occur that could change the bill’s trajectory.

For example, the Tax Cuts and Jobs Act, Obamacare, the Bush tax cuts were all considered DOA when first introduced. Then, inch by inch, opposers became supporters and the bills were enacted into law.

A year-end tax bill could face a similar fate, but right now the prospect for passage looks dour.

Current outlook for passing a tax bill this year: In conversations with staffers and lawmakers on the tax writing committees, the most optimistic prognosis of a tax bill passing Congress this year was one staffer saying he was “hopeful” that such an event would happen. The others were far more cynical in their tax predictions.  One determined the prospect of passing a tax bill this year to be “impossible.”

The reason for the pessimistic outlook in passing a tax bill this year is multifaceted, and include:

A Partial Shutdown of the Federal Government: This will be lawmakers’ primary focus until funding is agreed upon.

Lawmakers must extend federal funding beyond September 30th before the end of next month. If they fail to do this, non-essential areas of the federal government will no longer be able to operate.  

This means that IRS operations will be severely curtailed. However, tax deadlines remain the same, which means a backlog of documents will likely gather at the IRS until employees return to work.

To avoid a partial shutdown, certain congressional leaders would like to extend current funding levels into early December. However, many rank-in-file lawmakers do not agree with this plan. One set would like to cut funding. The other set would like to increase funding. Getting enough lawmakers to support and pass an extension of current funding levels is expected to be problematic.

Several political pundits expect that a partial shutdown of the federal government is more likely than not. If they are correct, no legislation will pass Congress until the federal government reopens.

Disagreement over which tax provisions should be in the bill: The argument over which tax provisions should be included in the tax bill has been happening for over a year and there is no end in sight for this dispute stopping.

The House Ways and Means Committee approved three tax bills in June that were supposed to become the basis for tax legislation that would ultimately pass both chambers of Congress and be signed into law.

However, disagreements over the provisions that were included in the bill stopped the legislation from passing both chambers.

The House was originally expected to pass this tax bill in June. When that didn’t happen, the goal was moved to passage in July. That also didn’t happen, making lawmakers and staff wonder if a tax bill could pass their chamber.

The reason for their doubt was because a handful of Republicans refused to support the bill unless it either repealed or increased the SALT cap. House Democrats were never expected to support the legislation, and the refusal by some Republicans to support the bill made passage from the chamber impossible.

There were also Republicans representing low-tax districts who didn’t want the SALT cap adjusted. Some of them threatened to withhold their support for the tax bill if the cap was modified.

House leaders were faced with a no-win situation. Relying solely on Republican support, the tax bill would have failed in the House if the SALT cap was modified. It would have also failed if the SALT cap was not modified. 

An agreement has not been reached on how to modify the SALT cap to garner full Republican support for the tax bill, according to a lawmaker who sits on the tax-writing House Ways and Means Committee. Until an agreement is reached, it is unlikely that the House will vote on the legislation.

The Child Tax Credit is another problem with the bill when it comes to passing the Senate. Staffers have explored how to expand the tax provision, but their efforts have so far been in vain as they have yet to create a measure that would garner bipartisan support.

To sum things up, tax-writers need to get an agreement with House Republicans on the SALT cap for the bill to pass the House. They must also get a bipartisan agreement on expanding the Child Tax Credit for the bill to pass the Senate. Both are considered extremely heavy lifts and, according to staffers and lawmakers, little to no progress has been made in addressing either issue.

Passing tax legislation is not a top priority: Even if a partial shutdown of the federal government does not happen, lawmakers have other legislative priorities more pressing than passing a tax bill.

One top priority is passing a farm bill before year-end. Its funding ends on September 30th, but other farm-related provisions expire at the end of the year, according to the Capitol Hill newspaper Roll Call:

The current bill expires on Sept. 30, but the new deadline for a 2023 farm bill appears to be Dec. 31. On Jan. 1, 2024, some farm policy would revert to controls on production and costly price supports adopted in the 1940s.

Lawmakers working on the farm bill expect passage no earlier than the end of the year, assuming passage occurs.

Funding fights for other federal organizations could also extend into December. The debate over spending levels for the Federal Aviation Administration and agencies protecting the border are expected to be time intensive and extend into the holiday season. These are “must pass” bills and are expected to take precedent over passing tax legislation.

Passing a tax bill is not considered "must pass" until 2025, according to lawmakers and staffers.

Waiting until 2025: House Ways and Means Chairman Jason Smith (R-Mo.) recently told a D.C.-based group that if tax legislation fails to pass Congress in 2023 the next opportunity for passage would be 2025.

A senior tax staffer characterized passing a tax bill from Congress as a “2025 issue.”

Another staffer referred to 2025 as the “World Series for tax.” The reason is because 2025 is when individual tax provisions in the 2017 tax reform bill expire (if they hadn’t already). The battle over renewing them will be as arduous as winning the Fall Classic.

Discussions are already occurring on Capitol Hill about how to extend the 2017 tax measures while also addressing current tax issues with R&D, the 163(j)-interest deduction, and Bonus Depreciation. The biggest hurdle for passing all of these measures: Cost.

Extending the expired 2017 tax measures for eight years (2026 thru 2033) will cost $3.3 trillion, according to the think tank the Committee for a Responsible Federal Budget. Modifying R&D, the interest deduction, and Bonus Depreciation would add on more cost.

Offsetting the cost of the bill could also be for-not, according to tax staffers. They contend that many of the taxpayers who would benefit from the tax cut extensions would also be the ones absorbing the tax increases. Congress would essentially be giving with one hand while taking away with the other. Enactment would basically be a zero-sum gain in terms of using tax policy to create an economic effect, according to certain staffers.

Bottom line: The odds are currently against tax legislation passing Congress this year. But circumstances can change over time and improve those odds. Stay tuned.

Expand Full Article

We're Here to Help

We are here to help
From business growth to compliance and digital optimization, Eide Bailly is here to help you thrive and embrace opportunity.
Speak to our specialists