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January 11, 2023

What to expect in Washington (January 11)

Rep. Jason Smith (R-MO) won the Ways and Means Committee Chairmanship January 9, and the House went on to approve what he said was one of his top priorities, rolling back the Inflation Reduction Act (IRA) IRS funding increase. The Family and Small Business Taxpayer Protection Act (H.R. 23) passed the House 221-210 but isn't likely to be taken up in the Democratic-controlled Senate. The Congressional Budget Office (CBO) estimated that the bill would decrease revenues by $186 billion over 10 years.

Speaker Kevin McCarthy (R-CA), who won the post in dramatic fashion just days ago, said after the passage of the Republican-led House's first bill, H.R. 23, "Government should work for you, not against you. As part of the House Republican Commitment to America, I promised we would vote to repeal the Democrats' army of 87,000 IRS agents on our very first day in the majority. Promises made. Promises kept."

Rep. Smith suggested oversight would be a main activity of Ways and Means under his leadership, saying, "If confirmed, the new IRS Commissioner should plan to spend a lot of time before our committee answering questions about the leaking of sensitive taxpayer information and an agency with a history of targeting conservative Americans." In a statement, he also listed as priorities:

  • prioritizing the American worker
  • building on the success of the Tax Cuts and Jobs Act (TCJA) and examining how policies can "reward working families with a tax code that delivers better jobs, higher wages, and more investment"
  • whether to "continue showering tax benefits on corporations that have shed their American identity in favor of a relationship with" other nations
  • using trade and tax policy to "re-shore and strengthen our supply chains, where products and services vital to our national security are made here at home using American labor"
  • encouraging domestic energy production and energy independence through the tax code

The Wall Street Journal observed that, in questioning whether the U.S. should continue providing tax benefits to companies that have shed their American identity in favor of a relationship with other nations, "Mr. Smith may provide some departures from a more typical pro-corporate Republican approach to policy."

The Bloomberg Daily Tax Report said January 10, "Smith, who advocates positioning the GOP as the party of the working class, represents a shift in Republican economic strategy away from the pro-free-trade, pro-business alignment it's espoused for decades. The new committee chair from Missouri also will be a key bridge between Speaker Kevin McCarthy and the rebellious right flank of House Republicans."

Politico reported that Smith "touted his strong relationships within the Republican conference, from leadership to the Freedom Caucus. Observers of the race for Ways and Means chair also note that Jason Smith has something of a populist conservative edge and pugilist style that he refined as ranking member of the House Budget Committee." The report also said he is unwilling to pair a Section 174 R&D amortization fix with even a partial revival of the expansion of the Child Tax Credit that expired in 2021, saying it "makes work less valuable than a government check" and would hamper recovery of the labor force.

In other chairmanship votes, Rep. Jodey Arrington (R-TX) won the post as Budget Committee Chairman (but will still stay on as a Ways and Means member), Rep. Virginia Foxx (R-NC) will be Education & the Workforce Chair, and Rep. Mark Green (R-TN) won the Homeland Security chairmanship.

House rules - The House rules package approved 220-213 (with one Republican, Tony Gonzales, R-TX, and all Democrats voting "no") January 9 reflected concessions made to conservatives with concerns including omnibus appropriations measures of the type approved at the end of 2022 and lifting the debt limit without spending reforms. Some concessions were reportedly reflected in an unreleased addendum.

A story in the January 10 New York Times described elements of the rules and concessions, which would:

  • permit a single lawmaker to force a vote to "vacate the chair"
  • impose rules to try to limit spending, including blocking consideration of legislation that would increase mandatory spending without corresponding cuts to mandatory spending
  • require a supermajority 3/5 vote of the House to raise taxes
  • impose the Holman rule allowing spending bills to defund specific programs and target officials
  • allow lawmakers at least 72 hours to review legislation before it goes to the floor for a House vote
  • eliminate the Gephardt rule allowing an automatic increase in the debt limit, as members eye accompanying spending cuts

Fox News reported that, as part of a deal with Speaker McCarthy, the Fair Tax Act sponsored by Rep. Earl "Buddy" Carter (R-GA) will be brought to a House vote in this Congress. The bill would abolish the IRS, eliminate the national income tax, and replace it with a national consumption tax, and also eliminate estate, gift, and payroll taxes. The proposal was previously advocated by former Ways and Means Committee member Rep. John Linder (R-GA) going back to 1999.

The House GOP Steering Committee could select new members of the Ways and Means Committee today. Ways and Means Republicans could move to subcommittee selection as early as Thursday. Ways and Means members select subcommittee slots through the seniority-based "Martin Rule" process, unlike other committees where subcommittee chairs/members are generally assigned by the chairman.

Debt limit - The federal debt limit is a focus of House Republican efforts to use fiscal deadlines to extract spending cuts and, while the "X" date when the government can't pay its bills isn't forecast to hit until the third quarter, the AP reported "the federal government is on track to max out on its $31.4 trillion borrowing authority as soon as this month," requiring Treasury to use extraordinary measures to keep the government operating.


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