July 26, 2023
What to expect in Washington (July 26)
An article in the July 25 Washington Post reported on Republican House members from New York, New Jersey, and California "threatening to vote against a tax package approved in June by the House Ways and Means Committee unless a provision is added to raise the SALT cap. As written, the measures would restore expired tax cuts for businesses passed under Trump and repeal climate-oriented tax credits passed under President Biden — initiatives key to the House GOP agenda this year." The article cited members such as Rep. Nick LaLota (R-NY) as saying a SALT deduction higher than the $10,000 set under the TCJA would stem the flight away from high-tax states toward places like Florida and the Carolinas, though Ways and Means member [and Republican Study Committee Chairman] Kevin Hern (R-OK) was cited as doubtful the votes would be there to undo the cap. "Rep. Nicole Malliotakis (R-N.Y.), a member of the SALT Caucus who sits on the Ways and Means Committee, said she wants to study other options, such as prohibiting people above a certain high income threshold from taking any SALT deduction at all while allowing a larger deduction for the middle class. Malliotakis said she also wants to explore ways to use federal dollars to directly pressure states and cities to cut their taxes."
The Ways & Means Committee-passed (June 13) American Families and Jobs Act — which addresses the TCJA "pre-cliffs" on IRC Section 174 R&D expensing, IRC Section 163(j) interest deduction limitations, and 100% expensing — hasn't been brought to the floor and likely won't be before the August recess. While Republican support may be imperiled by members from high tax states, Democrats oppose the bill because it would roll back clean energy provisions. And the TCJA "pre-cliffs" have difficulty moving because of the partisan impasse over the Child Tax Credit (CTC) expansion sought by Democrats. The Ways and Means bill likely is 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 emerge.
That may not happen until year's end for a variety of reasons. Congress is facing a September 30 deadline for three issues: FAA reauthorization and aviation excise taxes, the farm bill, and government funding. The House has passed its FAA bill, but the Senate Commerce Committee has yet to mark up its version, with a variety of issues yet to be decided. The farm bill includes debate on several controversial issues including federal nutrition assistance, and top senators have suggested a short-term patch is possible if not likely. Government funding is already proving controversial as House appropriators are marking up to FY2022 levels at the urging of conservatives, despite the debt limit bill agreement to adhere to FY2023 spending for the current slate of appropriations bills. Further, Senate appropriators from both parties are pursuing emergency supplemental appropriations outlays even beyond the FY2023 levels.
House approval this week of appropriations bills on Military Construction/Veteran's Affairs (H.R. 4366) and Agriculture/FDA (H.R. 4368) is questionable because of the Freedom Caucus insistence over FY2022 spending levels, without rescissions from unspent funds, and adequate time to review the bills. Roll Call reported, "In addition, conservatives say they won't support any of the spending measures on the floor until they can see all 12 of them. 'We are united in the belief that we need to see what the entire cost is, before we can start working on individual pieces of it, because again, you will be left with a very small piece of that pie that we might have to take a lot of that spending out of,'" said Rep. Matt Rosendale (R-MT).
CNN reported that the Military and Agriculture appropriations votes "will test the GOP leadership's ability to unite the conference and win over the votes of conservatives, some of whom have never voted for the spending bills in the past. On Tuesday, the House Freedom Caucus sent a clear signal that they must see all 12 appropriations bills totaled up and fired a warning shot to leadership to hold firm on the agreements made in an earlier deal to avoid government debt default. 'We want to see all 12 of the appropriations bills,'" Rep. Rosendale said.
During a news conference, Rep. Andy Biggs (R-AZ) suggested a government shutdown was not imminent after September 30, saying, "some of the 12 appropriations bills come out in what we call a minibus, and then you'll see a short-term continuing resolution to continue spending." Rep. Bob Good (R-VA) suggested a shutdown could have a positive impact, however. "We're going to pass a good Republican bill out of the House and force the Senate and the White House to accept it, or we're not going to move forward. What would happen if Republicans for once stared down the Democrats and were the ones who refused to cave and to betray the American people and the trust they've put in us when they gave us a majority?"
In addition to the general discord over the appropriations process, another factor pointing toward a year-end bill is a backstop in the Fiscal Responsibility Act that would establish temporary caps at 99% of current funding levels (FY 23) if all 12 appropriations bills are not passed by January 1 of either 2024 or 2025, respectively (with the technical sequester enforcement mechanism related to the funding reduction taking effect on April 30).
Tax — House Ways and Means Chairman Jason Smith (R-MO) and other Committee Republicans had planned a congressional delegation in late May to Europe, including Paris and Germany, to discuss the OECD global tax agreement, though the trip was postponed due to consideration of the debt limit bill. Politico Morning Tax reported today: "House Ways and Means Chair Jason Smith's trip to Europe, where he'll give OECD officials a piece of his mind, is back on. The Missouri Republican was forced to postpone the trip in May, thanks to the debt limit drama, but he's now tentatively planned to meet with officials in France and Germany later in August. Smith has been highly critical of the entire global tax effort, and is threatening to retaliate against countries that adopt its so-called UTPR that would allow foreign governments to tax American companies if they aren't paying at least 15 percent in the U.S."
Health — The House Committee on Ways and Means has scheduled for today a markup of H.R. 4822, the "Health Care Price Transparency Act of 2023." The staff of the Joint Committee on Taxation provides a description of the tax provisions of the bill: Description of the Tax Provisions of H.R. 4822, The "Health Care Price Transparency Act Of 2023." H.R. 4822, introduced by Chairman Smith on July 24, is intended to improve price transparency with respect to certain health care services.
JCX-36-23 is available here.
WCEY's Podcast "DC Dynamics episode 16: Monumental Decisions" is available here.
Friday, July 28 (12:00 p.m. ET), is the EY Webcast, "Tax in a time of transition: legislative, economic, regulatory and IRS developments."