Key Takeaways
- Tax bill in the works, but getting support is proving difficult.
Tax-writers seek to release tax legislation soon(ish) that would include business and family tax breaks, but getting everyone onboard is proving difficult.
What Went Down:
- The tax-writing chairmen seek to pass tax legislation before tax season begins, but support for the bill is a work in progress.
- House Speaker Johnson may not support the spending deal he cut with Senator Schumer, making it harder to focus on tax policy.
- Upcoming elections could have a major impact on IRA green energy tax breaks.
Let’s Get To It:
New Year, Same Congress:
Please note: Here is the current state-of-play regarding tax legislation in Congress. Developments could occur that might change the trajectory of the bill.
Leading tax-writers in Congress seek to release a proposal that would allow for domestic R&D expensing (not foreign), expand the 163 (j)-interest deduction, up Bonus Depreciation to 100%, and enlarge the Child Tax Credit. Other tax measures could also be included in the proposal, like enhancing the tax credit for building low-income housing.
Sounds great, right? But remember, the current Congress is the same as it was last year when tax legislation was largely ignored. To wit, the details of the current tax bill were expected to be released this week are now anticipated to be released next week.
The postponement leads some to wonder if the bill will ever see the light of day, and for good reason. Recent press reports are not painting a pretty picture for how behind-closed-doors tax discussions are going with lawmakers.
Negotiations over the package remain fluid…and tax writers were struggling Wednesday to nail down an agreement amongst themselves.
Senate GOP pessimism… House Democrats iffy…
Any effort to pass the tax package would likely start in the House. But between the pressure from the right on Speaker Mike Johnson and government funding deadlines about to hit, there’s not much room to maneuver here.
Specifics of proposals for a family and business tax break deal emerged on Capitol Hill, but there’s dissonance among Congress’s top taxwriters over how imminent an agreement may be…
Getting most lawmakers onboard with this tax bill – especially congressional leaders – is key to moving the legislation toward enactment.
So far, congressional leaders, who determine which bills get a vote, have yet to support allowing tax legislation floor time in their respective chambers.
Also, the ranking members on the tax-writing committees have yet to support the tax bill that was crafted by their chairmen.
These are not good signs for this bill becoming law.
Currently, the plan hatched by House Ways and Means Chairman Jason Smith (R-Mo.) and Senate Finance Chairman Ron Wyden (D-Ore.) is for the tax legislation to pass Congress and be enacted into law before tax season starts on January 29th. This seems like a heavy lift at this point.
Meanwhile, congressional leaders are focused on other issues. They must reach an agreement on funding the federal government beyond January 19th and February 2nd or suffer a partial shutdown. (More on spending is in the next section.)
There are also ancillary spending issues, like funding for Israel, Ukraine and the U.S. border. These are expected to occupy leaders’ attention once government funding is addressed.
The breadth of spending issues will likely make it hard for congressional leaders to focus on tax legislation anytime soon.
Legislative outlook: It would be easy to dismiss this tax bill and say that the current lack of support equates to it not passing Congress. But things change. Years ago, the top congressional issue was navigating a war in the Middle East. Then the bottom fell out of the economy and lawmakers quickly refocused their sights on economic solutions. In short, never say never when it comes to a bill passing Congress.
IRS funding:
A spending agreement recently struck between House Speaker Mike Johnson (R-La.) and Senate Majority Leader Chuck Schumer (D-NY) includes a $20 billion funding cut to the IRS that was a part of the recently enacted Inflation Reduction Act.
Under the Inflation Reduction Act, the tax agency was to receive a nearly $80 billion funding boost. The $20 billion cut in funding was to entice far-right House Republicans into supporting the funding agreement struck by Johnson and Schumer.
The ploy did not work.
Johnson has reportedly reneged on the Schumer deal because far-right members in his caucus refused to support it.
Speaker Mike Johnson had House conservatives in his office this morning to talk about the spending deal. And they all complained bitterly to Johnson for roughly two hours about FY2024 spending.
Every conservative who walked out of Johnson’s office came away with the impression that the Louisiana Republican is considering abandoning his spending deal with Senate Majority Leader Chuck Schumer.
But Johnson denied that he’s made any commitments at all. That may be worse, however. Johnson has clearly left hardline Republicans with the feeling that he may be open to walking away from the deal.
Whether or not Johnson made this commitment to the far-right members in his party is not the issue. The far-right members are likely to oppose the agreement, forcing Johnson to seek support from House Democrats to pass the spending bill.
This is the same scenario that far-right conservatives used to force then-Speaker Kevin McCarthy (R-Calif.) out of the speakership. Is Johnson next?
Legislative outlook: Spending issues are dominating lawmakers’ time, and if Speaker Johnson actually reneged on the spending deal then a partial shutdown of the federal government becomes more of a reality. Under such circumstances it is hard to see how a vote occurs on tax legislation until this mess is cleaned up.
IRA and election consequences:
The Senate Energy and Natural Recourses Committee held a hearing this week that examined federal electric vehicle incentives.
The hearing highlighted several aspects of the Inflation Reduction Act, including the many tax incentives that were enacted as part of the legislation. But that is not why this hearing is included in the Recap.
The bigger issue is the upcoming election. If a certain party wins the White House, the House and a super majority in the Senate, then there will likely be an attempt to repeal the tax incentive included in the Inflation Reduction Act. Several lawmakers and some presidential candidates have vowed to do this upon taking office.
Legislative outlook: Campaign promises tend to evaporate after candidates win the election, but this is something to monitor. The cost of the green energy tax incentives has skyrocketed since enactment, according to the Tax Foundation, a highly respected D.C. think tank:
The price tag of the Inflation Reduction Act’s green energy tax credits is much higher than we thought. This week, the Joint Committee on Taxation (JCT) provided a “very preliminary” new score of the credits, pegging the cost at $663 billion from 2023 to 2033. That’s up from $570 billion when scored in April (which excluded the electric vehicle credits) and more than double JCT’s original estimate last August of $270 billion over 10 years. Among other things, this indicates the Inflation Reduction Act does not reduce deficits after all.
Certain lawmakers would like to recoup those funds and use them to pay for their own legislative priorities.
Legislative outlook: Elections have consequences, but repealing tax measures in the Inflation Reduction Act will only happen if a certain party controls the White House, the House, and has a super majority in the Senate. Anything short of this, and these tax provisions stay on the books.
Expiring Tax Breaks:
The Joint Committee on Taxation this week released it annual report on expiring Federal tax provisions. The report is here.
Pardon if this recap missed a monumental moment, but we can recap it next time!
Adios amigos!
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