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September 15, 2023

What to expect in Washington (September 15)

The House and Senate are both out of session for the week without making any apparent bipartisan progress on an approach to addressing the expiration of government funding on September 30. The Senate took another procedural vote (91-7) in relation to the minibus appropriations package on Military Construction/VA, Agriculture, and Transportation-HUD and stands in adjournment until Monday, September 18, at 3:00 p.m. Some Republican members have taken issue with the packaging of bills, arguing they should be considered one by one.

Leaders of both chambers have cited a desire to pass their versions of each of the dozen annual appropriations bills in an attempt to gain the upper hand in negotiations. In contrast to the bipartisan support for how the appropriations process is unfolding in the Senate, the House this week was unable to secure sufficient votes to consider the Department of Defense appropriations bill. The Washington Post reported that conservative Freedom Caucus members are withholding their support for the DoD bill because of a long-running demand to see the total of appropriations bills first, and other assurances are being sought. "Our main point here is we need to see the total plan, the total package, where the speaker wants to go," said Rep. Chip Roy (R-TX).

Politico on the House dynamics: "The dispute has little to do with the Pentagon bill itself, which Republicans loaded with culture war provisions to appeal to conservatives. But with a potential shutdown looming, McCarthy is facing a litany of demands from his right flank on how to handle federal spending talks with the Senate to avert a funding lapse. A misstep could spur detractors to push to strip McCarthy of his gavel. 'Nobody's objecting to what's in the bill,' said House Rules Committee Chair Tom Cole (R-Okla.). 'Everybody's trying to leverage the bill for something now.'"

In the short-term effort to try to put up a continuing resolution (CR) to fund the government beyond September 30, and in the longer-term process of passing appropriations bills through FY2024, Speaker McCarthy (R-CA) faces a Catch-22 dilemma of either adhering to conservative demands and potentially shutting down the government or aligning with Democrats and having his Speakership threatened. The Hill Newspaper reported that, during a Thursday meeting of the House Republican Conference, Speaker McCarthy defiantly confronted conservatives over their threats to use a "motion to vacate" to oust him from the position.

The New York Times: "An urgent push by Speaker Kevin McCarthy to avert a government shutdown collapsed on Thursday as he bowed to resistance from his most conservative members and abandoned an effort to bring up a Pentagon spending measure this week. The surrender to the far right underscored the difficulties facing Mr. McCarthy as he tries to find a way to advance a series of spending bills and avoid a shutdown in two weeks, all while grasping to hold onto his post amid right-wing threats to oust him."

Regarding a short-term CR, today's Wall Street Journal reported, "the Republican Study Committee, which represents a broad spectrum of conservatives, issued a position in favor of a short-term continuing resolution that would 'address harms inflicted by Democrats and President Biden, such as bloated and inflationary spending levels and the ongoing immigration crisis.' RSC Chairman Kevin Hern (R., Okla.) said that the border measure would consist of the GOP plan that previously passed the House and that would cut off migration at the southern border."

Taiwan tax — The Senate Finance Committee September 14 approved 27-0 the US-Taiwan Expedited Double Taxation Relief Act to reduce tax on income received by Taiwan residents from the current 30% tax. Tax on US-source interest, royalties, and gains paid to or received by a qualified resident of Taiwan would be reduced to 10%. Tax on US-source dividends would be reduced to 15%, or a 10% rate for certain owners of at least 10% of the shares of stock in a corporation, subject to limitations. The provisions are contingent upon Taiwan enacting corresponding tax reductions for US residents. Both Chairman Ron Wyden (D-OR) and Ranking Member Mike Crapo (R-ID) acknowledged the role Taiwan plays in manufacturing semiconductor chips for consumer goods and defense technology. The only change to the bill was incorporation of a proposal by Senators Catherine Cortez Masto (D-NV) and Marsha Blackburn (R-TN) to prevent double taxation on entertainment income (with Las Vegas and Nashville being entertainment hubs).

Senators Wyden and Crapo released a discussion draft in July with leaders of the House Ways & Means Committee, which may consider a bill on the issue but hasn't announced plans. Next steps in the Senate aren't clear either. The Foreign Relations Committee July 13 approved a separate bill calling for the US to enter into a tax agreement with Taiwan. Senator Crapo said he is confident in finding an appropriate path forward for each committee, a point that was echoed by Chairman Wyden. While voting to advance the Finance bill, Foreign Relations Chairman Bob Menendez (D-NJ) said the Finance bill alone is insufficient. He didn't push for a vote on his amendment to sunset the bill after two years unless there's a US-Taiwan tax agreement. Michael Plowgian, Deputy Assistant Treasury Secretary for International Tax Affairs, said from the witness table that a tax information exchange agreement with Taiwan is currently being negotiated.

Tax — Meanwhile, Democrats have made clear that Census data released this week showing that child poverty more than doubled in 2022, after the expiration of the expanded Child Tax Credit (CTC) for 2021, has deepened their commitment to make the credit more generous as a condition of moving a large tax bill. Senator Todd Young (R-IN) said the TCJA's 2022 change to 5-year amortization for R&D expenses rather than expensing under Section 174 means some employers can't make payroll and may close their doors, and encouraged Congress to take action this year to reinstate R&D expensing. Senator Wyden said the R&D issue is important but "we have also got to stand up for our kids," alluding to the fact that Democrats insist upon a CTC expansion in conjunction with business tax provisions.

Next week — There is a Senate Finance Subcommittee on Health Care hearing set for Tuesday, September 19 at 10:00 a.m. on "Aging in Place: The Vital Role of Home Health in Access to Care."

The House Ways & Means Committee has scheduled a hearing Tuesday, September 19 at 10 a.m. on "Reduced Care for Patients: Fallout from Flawed Implementation of Surprise Medical Billing Protections."

The Committee has also scheduled a Trade Subcommittee hearing on "Reforming the Generalized System of Preferences to Safeguard U.S. Supply Chains and Combat China" for Wednesday, September 20 at 2 p.m.


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Washington Council Ernst & Young
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