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October 27, 2023

What to expect in Washington (October 27)

Rep. Mike Johnson (R-LA) was elected Speaker of the House with the vote of all 220 Republicans voting on October 25, the fourth candidate for the position in a three-week process. He has already set an ambitious schedule for regular-order consideration of appropriations bills, said a continuing resolution (CR) after November 17 should end January 15 or April 15 so the Senate can't "jam" the House with a year-end omnibus, and said he would create a bipartisan debt commission. Rep. Johnson was lesser known than other candidates prior to his ascension to the Speaker role, which was widely observed to have been a benefit in a chamber with many relatively new members, some with an aversion to the Washington establishment.

The Wall Street Journal said, "Johnson served in House Republican leadership as a deputy whip and vice chairman of the House Republican Conference. But lawmakers said Johnson benefited from not being considered part of the core leadership team, whose decisions about policy issues, including the debt limit and spending levels, have divided House Republicans. Those disagreements culminated in [Speaker] McCarthy's removal and have hobbled efforts to find a replacement."

The Washington Post observed that "almost 63 percent of the 221 Republicans took office after John A. Boehner (R-Ohio) resigned under conservative pressure in October 2015. Johnson took his first oath just a couple of weeks before norm-busting Donald Trump was sworn in as president, and many of those newcomers … increasingly fell out of step with veteran GOP speakers such as Boehner and Paul D. Ryan (R-Wis.), who retired at the end of 2018 during a Trump-inspired government shutdown."

The dust is still settling from the three-week process of electing a new Speaker, but the November 17 deadline for government funding could potentially be controversial. Bloomberg reported Rep. Chip Roy (R-TX) as saying a next CR can't be a "punt," but rather needs significant spending reduction like the Republican CR proposal (to adhere to the FY2022 top-line spending level) that was blocked by some members September 29. Some Republicans have said they are opposed to CRs under any circumstances; it's unclear if that opposition softens under a new Speaker and given the turmoil that preceded his election.

The House October 26 approved the Energy & Water appropriations bill, 210-199. Under the schedule set by Speaker Johnson to pursue regular-order consideration of spending bills, the week of October 30 is Legislative Branch, Interior & Environment, and Transportation-HUD; the week of November 6, Financial Services & General Government and Commerce, Justice, Science; then, the week of November 13, Labor-HHS and Agriculture. The September 30 CR extended FAA authorization and related excise taxes and some agricultural program authority/funding through the end of 2023. Politico reported this week, "A growing number of lawmakers are privately pressing for Congress to include a farm bill extension in a likely mid-November short-term government funding measure, with … time running out before a year-end farm bill cliff."

The impetus for Republican calls for spending cuts is concern over the deficit. On the related issue of economic growth, President Biden October 26 trumpeted 3rd quarter GDP growth as an affirmation of his policies. "I always say it is a mistake to bet against the American people, and just today we learned the economy grew 4.9% in the third quarter … " he said. "It is a testament to the resilience of American consumers and American workers, supported by Bidenomics — my plan to grow the economy by growing the middle class … I hope Republicans in Congress will join me in working to build on this progress, rather than putting our economy at risk with reckless threats of a shutdown or proposals to cut taxes for the wealthy and large corporations, while slashing programs that are essential for hard-working families and seniors."

The House is now out of session until Wednesday, November 1. The Senate will next convene at 3 p.m. on Monday, October 30, with a judicial nomination vote at 5:30 p.m. Majority Leader Chuck Schumer (D-NY) has taken a procedural step (filing cloture) toward a vote on the nomination of former Treasury Secretary Jack Lew to be Ambassador to Israel. Work is also expected to continue on the three-bill appropriations minibus comprising the Military Construction-VA, Agriculture, and Transportation-HUD bills.

Tax — Of course, the selection of a new Speaker and return to legislating raises questions about what will happen with tax and other items in future government funding bills. Tax Notes October 26 reported Republicans from New York and other high-tax states as saying Speaker Johnson assured them a major tax package wouldn't move without an increase in the TCJA $10,000 state and local tax deduction cap. Some prominent members expressed doubt about the potential for such a package this year. House Budget Committee Chairman and Ways & Means member Jodey Arrington (R-TX), who sponsors a bill (H.R. 2406) to extend 100% expensing, "has his sights set on 2025 for action on the TCJA provisions," according to the report. "We'll put it out, we'll get it out," he said of tax legislation. "We just won't get it done. SALT's going to be the big rub." Senators John Cornyn (R-TX) and Chuck Grassley (R-IA) were cited as suggesting the gulf between the two parties on expanding the Child Tax Credit (CTC) could be too wide for a deal before 2025.

Politico Morning Tax offered a more optimistic assessment: "Now that the House has gotten back on track, at least for the moment, lobbyists have said that talk about a year-end tax bill has picked up — if for no other reason than people need to be ready in case the climate does become favorable near the end of the year. Also keep in mind: Those Republicans from New York and California wouldn't have quite the same amount of leverage — or de facto veto power — over a bipartisan tax bill, nor is this year their last or maybe even best chance to score SALT changes. (The current cap expires at the end of 2025, along with lots of other individual provisions from the Tax Cuts and Jobs Act.)"

At the October 25 House Ways & Means Committee hearing on education tax policy, Chairman Jason Smith (R-MO) discussed expanding 529 accounts. "In 2017, Republicans took the first step and allowed 529 accounts to cover K-12 education tuition up to $10,000. But 529 accounts could also be amended to cover other educational costs like books, tutoring to help kids catch up after multiple years of forced virtual school, educational therapies for students with disabilities, and supplies for the many families now choosing to homeschool," he said. "These 529 accounts could also help address America's skilled labor shortage by expanding to cover skilled trade or licensing programs."

In response to a question from Rep. Danny K. Davis (D-IL) about what programs are complementary to vocational training programs, witness Girard Melancon said the Work Opportunity Tax Credit (WOTC) is a viable tool for training workers, especially those that have been left out of the workforce pipeline. The credit Incentivizes employers to invest in their workers, Melancon said.

Global tax — The October 26 OECD technical webinar on the Multilateral Convention to Implement Amount A of Pillar One included a description of limited exclusions, including for regulated financial services, extractives, autonomous domestic business, and supplies with a defense purpose. There was discussion of, under the Tax Certainty Framework on Amount A, strict deadlines for review processes and reaching decisions on a review in the interest of tax certainty, and consequences if deadlines aren't met. Further, there was also discussion of the list of existing measures subject to removal once the MLC enters into force.


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