Capitol Hill Recap: TCJA Breaks the Bank

New cost estimate for extending expiring tax cuts catches the eye.

What Went Down:

• Congress’s official bookkeeper projects eye-popping increase in TCJA extensions.
• Current tax bill is grounded.
• IRS chief defends agency funding.

Let’s Get To It:

Paying the Man

The Congressional Budget Office released a report this week showing that a ten-year extension of the expiring tax cuts for individuals, estates and pass-throughs in the Tax Cuts and Jobs Act (TCJA) would cost the Federal government nearly $3.3 trillion (without including interest).

When the bill was enacted in 2017, the total ten-year cost was nearly $1.5 trillion, according to the Joint Committee on Taxation. The original bill included tax increases, which somewhat offset the cost of the tax cuts. Those tax increases are currently not a part of discussions about extending TCJA tax cuts.

Legislative outlook: Next year, Congress (and at some point, the White House) will be debating the extension of TCJA tax cuts. How that conversation goes will be dependent on which political party controls Washington after the 2024 elections.

But no matter which party controls the nation’s capital, there will likely be debates over offsetting the cost of TCJA extensions. The two provisions that will likely be at the center of those discussions are the corporate income tax rate and the SALT cap.

Increasing the corporate income tax rate to 25% (maybe 28%) would raise revenue that could offset at least some of the cost to extend TCJA measures. Extending the SALT cap beyond its 2025 expiration date would also be a revenue raiser.

Regarding the corporate tax rate, the current hope is that 25% will be where negotiators land. For the SALT cap, there is talk of eliminating the “marriage penalty” and allowing joint filers a $20,000 deduction.

Will either of these proposals come to fruition, who knows?

But there is a growing concern that talks over TCJA extensions will extend beyond 2025. The truth of the matter is that TCJA extensions don’t need to be enacted until 2026 tax returns are due.

That means lawmakers could waste a lot of time haggling and finger-pointing with no political consequence until the spring of 2027. And by the way, 2026 is an election year. Could TCJA extensions be dependent on 2026 elections and not 2024 elections? We’re going to find out.

FAA, Nope

Despite talk that the House-passed tax bill could be added to legislation that provides funding to the Federal Aviation Administration (FAA), it didn’t happen.

Senate Finance Chairman Ron Wyden (D-Ore.) said he would attempt to add the tax bill to the FAA funding legislation, but there was inadequate support from other Senators to add it to the air-industry bill.

The tax bill approved by the House in January includes R&D expensing for domestic costs, expands the 163(j)-interest deduction from EBIT to EBITDA, and up Bonus Depreciation to 100%. These provisions have bipartisan, bicameral support. The bill also expands the Child Tax Credit, which has contributed to the Senate’s inaction on the bill.

Legislative outlook: As the end of tax season fades into the past, it appears less likely that Congress will pass the House-approved tax bill.

IRS Funding

IRS Commissioner Daniel Werfel testified this week before a House Appropriations Subcommittee on how the tax agency will use congressional funding dollars. He did not mince words.

“The IRS anticipates increasing audits on the wealthiest taxpayers, largest corporations, large and complex partnerships by sizeable percentages for tax year ’26,” Werfel said.

He provided the following agenda:

• Nearly tripling the audit rate on large corporations with assets over $250 million.
• Upping audit rates nearly tenfold on large complex partnerships with assets over $10 million.
• Increasing audit rates by over 50% on wealthy individuals with positive income over $10 million.

Werfel thinks his action plan will shrink the current “Tax Gap” (the difference between tax owed versus taxes collected), which stands at $687 billion a year.  

He said that letters have been sent to taxpayers meeting the above-descriptions who have not paid taxes in a number of years, but likely owed them.

The Commissioner also vowed that taxpayers earning less than $400,000 a year will not see an increase in audit rates.

Committee members used the hearing to reiterate their positions on whether the tax agency deserves an increase in funding.   In short, Democrats supported increased funding while Republican opposed it.

Legislative outlook: Given that Congress is politically divided, it is unlikely that the IRS will receive the funding it seeks.

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

Adios amigos!