Capitol Hill Recap: Hearings Roundup

Lawmakers returned to Washington this week, and with Tax Day approaching, a handful of committees held levy-related hearings.

What Went Down:

• Lawmakers held a handful of hearings on taxes that focused on extending or modifying tax reform measures.
• State of Play on Tax Bill.

Let’s Get To It:

Taxes Debate

The tax debate continued on Capitol Hill for extending or modifying tax measures in the “Tax Cuts and Jobs Act”, or “TCJA.”

Three hearings were conducted this week on this topic, which were:

• The House Small Business Committee held a hearing titled “Tax Day: Exploring the Adverse Effects of High Taxes and a Complex Tax Code.”
• The Senate Budget Committee held a hearing titled “Sunny Places for Shady People: Offshore Tax Evasion by the Wealthy and Corporations.”
• The House Ways and Means Committee held a hearing titled “Expanding on the Success of the 2017 Tax Relief to Help Hardworking Americans.”

During these hearings, there was disagreement between lawmakers on which tax provisions should be extended or modified. Some said that tax cuts affecting taxpayers earning $400,000 or less a year should be extended. Others said that all tax cuts should be extended.

Lawmakers also called for certain tax measures in the “Tax Cuts and Jobs Act” or “TCJA” to be extended or modified, including:

• Extend the pass-thru deduction.
  • Some lawmakers argued that if the deduction was not extended some businesses would close.
  • Others said that no extension would mean employee wages would take a hit.
• Extend current income tax rates.
  • Some lawmakers urged the extension of tax rate reductions only for taxpayers earning less than $400,000:
    • Others stressed that limiting the tax relief would mean a tax increase on pass-thru businesses earning more than this amount and would create an unfair tax advantage for companies earning below $400,000.
    • Other lawmakers stressed that all TCJA tax cuts must be extended. If not, a record-setting tax increase would occur in 2026 for businesses and individuals.
• Allow the SALT cap to expire or increase the cap to a much higher level.
• Enact the House-passed tax bill that includes R&D expensing for domestic costs, ups bonus depreciation to 100% and expands the business interest deduction and the Child Tax Credit, to name a few of its provisions, which has stalled in the Senate.
• Make international transactions more transparent (FATCA enforcement issue).
• Increase the U.S. corporate tax rate.
  • Some argued that an increase would prompt companies to move some operations offshore.
  • Members from both political parties have discussed upping the corporate income tax rate to help pay for extending expiring TCJA provisions.
• Repeal the stepped-up basis, regarding estates.
• Allow to expire the higher exemption rates for gift and estate taxes.
  • Keeping current exemption rates are not as high of a priority for lawmakers when compared to extending the passthrough deduction or current marginal tax rates.
• Extend the current Standard Deduction.
• Extend the Child Tax Credit in the tax reform bill.
• Repeal energy tax incentives from the Inflation Reduction Act to offset the cost for extending TCJA measures.

In all likelihood, whatever tax measures get extended or modified will be done annually, i.e., a year at a time. Congress has a history of extending tax measures each year – and normally a year after they expire. If past is prologue, lawmakers will likely pass a one-year tax extender bill in 2026, or maybe even 2027.

Also, there is currently a huge education initiative occurring on Capitol Hill. The effort is to educate lawmakers on the tax measures that are set to expire in 2025. The number of lawmakers who were in Congress in 2017, when the tax reform bill was enacted into law, is low. The goal is to get them well-informed about the tax measures before the debate to extend them begins.

Legislative outlook: Lawmakers are not expected to extend these measures this year. That effort is expected to begin next year and could extend into future years.

As has been stated in prior Recaps, the outcome of the 2024 elections will have a tremendous impact on what TCJA provisions are extended, modified, or left to expire.  

State of Play on Tax Bill

Tax legislation that passed the House on January 31^st remains stuck in the Senate. The bill has been stalled nearly two and a half months.

There was some hope that the Senate would pass the tax bill before Tax Day, April 15^th, but that no longer seems likely.

The legislation includes R&D expensing for domestic costs, ups bonus depreciation to 100% and expands the business interest deduction and the Child Tax Credit, to name a few of its provisions.

Legislative outlook: With each passing day, the odds decrease for the tax bill passing the Senate and becoming law.

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

Adios amigos!