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Politico cited Rep. Kevin Hern (R-OK), chair of the conservative Republican Study Committee and a Ways & Means Committee member, in reporting, "Republicans are looking to move $35 to $40 billion of business relief in an end-of-year tax bill, which Senate Democrats are hoping to match dollar-for-dollar with an expanded Child Tax Credit." The story noted that the main candidates for such relief are the TCJA pre-cliffs that relate to the five-year amortization for R&D expenses rather than expensing under IRC Section 174 and the IRC Section 163(j) interest deduction limitation based on EBIT rather than EBITDA, both of which took effect in 2022; and 100% expensing, which is phased down in increments after 2022.

Fixing those provisions through 2025 was estimated to cost $47 billion when considered by Ways & Means as part of a larger package in June. The Politico report cited other members as saying the talks around the CTC aren't exactly fully developed. "We're talking around it but we haven't had any specific proposals on it," Sen. Thom Tillis (R-NC), a Finance Committee member, said Tuesday of negotiations around the CTC. "And really that's what's necessary to bridge the gap with all the tax extenders stuff."

Appropriations — Of course, moving a tax package requires a legislative vehicle, which is most likely to be some upcoming government funding bill. There is the potential for a government shutdown when funding expires in about 10 days, and an approach to a continuing resolution (CR) — which is widely expected to be necessary, given the appropriations process isn't nearly finished — hasn't been announced. House Speaker Mike Johnson (R-LA) is considering multiple options, including a "laddered CR" by which four appropriations bills would be extended into December and the remaining eight into January. That approach, which puts more pressure on a long-term resolution of the funding debate, is favored by conservatives who have long insisted on regular-order spending bills over CRs.

Roll Call reported Rep. Andy Harris (R-MD), the Agriculture Appropriations Subcommittee chairman, as saying the laddered approach would "urge the Senate to actually take further action on the bills that it's passed, as well as Defense," suggesting the four-bill tranche to be extended only into December would be the Defense appropriations bill plus the Military Construction-VA, Agriculture, and Transportation-HUD bills approved by the Senate as a minibus last week. (Transportation-HUD remains stalled in the House over Amtrak funding.)

The New York Times reported on resistance to the laddered approach from Senate Appropriations Committee Ranking Member Susan Collins (R-ME), who said, "It seems to me that you would just constantly be having programs and agencies stop and go, stop and go." The story said House Republicans have "found themselves back in the same predicament they confronted in September, when Congress narrowly avoided a shutdown just hours before the deadline … They are still hoping to pass as many spending bills as possible to put themselves in a stronger bargaining position for negotiations with the Senate. But Mr. Johnson has faced the same headwinds Mr. McCarthy did in passing the funding measures, with some politically vulnerable Republicans unwilling to support bills saddled with deep cuts and conservative policy riders."

The Washington Post said of Johnson and Senate GOP leader Mitch McConnell (R-KY), "The end-of-year rush to address myriad must-pass legislation will test both Republican leaders as their conferences are guaranteed to clash in unforeseen ways … McConnell, who has a reputation for keeping a tight grip over his conference, has faced sharp criticism from some of his more conservative members in recent weeks who are urging him to back Johnson more forcefully instead of pushing to tie Ukraine aid with Israel funds."

Supplemental — There has been reporting that the national security supplemental funding bill requested by the President may not be resolved until the broader government funding debate is settled. The House-passed Israel Security Supplemental Appropriations Act (H.R. 6126) with $14.5 billion in Israel aid and an equal amount in IRS funding rescissions was declared a nonstarter in the Senate because of the exclusion of Ukraine funding and, for Democrats, the IRS rescission. Senators from both parties support considering Israel aid in conjunction with money for Ukraine, and the President's supplemental request covers those two issues plus border security resources. But now the border issue is causing complications after a group of Senate Republicans put out a draft plan to "resume construction on parts of the U.S.-Mexico border wall, curtail humanitarian parole for people who cross into the United States and make it more difficult for migrants to qualify for asylum," the AP said.

Bloomberg reported second-ranking Republican Senator John Thune (R-SD) as saying Republicans are "dead serious about having border security in the bill," and Senator John Cornyn (R-TX) as saying, of Ukraine aid, "We're going to use this as frankly a maximum point of leverage to get the administration to do what they should have done a long time ago."

Following the Tuesday party lunches, Majority Leader Chuck Schumer (D-NY) pushed back against the plan: "Instead of putting together commonsense border policies that can pass in divided government, Senate Republicans basically copied and pasted the House's radical H.R. 2 bill, all at the expense of Ukrainian freedom, independence, democracy." Senator McConnell said he told President Biden and Secretary Yellen "that we have to have a credible solution to the wide-open border in order to get a bill that includes all of the things that I think are important across the Senate floor … So, we're very serious about this and I think it will be difficult to get the package across the floor in the Senate without a credible border solution."

IRA IRS funding — A story in the November 6 Washington Post reported that the IRS funding revenue offset was settled upon at a meeting at the Heritage Foundation where an extension of customs user fees, a popular source of revenue over the years, and "repealing some of President Biden's clean energy credits" were also discussed as possibilities. The Ways & Means Committee tax package approved by the committee in June also sought to roll back various clean energy credits.

Democrats are pushing back at the House bill's proposal to cut some of the additional IRS funding that was enacted in the Inflation Reduction Act (IRA). In November 7 remarks addressing how the IRA "is continuing to deliver improvements for taxpayers," Treasury Secretary Janet Yellen said, "The current proposals to cut funding for the IRS make this an especially crucial time to talk about the importance of this work. Playing politics with IRS funding is unacceptable. Cutting it would be damaging and irresponsible."

The Senate Finance and Budget committees are holding hearings on the taxation of high-income individuals, where the IRS funding issue may be discussed:

• The Senate Budget Committee hearing, "Fairness and Fiscal Responsibility: Cracking Down on Wealthy Tax Cheats," is set for today (November 8) at 10 a.m., with witnesses including Natasha Sarin, formerly of the Biden Treasury Department and now a Yale professor.
• The Senate Finance Committee hearing, "Examining How the Tax Code Affects High-Income Individuals and Tax Planning Strategies," is planned for tomorrow, November 9, at 10 a.m.

The staff of the Joint Committee on Taxation has prepared a document, "Present Law And Background On The Income Taxation Of High Income And High Wealth Taxpayers," ahead of the Finance hearing.

Global tax — An EY Tax Alert on the USCIB conference, "OECD and country officials discuss BEPS 2.0 Pillars One and Two and other OECD tax work," is available here.

ESG/retirement — At the November 7 House Ways & Means Committee hearing, "Ensuring that 'Woke' Doesn't Leave Americans Broke: Protecting Seniors and Savers from ESG Activism," Republicans expressed opposition to environmental, social, and governance (ESG) factors being allowed to be considered by retirement plan fiduciaries, while Democrats supported consideration of ESG factors. Democrats repeatedly said there were more important retirement policy topics to be considered by the Committee.

Chairman Jason Smith (R-MO) said, "The tax code imposes strict requirements on every professional who manages tax-advantaged retirement plans in order to protect our seniors. The law states that state governments and the private sector must manage these accounts for the exclusive benefit of retirees. This standard has been in place for decades, and it predates rulemaking by the Department of Labor on fiduciary duties. Working families need that protection to prevent Wall Street money managers from putting climate alarmism and far-left policies ahead of their retirement security. But over the last couple of years, we've seen the ESG agenda turn into a pressure campaign … "

The Obama administration allowed for some consideration of ESG factors in retirement plan decision-making, then the Trump administration required plan fiduciaries to select investment and investment courses of action based solely on financial considerations. The Biden administration's rule allowing ESG factors to be taken under consideration was the subject of a congressional disapproval resolution, which was vetoed.

Health — The Senate Finance Committee will hold a markup of its health care discussion draft that contains provisions related to pharmacy benefit managers (PBMs), mental health, provider reimbursement, and more today (November 8) at 10 a.m.

The Senate November 7 confirmed, by a 62-36 vote, Monica Bertagnolli to be Director of the National Institutes of Health.

AI — An EY Webcast, "What you need to know: Biden Executive Order on AI," is today (November 8) from 12:30-1:15 p.m. Register here.

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