Capitol Hill Recap: Tax Bill Materializes, But Will It Pass?

The leading tax-writers released a tax bill this week that so far has failed to gain much support from many lawmakers, which raises questions about whether it will pass Congress.  

What Went Down:

• Tax chiefs propose legislation, but will the rest of Congress support it?
• Senate Budget talks up tax increases – again.

Let’s Get To It:

Tax Bill Appears:

Congressional tax chiefs this week released a tax proposal that allows for domestic R&D expensing (not foreign), expands the 163 (j)-interest deduction, ups Bonus Depreciation to 100%, and enlarges the Child Tax Credit.

It also:

• Increases the threshold for 1099 (NEC and MISC.) reporting, from $600 to $1,000;
• Increases the maximum amount a taxpayer may expense under Section 179, from $1 million to $1.29 million, if certain conditions are met;
• Prevents double taxation regarding certain transactions between the U.S. and Taiwan;
• Extends certain disaster relief provisions.

The bill is expected to cost roughly $80 billion, which is partially offset by modifying the Employee Retention Tax Credit (ERTC):

• The new filing deadline for the ERTC is January 31, 2024. Under current law, taxpayers can claim relief until April 15, 2025.
• The bill increases penalties for filing fraudulent claims to $200,000 in some cases. That’s up from $1,000.

Modifications to the ERTC are expected to raise roughly $75 billion, thereby covering most of the bill’s cost.

Details on the provisions are here.

Releasing tax legislation is one thing. Passing it from both chambers of Congress is another.

Right now, it is unclear if the legislation will pass Congress. Currently, the primary backers for the bill are its authors: House Ways and Means Chairman Jason Smith (R-Mo.) and Senate Finance Chairman Ron Wyden (D-Ore.).

Senate Majority Leader Chuck Schumer (D-NY) has spoken positively about the bill. But Speaker Mike Johnson (R-La.) has not yet made public his position on the bill. For the bill to pass Congress, both leaders must agree to host a vote on the legislation.

Meanwhile, the ranking members on both tax-writing committees have yet to support the legislation.  Other lawmakers, in both political parties, have also expressed concern about the bill. Much of the discourse centers on the Child Tax Credit. Some lawmakers want it increased. Others want it decreased. The business-related tax provisions are not nearly as controversial as the family-related relief.

There is also an issue with the calendar. The House Ways and Means Committee is expected to discuss and possibly amend the bill on January 19^th. That means a vote this week on the legislation is highly unlikely. Also, the House will recess next week and won’t return until January 29^th, making it very hard to pass this bill before the start of tax season, which also begins on January 29^th.

Legislative outlook: If this bill does not pass Congress, it is hard to see how another tax bill would have a better outcome. This piece of legislation was written by the tax-writing chiefs – the tax experts in Congress.

If this bill fails to pass, it is very likely that the next tax discussion occurring on Capitol Hill will be in 2025 and focus on extending the individual tax measures in the Tax Cuts and Jobs Act.

Closing “Loopholes:”

The Senate Budget Committee held a hearing this week titled “The Great Tax Escape: Closing Corporate Loopholes that Reward Offshoring Jobs and Profits.”

Spoiler alert: The hearing was about the taxation of multi-national corporations.

This wasn’t the first tax-centered hearing the Committee hosted. Late last year, the Committee held a hearing titled “Fairness and Fiscal Responsibility: Cracking Down on Wealthy Tax Cheats.” It focused on, you guessed it, taxing the wealthy.

House Budget Committee Chairman Sheldon Whitehouse (D-RI) said his goal is to increase taxes on these entities.

“Addressing how tax cuts for large multinational corporations and ultra-wealthy individuals have worsened income and wealth inequity in this country and have hurt small businesses and have blown a massive hole in the federal budget [are] creating enormous budget deficits,” he said. “We have proposals on our side of the dais to raise revenue from the ultra-wealthy and large corporations.”

Indeed, they do. But alas, the Budget Committee does not have the jurisdictional authority to pass tax legislation that can become law. That is the province of the Senate Finance Committee.   

More importantly: A Republican-controlled House means their tax increases will likely remain on the shelf this Congress. After the 2024 elections, a new Congress will be installed in 2025.

If Democrats control Congress and the White House in 2025, tax increases will likely be discussed. However, pursuing them might not occur instantly. Instead, lawmakers are more likely to extend tax cuts.

Legislative outlook: The tax cuts included in the Tax Cuts and Jobs Act affecting individuals (and pass-thrus) expire at the end of 2025. At a bare minimum, lawmakers are expected to extend these measures affecting taxpayers who earn less than $400,000.

President Joe Biden has repeatedly promised that taxpayers falling into this income category should have their tax cuts extended. Prolonging these tax breaks will likely take precedent over passing tax increases.  Of course, tax increases could accompany the extension of tax cuts to offset their cost, but that would likely be politically unpopular.

Pardon if this recap missed a monumental moment, but we can recap it next time!

Adios amigos!