Congress's leading tax-writer wants to hear from the public about which 2017 tax reform measures should stay and which should go. He’s also bullish on a year-end tax bill while few others are.
What Went Down:
- Vetting the 2017 tax reform measures is set to begin next year and the tax chief is bullish on a year-end tax deal.
- Lawmakers respond to government report highlighting IRS's challenges for ensuring taxpayer information.
- House Budget Committee proposes budget that extends 2017 tax cuts and it will likely go nowhere.
Let’s Get To It:
Mr. Smith talks in Washington:
House Ways and Means Chairman Jason Smith (R-Mo.) wants to hear from the public about extending the 2017 tax reform provisions that will soon expire.
“Next year I plan to do listening sessions all over the country,” Smith told Punchbowl News on September 20th.
The individual tax provisions in the tax reform bill are scheduled to expire at the end of 2025. Smith would like to hear firsthand on how those provisions fared over the last few years and if modifications to them are needed.
“Was that tax provision helpful?” Smith rhetorically asked. “Should it be extended? Should it be made permanent? Should it be left to expire? How could it be modified to be made better?”
Smith seeks to extend the most useful provisions before they expire. If they're not extended, a massive tax hike will occur in 2026.
“If we do nothing in 2025 it’s a $3 trillion tax increase on virtually all Americans because it affects every individual rate,” Smith said.
Smith was also bullish about Congress passing a tax bill before year-end. The legislation would allow for R&D expensing, expand the 163(j)-interest deduction and up Bonus Depreciation to 100%.
Despite his optimism, disagreements over the Child Tax Credit and the SALT cap remain, which continue to stall progress on passing tax legislation by year-end. During his Punchbowl interview, Smith was asked about negotiations over the SALT cap and he preferred to not discuss it.
“I’d rather talk about pepper,” he said.
Several sources, including lawmakers on the tax-writing committees and tax staffers, believe that the business tax provisions will not be addressed until 2025. Smith recently admitted that 2025 would be the next opportunity for addressing these issues if Congress couldn’t fix them this year.
If 2025 becomes the ‘year of tax,’ then the 2024 elections will have a huge influence on how those tax provisions are addressed. The political parties’ positions on these tax measures are extremely different and the party that runs Washington will have the upper hand in those negotiations.
“It depends on how the elections go for how the tax package is created,” Smith said. “It’s going to be the Superbowl of taxes in 2025.”
Legislative Outlook: Everyone one agrees that extending the 2017 tax reform measures will wait until 2025. Regarding legislation modifying business tax provisions that some want enacted this year, Smith said that progress has been made on this issue but offered no evidence to support his claim. We’re in a wait-and-see moment for whether there is action on these measures by year-end.
GAO Hits IRS:
The leading Republicans on the congressional tax-writing committees responded this week to a government report that highlighted IRS security risks when protecting confidential taxpayer information.
“From serious breaches of confidential taxpayer data and document mismanagement to poor cybersecurity training and infrastructure vulnerabilities, the IRS has a decades-long and troubled history with adequately protecting American taxpayers’ information,” said Senate Finance Ranking Member Mike Crapo (R-Idaho).
Crapo was responding to a U.S. Government Accountability Office (GAO) report that found the IRS is not doing well in safeguarding taxpayer information. Its lackluster effort could be a reason for why confidential taxpayer data has become public in several news articles.
IRS contractors seemed to be an issue.
“IRS contractors are at increased risk of being unprepared to handle taxpayer information,” the GAO report states and calls on Congress to do something about it.
From the report:
In certain circumstances, IRS faces challenges ensuring taxpayer information it shares—as authorized by law—is properly protected. Federal tax law gives IRS the authority to inspect safeguards for agencies that receive taxpayer information from IRS in certain circumstances. However, in other cases where IRS shares taxpayer information pursuant to different statutory authority, it does not have direct authority to inspect agency safeguards. For these cases, Congress could provide IRS with direct authority to inspect agencies' safeguards, which would give IRS additional assurance that information will be protected sufficiently.
House Ways and Means Chairman Jason Smith (R-Mo.) said the GAO report indicates that the IRS may not be ready to prepare tax returns. The agency sent its Direct File report to Congress in May. Shortly after, it received $80 billion from the Inflation Reduction Act to improve enforcement. (Some of that money was clawed back.)
“[A]s the IRS works to establish a new e-file system that would make the agency tax preparer, collector, and auditor, the public is no closer to learning who is responsible for the politically timed ProPublica leak of confidential taxpayer information. This report is further proof that the IRS does not need a raise; it needs a reckoning,” Smith said.
It would not be surprising if Smith holds a hearing on this issue.
Legislative Outlook: Any legislation that cuts IRS funding and extends tax cuts may pass the House in the current Congress, but it is unlikely to pass the Senate. It will not become law.
House Budget and Tax Cuts:
House Budget Chairman Jodey Arrington (R-Texas) released his budget proposal for fiscal year 2024 that would seek to make the 2017 tax reform provisions permanent.
It also repeals the tax relief for green energy projects in the Inflation Reduction Act, and ends the $80 billion funding increase to the IRS.
The budget assumes extraordinary economic growth – which would provide increased revenue to the federal government – that most economists are not expecting.
Legislative Outlook: Budgets do not become law. This one is not expected to pass the Senate and passage in the House is iffy considering that it proposes drastic cuts in spending. Some House Republicans do not support spending cuts. A Republican lawmaker once told me that his constituents supported spending cuts unless they were affected by them. In townhalls, when his constituents complained about government spending, the lawmaker would highlight the amount of cash his district received and how it benefited the voters. That quieted complaints about spending.
Pardon if this recap missed a monumental moment, but we can recap it next time!
Adios amigos!
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