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December 12, 2022

What to expect in Washington (December 12)

Much of the political reporting over the weekend was related to Senator Kyrsten Sinema of Arizona leaving the Democratic party and registering as an Independent. Some see the development as not changing very much in terms of the near-term operation of Democrats in control of the Senate. "I think we're going to continue doing the same thing that we were doing whether she's an Independent or part of the Democratic Caucus, because she's going to continue to caucus with the Democrats. So. we'll still have the committee structures that we've had before, as far as having one more Democrat," Senator Jon Tester (D-MT) said on Meet the Press. "And, functionally, I don't think it changes a thing … I look forward to working with her, as I have in the past, to try to get good things done for the country."

An analysis in the Sunday Washington Post comparing the development to Joe Lieberman's 2006 switch to Independent, in terms of Democratic leaders staying friendly with the members, said: "On Friday, Sinema — the centrist who has vexed party leaders with her support for conservative tax policy that benefits billionaires — formally left the Democratic Party. She had informed Senate Majority Leader Charles E. Schumer (D-N.Y.) the day before, but at the same time requested to retain the privileges of being a member of his caucus. Schumer … understands simple math: 51 is better than 50. With her in his caucus, Schumer has a clear majority that gives Democrats full control of committees, subpoena power and the chance to more expeditiously move President Biden's executive branch and judicial nominations."

Congress faces a December 16 expiration of government funding and may need a continuing resolution (CR) through December 23 if a deal can't be reached on topline defense and non-defense discretionary spending numbers that could lead to passage of an omnibus appropriations bill. A week-long stopgap may be needed regardless, given how long it would take to process an omnibus. Principals in the negotiations said the parties are about $26 billion apart in a $1.7 trillion bill, and Republicans are reluctant to agree to parity between defense and non-defense spending citing non-defense spending in Democratic reconciliation bills.

"We haven't reached an agreement, we're not near an agreement, but the circumstances are there … that we could reach one," Senate Appropriations Ranking Member Richard Shelby (R-AL) told NBC News. "Now, will it be before the 23rd? I don't know that. The time compresses the schedule." The report said, "Complicating the GOP internal politics is House Minority Leader Kevin McCarthy, who is courting right-wing votes in his quest to become speaker and is pressuring Senate Minority Leader Mitch McConnell to walk away from the table until the new Congress in January, when Republicans will take control of the House and wield more negotiating leverage … Democratic appropriators called that scenario a nonstarter."

Appropriations Committee Chairman Pat Leahy (D-VT) did announce last night that there has been sufficient progress toward an omnibus that there are no longer plans to release a completely Democratic-authored version today, as bipartisan negotiations continue.

An omnibus offers better chances for serving as a vehicle for tax, health, and retirement items, than a CR. Tax items may include relief from the tax code IRC Section 174 R&D amortization and IRC Section 163(j) TCJA cliffs and non-energy tax extenders. Democrats are seeking an expansion of the Child Tax Credit, and Politico reported last night that the White House may be willing to accept a CTC work requirement. Politico Morning Tax today reported on a business coalition letter going out today warning that the 163(j) calculation change in effect this year makes it harder for companies to debt finance and grow their businesses.

The Wall Street Journal December 11 reported, "Few other items remain on the congressional agenda before new lawmakers take over for the next session, which begins on Jan. 3. Lawmakers who see the spending bill as the last major piece of legislation to pass are also lobbying hard for negotiators to include other measures they see as top priorities." The report said these include:

  • "the Electoral Count Act, which would change an 1887 law governing how Congress deals with presidential-election disputes;"
  • "a provision that would shield banks from penalties if they handle marijuana-related transactions;" and
  • energy permitting reform.

This week, the Senate is expected to consider the $847 billion National Defense Authorization Act compromise bill, which passed the House December 8. The Senate will convene at 3:00 p.m. today, December 12. At 5:30 p.m., the Senate will proceed to a roll call vote on confirmation of Tamika R. Montgomery-Reeves to be US Circuit Judge for the Third Circuit. The only hearing in the tax-writing committees this week is a Ways and Means Trade Subcommittee hearing on "Promoting Sustainable Environmental Practices Through Trade Policy" on Wednesday, December 14 (9:30 a.m.).

One issue that hasn't been the subject of much discussion during the lame-duck session is the debt limit. Some Democrats had suggested they want to address it now to prevent the issue from being used by Republicans in control of the House in 2023 to try to extract political concessions, such as on border enforcement, IRS funding, or spending. "But a lack of political urgency and a shrinking window to act before the holidays appear to have squashed the effort to address the issue this month," the New York Times reported over the weekend. The report also observed, "In his bid to become House speaker, Representative Kevin McCarthy of California, the minority leader, is facing significant pressure from his right flank to take a hard line in negotiations over new spending and addressing the nation's debt."

Friday, December 16 (12:00 p.m.), is the EY Webcast, "Tax in the time of COVID-19: update on legislative, economic, regulatory and IRS developments." Register.


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For additional information concerning this Alert, please contact:
Washington Council Ernst & Young
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