Tax Bill Advances from House Committee, But Fate Unclear

The House Ways and Means Committee on January 19th approved tax legislation, but its fate moving forward is unclear.  

Today's vote was 40-3 and support for passage was bipartisan. The bill proposes to do the following:

• Full expensing of domestic (not foreign) research and development costs for tax years 2022 thru 2025
• Up Bonus Depreciation to 100% for property placed in service in 2022 thru 2025
• Expand the 163(j)-interest deduction (from EBIT to EBITDA) for certain transactions from 2022 thru 2025
• Increase the maximum amount a taxpayer may expense under Section 179
• Increase the threshold for 1099 (NEC and MISC.) reporting, from $600 to $1,000
• Increase the State housing credit ceiling for calendar years 2023, 2024, and 2025
• Prevent double taxation regarding certain transactions between the U.S. and Taiwan
• Extend the rules for treatment of certain disaster-related personal casualty losses
• Disaster relief for East Palestine
• Increase the Child Tax Credit

The benefits in the bill are expected to cost $77.3 billion. To offset this cost, the bill proposes to modify rules associated with the Employee Retention Tax Credit (ERTC).

The legislation proposes to accelerate the ERTC filing deadline to January 31, 2024, and penalizes ERTC promoters, according to the Joint Committee on Taxation:

[T]he assessable penalty for aiding and abetting understatement of a tax liability is increased to the greater of $200,000 ($10,000 in the case of an ERTC promoter that is a natural person) or 75 percent of the gross income of the ERTC promoter from providing aid, assistance, or advice with respect to a return or claim for ERTC refund or a document relating to the return or claim.    

The modifications to the ERTC are expected to raise $78.6 billion.

A description of the bill’s provisions provided by the Joint Committee on Taxation is here.

Amendment Debate:

During today’s event several amendments were raised as possible additions to the bill. None were adopted. They included:

• Allowing the Child Tax Credit to be fully refundable. It failed to be added to the bill by an 18-25 vote.
  • A second amendment allowed full refundability of the Child Tax Credit and it also failed by an 18-25 vote.
  • A third amendment expanding who receives the Child Tax Credit was raised. The amendment was withdrawn and did not receive a vote.
  • Allowing Child Tax Credit payments to be distributed monthly. It failed to be added to the bill by an 18-25 vote.
• Increasing the SALT-cap to $60,000 for individual filers and $120,000 for joint filers. The measure failed by an 16-24 vote. The sponsor of the amendment offered to lower the cap figures until it would be added to the bill. Another amendment including lower caps was not offered.
• Creating a low-income housing tax credit for middle-income workers. The amendment was withdrawn and did not receive a vote.
• Providing housing tax credit for military housing. The amendment was withdrawn and did not receive a vote.
• Increasing the Historic Tax Credit. The amendment was withdrawn and did not receive a vote.
• Allowing housing controlled by Indian tribal governments to qualify for the Housing Tax Credit. The amendment was withdrawn and did not receive a vote.
• Extending the fuel cells that quality for tax credits. The amendment was withdrawn and did not receive a vote.

Legislation’s Fate:

The next step for this bill could be a floor vote in the House of Representatives, but it is not clear if this will occur.

For legislation to receive a House floor vote, it usually is vetted by the House Rules Committee. This committee basically decides which bills get a floor vote.

However, there are members on the House Rules Committee who have threatened to oppose the bill because they do not support certain provisions in the legislation. The number of committee members opposing the bill could stop it from getting a House floor vote.

To circumvent this obstacle, the legislation could go to the floor “under suspension of the rules.” This means that the bill dodges the Rules Committee and goes straight to the House floor for a vote. However, the threshold for approving legislation under “suspension of the rules” is much higher.

A bill traveling to the House floor “under suspension” must receive support from two-thirds of the lawmakers. Passage for legislation approved by the Rules Committee only needs a simple majority.  

There are currently 433 House lawmakers, according to the House Press Gallery. If the tax bill goes to the House floor “under suspension” it will need support from 289 lawmakers (versus 217 if approved by the Rules Committee).

This means that passage will require the support from lawmakers in both political parties. Currently, members along both sides of the aisle have expressed concern about the bill, which makes it unclear if the legislation could garner enough support to pass the chamber.

Who Decides a House Vote on the Bill?

House Speaker Mike Johnson (R-La.) is the ultimate “decider” on which bills get a floor vote. He has not publicly stated his position on the tax bill.

That being said, Johnson wants to allow committee chairmen more latitude in deciding what pieces of legislation are approved by their respective panels.  Not allowing a House vote on the tax bill would seem to oppose that desire.  

If a House vote occurs on the bill, it is not expected to happen until after House lawmakers return from their recess. The chamber is not scheduled to be in session next week and lawmakers are expected to return on January 29^th.

The goal for this bill was to be enacted into law before the official start of tax season, which is also January 29^th. It seems highly unlikely that this goal will be achieved.

Looking Forward:

Assuming the House approves the legislation, which – again – is not clear, the bill will travel to the Senate.

Senate Majority Leader Chuck Schumer (D-NY) decides which bill get a floor vote in his chamber, and he has spoken positively about the tax bill.

However, passage from the upper chamber is unclear because approval will likely require bipartisan support, and the chief Republican tax-writer is not yet onboard with the bill.  

Senator Mike Crapo (R-Idaho), the ranking member on the Senate Finance Committee (which has jurisdiction over tax policy in the chamber), has publicly stated that more work is required on the bill.

Upon the tax bill’s arrival in the upper chamber, the Senate Finance Committee could debate and amend the legislation in order to garner support from Crapo and other members in his party. Several Senate Democrats also have issues with the bill. The level of opposition could boost the odds that the tax-writing committee vets the bill in order to garner more support for the legislation. 

According to conversations with insiders, the Senate is in wait-and-see-mode for how it will handle the tax bill. The options vary, from doing nothing with the bill, allowing committee hearings on it, or placing it on the floor without vetting it.

Stay tuned.