January 4, 2023
What to expect in Washington (January 4)
The 117th Congress adjourned sine die and the 118th Congress opened January 3. In the House, after three ballots neither Rep. Kevin McCarthy (R-CA) nor anyone else gained a majority of votes (which is generally 218) that is required for the Speakership, following which the chamber abruptly adjourned until noon today. The stalemate is virtually unprecedented in the last century and left even the most seasoned observers of Congress uncertain of who would be the next Speaker and when they would be chosen. House members can't be sworn in until the Speaker stalemate ends, as CNN reported. It is also delaying the naming of new committee chairmen (including for the Ways and Means and Budget Committees) and member assignments, which have been part of the Speakership negotiations.
An analysis in today's New York Times said, "Handed narrow control of the House by voters in November, Republicans [spent] the opening hours of the new Congress they could have used to dispel concerns about their capabilities. Instead, they feuded in a disorderly display over who among them should be speaker as the most extreme elements of the new majority repeatedly rejected Representative Kevin McCarthy of California. Despite Mr. McCarthy's prominent role in fund-raising and delivering the House to Republicans and his backing among most in the party ranks, about 20 Republicans refused to support him … "
As the January 2 Wall Street Journal (WSJ) reported, "If it is clear that Mr. McCarthy can't sway his detractors, an alternative candidate could emerge. That could be Rep. Steve Scalise of Louisiana, the current minority whip, who is set to be majority leader in the new Congress. He has said he is firmly behind Mr. McCarthy. It could also be a well-liked member who isn't now in leadership. The House speaker dictates which bills make it to the floor, and is responsible for shepherding must-pass legislation, such as spending bills, that typically need bipartisan support, and negotiating with Senate leaders and the White House."
A list of potential candidates in the Washington Post mentioned, in addition to Rep. Scalise, Freedom Caucus Chairman emeritus Jim Jordan (R-OH), likely Financial Services Committee Chairman Patrick McHenry (R-NC), former Rep. Lee Zeldin (R-NY) — who lost a closer-than-expected race for NY Governor — Rep. Tom Cole (R-OK), and Rep. Elise Stefanik (R-NY), who was expected to be GOP Conference Chair.
Congress — Looking past the Speaker impasse, Politico Morning Tax today published a list of potential new members to be added to the Ways & Means Republican majority:
Meanwhile, on the other side of the Capitol, new Senators were sworn in, and that chamber is only in pro forma session for the next few weeks. The next Senate vote will occur at 5:30 p.m. on Monday, January 23 on a nomination for Assistant Secretary of Defense.
Aside from the fact that House members can't be sworn in until a Speaker is chosen, the situation — with a group of conservative members refusing to support Rep. McCarthy — portends the difficulty the eventual leader will have in moving legislation through the House, where Republicans will hold a single-digit majority, including tax and must-pass spending legislation such as tax extenders, spending bills and raising or suspending the debt ceiling in the second half of the year.
There has been a significant amount of reporting on the challenges of enacting legislation in the divided Congress. A story in the December 31 NYT said the year-end omnibus appropriations bill may have been the last opportunity for Democrats to pass their priorities for a while. "Now, Democrats may have to wait a long time for another chance as they enter a new legislative world," the story said. "Despite their strong showing in the midterm elections, Democrats will most likely struggle to win the support needed to enact priorities that eluded them while the party controlled Washington for the past two years." The story cited Republican intentions to use fiscal deadlines to force spending cuts and other actions, and the fact that items like the debt limit and energy permitting reform weren't acted upon before the close of the last Congress.
A story in the January 3 WSJ said, "The opening session is expected to kick off two years of intense political battles over everything from immigration policy to inflation to domestic energy production. With the economy cooling down and the war in Ukraine continuing, the two parties are also expected to spar over the amount of money dedicated to strengthening the U.S. military's position against Russia and China, the best way to stimulate U.S. manufacturing sectors and what role the U.S. government should play in preventing supply-chain problems. As a result, the pace of new legislation is expected to slow compared with what advanced under Democratic President Biden's first two years on issues such as healthcare, climate, infrastructure, veterans' care and gun control."
Tax — The top editorial in the January 3 WSJ, "Unhappy New Tax Year for U.S. Business," bemoaned the inaction on outstanding tax issues in the last Congress, including in the year-end omnibus appropriations bill, saying, "The biggest business tax hit is the end of full, immediate expensing for equipment." On R&D expensing, "This big hit has already arrived. January 2022 marked the end of full expensing for corporate research and development, a benefit that began in 1954," the editorial said. "Companies could previously deduct R&D spending from their next tax bill, but they now have to spread the deduction over several years (five years for domestic spending, 15 for international)." On interest expensing, "The cap on the business interest deduction dropped last year when the formula changed to exclude amortization," the editorial said. It also mentioned the new corporate minimum tax and stock buyback tax.
There has been some reporting that Republicans in control of the House this year will take up the issue of extending Tax Cuts & Jobs Act provisions for individuals set to expire in 2025. The three members vying for the Ways & Means chairmanship — Reps. Vern Buchanan (R-FL), Jason Smith (R-MO), and Adrian Smith (R-NE) — have all made TCJA permanency a priority. Buchanan's TCJA Permanency Act would make permanent the 2017 tax cuts for individuals and small businesses. Jason Smith sponsors the Main Street Tax Certainty Act to make permanent the Section 199A pass-through deduction.
A January 2 Law360 story said, "Any attempt by House Republican leaders to renew their 2017 tax law will falter in the Senate as long as Democrats control the upper chamber, as will efforts by Democratic leadership to win House approval from Republicans to expand, or even fine-tune, tax provisions enacted in August under the Inflation Reduction Act [IRA] … Democrats on the Finance Committee expressed little desire to work with Republicans on renewal of the 2017 tax overhaul law, which they continue to blame as a root cause of increasing the federal budget deficit. Sen. Debbie Stabenow, D-Mich., said: 'There's no way that that package in its entirety would have the votes. So we'll have to take a look at how well we can get agreement.'"
A story in this morning's Bloomberg Daily Tax Report said the IRA "placed a massive task ahead for Treasury and the IRS to develop guidance on the law's provisions. The Jan. 1 effective date for many provisions in the law made the guidance a priority for the agencies … " It said while, on clean energy tax credits, initial guidance has been released on issues such as the wage and apprenticeship requirements and clean vehicles, "tax professionals still expect a tranche of guidance on how clients can qualify for … the tax credits and how to monetize them."
By way of review, Treasury and the IRS have issued three pieces of guidance pertaining to the recently amended clean vehicle credit. Notice 2023-01 announces the government's intention to publish regulations related to the new clean vehicle credit under IRC Section 30D. The proposed regulations will (1) provide guidance on the critical mineral and battery component requirements under IRC Section 30D(e), and (2) define certain terms relevant to the clean vehicle credit requirements under IRC Section 30D. Notice 2023-09 provides a safe harbor regarding the incremental cost of certain qualified commercial clean vehicles placed in service during 2023 for purposes of the credit provided under IRC Section 45W. And new frequently asked questions (FAQs) address how the credit applies to purchases of clean vehicles that are new, previously owned or commercial.
Treasury and IRS have also issued Notice 2023-07, which provides interim guidance regarding the application of the new corporate alternative minimum tax (CAMT); and Notice 2023-02, which provides interim guidance regarding the application of the corporate stock repurchase excise tax.