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June 14, 2023

What to expect in Washington (June 14)

The House Ways and Means Committee on June 13 approved three separate tax packages — the Tax Cuts for Working Families Act, Small Business Jobs Act, and Build It in America Act — after a 10-hour markup. Combined into the American Families and Jobs Act, the measures fulfill Chairman Jason Smith's (R-MO) commitment to develop a tax-based economic package springing from field hearings the Committee has held this year. The bills aren't expected to be enacted as-is, given that the TCJA "pre-cliffs" relating to expensing of R&D costs, interest deduction limitations under IRC Section 163(j), and 100% expensing remain mired in a partisan standoff over a Child Tax Credit (CTC) expansion sought by Democrats, who are also opposed to rolling back clean energy provisions from the Inflation Reduction Act (IRA) that Republicans want to use as revenue offsets. However, the bills could represent the House GOP's negotiating position for talks later this year aimed at constructing a year-end tax extenders package should the opportunity arise and a government spending or other must-pass vehicle for the package emerge.

Many of the amendments offered by Democratic members during the markup reflected those issues of concern — the CTC and rolling back clean energy provisions — and Democrats otherwise gave indications of their positions on tax issues. Ways & Means Ranking Member Richard Neal (D-MA) said he wants to begin serious negotiations on a package that could gain bipartisan support. He suggested the bills reported out of the Committee aren't likely to be taken up on the House floor in the immediate future and may amount to messaging bills. "There's opportunity here to find a path forward for all of us," Rep. Neal said.

As alluded to, floor consideration is not guaranteed. The Washington Post said the effort "could become a major liability for Republicans and another headache for Republican leadership," because Freedom Caucus members — who have already held up recent floor activity over opposition to the debt limit bill — "are criticizing the idea of moving forward with hundreds of billions of [dollars in] tax cuts shortly after House Republicans demanded major cuts to spending in exchange for lifting the debt limit." Chairman Smith's briefing to the Freedom Caucus last week "landed like a lead balloon," said one unnamed member who asked, "How tone deaf can leadership be to start talking about a bill that creates $300 billion of additional debt?" The report said, "The Democratic Congressional Campaign Committee is already planning to hammer the issue in the districts of Reps. David Schweikert (R-Ariz.), Michelle Steel (R-Calif.) and Brian Fitzpatrick (R-Penn.)."

On international tax, Rep. Ron Estes (R-KS), who has been vocal on the issue, during the hearing cited the Joint Committee on Taxation as saying global implementation of Pillar Two of the OECD-led global tax agreement would cost the US Treasury $120 billion in lost tax revenue, and, if the US is forced to change its tax code to comply with Pillar Two provisions, it would still cost $52 billion. He said the global minimum tax would result in the egregious undertaxed profits rule (UTPR) and Chairman Smith has introduced legislation to combat such taxes, but Estes wants to go further.

Administration — The Ways and Means bills were met with skepticism from the White House. Bloomberg reported National Economic Council Director Lael Brainard as telling Democratic congressional leaders the White House is unwilling to entertain the GOP proposal. "Repealing these provisions would result in less investment in the United States, ship clean energy jobs overseas, raise energy costs for consumers, and severely weaken our ability to reduce greenhouse gas emissions and combat the climate crisis," Brainard wrote. The memo said the GOP plan, in restoring provisions that were scheduled to change under the TCJA, "would effectively offer a windfall payment to corporations that have already paid taxes while Republicans are looking to set up the full package of Trump tax cuts for renewal in 2025," according to the report. Renewing the full package of Trump tax cuts for another decade would add over $2.5 trillion to the deficit, the White House said.

White House Press Secretary Karine Jean-Pierre said yesterday: "President Biden is growing the economy from the middle out and bottom up with more than 13 million jobs created and unemployment under 4% for almost a year and a half. House Republicans, on the other hand, have a different agenda. Their approach is a trickle-down approach. Today, they are marking up their Tax Scam 2.0, which would give handouts to rich special interests and big corporations that would increase the debt by hundreds of billions of dollars while also repealing investments that are fueling our manufacturing resurgence, creating jobs, and lowering energy costs for working families."

House — The post-debt limit House conundrum with conservative members has been soothed for now and bills are moving on the floor again, including, today, legislation related to gas stoves and the Regulations from the Executive in Need of Scrutiny (REINS) Act (H.R. 277), which revises provisions relating to congressional review of agency rulemaking. Last week, conservatives had been employing the rare tactic of opposing the "rule" required to bring bills to the floor, bringing business to a halt.

The New York Times reported: "It has long been an axiom of the House majority: Vote against a piece of legislation put forth by your party if you absolutely must, but never, ever vote against the 'rule' to bring that legislation to the floor. Until the last few weeks, that standard had held for more than two decades. But now, about a dozen rebellious House Republicans have decided to leverage their badly needed votes on the routine procedural measures to win policy concessions, breaking the longstanding code of party discipline and threatening the traditional operation of the House."

The conservative rebellion that was focused on spending levels in the wake of the debt limit deal, which some members felt was an insufficient reflection of Republican priorities, stoked concerns over a potential government shutdown when funding expires September 30. Politico this morning: "Yes, with months to go there are plenty of off-ramps between now and the end of September, when government funding is set to run dry. But the right flank of the House GOP conference's insistence on undercutting spending levels negotiated weeks ago by Speaker Kevin McCarthy and President Joe Biden — plus the realities of their narrow majority and the Democratic Senate — have put Congress on a path to a government shutdown."

Senate — The Senate Finance Committee has scheduled a public hearing today (June 14) on "Anti-Poverty and Family Support Provisions in the Tax Code." The staff of the Joint Committee on Taxation has provided general background on several individual tax credits: the child tax credit, the earned income tax credit, and the child and dependent care tax credit. The document, "Present Law and Background Relating to Certain Individual Income Tax Credits," describes the provisions under present law and under prior law as enacted by the Public Law 117-2, the American Rescue Plan Act of 2021 ("ARPA").

The Senate yesterday confirmed 50-49 long-time Biden adviser Jared Bernstein to be Chairman of the Council of Economic Advisers. Senator Manchin (D-WV) voted against the nomination. Senator Tommy Tuberville (R-AL) was away and didn't vote, which obviated the need for VP Harris to break a presumed Senate tie.

Trade - Also included in the Tuesday Ways & Means markup was the bipartisan, bicameral United States-Taiwan Initiative on 21st-Century Trade First Agreement Implementation Act (H.R. 4004), which would approve the Agreement between the American Institute in Taiwan and the Taipei Economic and Cultural Representative Office in the United States reached on June 1, 2023, regarding Trade between the United States of America and Taiwan. The bill was approved 42-0 after members widely expressed support.

Treasury — The Treasury Department announced in a Memorandum of Agreement (MOA) June 12 that tax regulations would no longer be reviewed by the Office of Management and Budget's (OMB) Office of Information and Regulatory Affairs (OIRA), a practice established under the prior Administration. An April 2018 MOA created a new framework for the review of tax regulations intended to increase economic analysis and review of tax rules following calls to undo a 1983 agreement between Treasury and OMB that exempted certain IRS regulations from oversight by OIRA (which subsequently was reaffirmed in a 1993 exchange of letters between Treasury and OMB) in the wake of the TCJA. The added level of review established a new layer of input (and, according to critics, delay) into the regulatory process and a new pathway of insight regarding the timing of the release of regulations by way of OIRA's announcements of where rules were in the review process.


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