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September 22, 2023

What to expect in Washington (September 22)

House Speaker Kevin McCarthy (R-CA) sent members home for the weekend without voting on a continuing resolution (CR) and with one legislative workweek to go before a government shutdown if both chambers don't pass the same government funding patch CR by September 30. The focus of conservative holdouts has shifted from demands regarding the contents of a CR to opposing that type of short-term patch in favor of moving the remaining (in the House) 11 of 12 appropriations bills through regular order, which leaders in both chambers and the White House have long said couldn't be accomplished by the deadline.

Sending members home for the weekend, with the condition that they could be brought back in the event of any breakthrough, came after Republicans were again unable Thursday to attain the requisite votes on the rule for consideration of the Department of Defense (DOD) spending bill. Holdouts were Reps. Andy Biggs (R-AZ), Dan Bishop (R-NC), Matt Rosendale (R-MT), Eli Crane (R-AZ), and Marjorie Taylor Greene (R-GA), with the latter two fresh objectors to the measure. It was the second failed rule vote this week, with previous 'no' votes Reps. Ken Buck (R-CO) and Ralph Norman (R-SC) having come around to support the procedural "rule" step that was once routine but now deployed by conservatives as a form of protest.

Speaker McCarthy had earlier tried to move the proposed House CR, to extend government funding through October 31, further to the right in a bid to win the votes of conservative holdouts, proposing to adhere to FY2022 spending of $1.471 trillion and possibly creating a debt commission, in addition to the previous iteration's inclusion of a Republican-authored border security measure. The focus is increasingly on Rep. Matt Gaetz (R-FL), a late holdout on the January Speakership election who has repeatedly threatened Speaker McCarthy's ouster this week. Politico Playbook this morning offered very succinct reporting about Gaetz proposing consideration of full-year appropriations bills one by one and his leadership of the 'never-CR' group of members. "The House has really abandoned the McCarthy CR strategy today and has embraced the Matt Gaetz strategy of single subject spending bills," he said.

To that end, the House Rules Committee is scheduled to meet today regarding the procedural parameters for consideration of the appropriations bills on DOD, State, Agriculture, and Homeland Security.

The Wall Street Journal reported Gaetz as saying, "I'd rather work through those contentious items through the appropriations process than just try to figure out what's the next ornament to hang on a continuing resolution." The report cited Rep. Mike Lawler (R-NY), one of the 18 House Republicans in a Biden-won district, as eyeing a backup plan, if a CR vote doesn't happen, to work with Democrats to circumvent McCarthy and put an alternative on the floor if needed to minimize the length of a shutdown. "If there is not going to be a CR coming out of the House Republican caucus then I will move forward with the discharge petition," Lawler said.

Partnering with Democrats has not been a viable option for Speaker McCarthy given conservatives' vow to oust him from the position over such an approach, but bipartisan escape routes from a potential shutdown could be expected to surface next week ahead of the shutdown deadline. The bipartisan Senate prerogative for a CR is spending at the current FY2023 level, omission of controversial policy provisions, and likely addition of Ukraine and disaster funding. Senate Majority Leader Chuck Schumer (D-NY), who had his own struggles this week in moving a three-bill appropriations package that some conservative members there want considered one by one, took a procedural step on a bill that could be used as a vehicle for a CR.

Punchbowl News this morning: "McCarthy will have a choice to make. Will he bring up the Senate-approved CR and pass it with a mix of Democratic and Republican votes? Will he try to amend it and see if the Senate will bite? (They probably won't.) Or will he ignore it and shut the government down?"

CNN reported about prospects for Democrats aiding McCarthy if a motion to vacate the chair should be brought to the floor, saying "the private discussions have picked up steam in recent days" given the developments over the spending bills.

The Senate was in pro forma session today and its next vote, at 5:30 p.m. on Tuesday, September 26, will be on a procedural motion related to the Securing Growth and Robust Leadership in American Aviation Act H.R. 3935, the aforementioned CR legislative vehicle.

Tax — An eventual long-term spending package is the likely vehicle for outstanding tax and health items. In a Wednesday Punchbowl News interview, House Ways & Means Committee Chairman Jason Smith (R-MO) laid out his priorities for a tax extenders package before the end of the year, expressed optimism that he can work with Democrats on the Child Tax Credit (CTC), and said he planned to reintroduce his legislation to make permanent the TCJA's doubling of the credit to $2,000.

Democrats are seeking a further CTC expansion, closer to what was in effect for 2021, as a condition of supporting business tax items like a return to R&D expensing from the (also TCJA-enacted) 5-year amortization that took hold in 2022. Republicans have noted the disparity in cost of the two items: about $25 billion for an R&D fix through 2025, compared to $100 billion per year for the 2021 CTC regime. No word yet on whether a more generous approach to business tax provisions could help end the impasse.

The Senate Finance Committee has noticed a hearing for Thursday, September 28 (at 10 a.m.) to consider nominations including Marjorie A. Rollinson to be Chief Counsel for the Internal Revenue Service and an Assistant General Counsel in the Department of the Treasury.

After providing relief over the summer from some components of foreign tax credit (FTC regulations) through the end of the year, the IRS is considering extending the period in which taxpayers can rely on old foreign tax credit rules, according to the Bloomberg Daily Tax Report (DTR) report. "The IRS also plans to issue guidance by the end of 2023 on how the foreign tax credit will work with the pending 15% global minimum tax, said Anthony Ferrise, an IRS senior international adviser on cross-border activities. He was speaking at an IRS/Tax Executives Institute conference in New York on Wednesday."

In July, Treasury/IRS announced that taxpayers could apply former regulations' more permissive standards for determining whether a tax was a creditable net income tax under IRC Section 901, and the current IRC Section 903 "in lieu of" tax rules without regard to the attribution requirement for tax years ending on or before December 31, 2023. An EY Tax Alert has details.


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Washington Council Ernst & Young
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