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January 10, 2024

What to expect in Washington (January 10)

A tax package proposal negotiated by House Ways & Means Committee Chairman Jason Smith (R-MO) and Senate Finance Committee Chairman Ron Wyden (D-OR) and expected to address IRC Section 174 R&D, IRC Section 163(j) interest deductibility, expensing, the Child Tax Credit (CTC), and maybe other provisions could indeed emerge this week, and member briefings are expected today. Lawmakers have long said they want any tax changes in place before the start of the tax filing season, and now they have a target date. The IRS announced Monday, January 29, as the official start date of the tax season when the agency will begin accepting and processing 2023 tax returns.

"We're just going to pull out all the stops and do everything we can to make it possible to get this done for the filing season," Wyden said in a Punchbowl report. The report said, "Any tax deal would likely have to pass the House on suspension of the rules, which requires a two-thirds majority for passage. The House Rules Committee, which is stacked with conservatives, is likely to use the panel to block leadership's efforts to bring big bills to the floor under a traditional rule." That is consistent with suggestions that there is hesitancy to append a tax package to a government funding bill required by deadlines looming January 19 and February 2, though that approach is still possible as members say the vehicle for a deal is unclear.

"Perhaps the biggest question hanging over Smith and Wyden as they continue to negotiate is what congressional leaders think of their potential agreement — particularly Speaker Mike Johnson (R-LA)," Politico Morning Tax said January 9. The outlet previously reported that the tax bill may not be a near-term priority for Speaker Johnson as he deals with government funding and the related issue of the border; and that Chairmen Smith and Wyden may not want to rush, instead favoring "getting the structure of the deal right so that Republicans, in particular, are amenable to the proposed changes to the Child Tax Credit." A subsequent Politico report said Chairman Wyden could release details of the plan today.

The Bloomberg Daily Tax Report (DTR) cited Chairman Wyden as saying he will meet with Chairman Smith and Senate Finance Ranking Member Mike Crapo (R-ID) today to continue negotiations. Senator Crapo cautioned that the deal isn't put together yet and said offsets are one of the points still being negotiated. "We have to put together a bipartisan, bicameral agreement that will be able to not only survive the filibuster but survive the dynamics in the House," Crapo said.

A January 9 Wall Street Journal (WSJ) story focused on cracking down on the Employee Retention Credit as a potential revenue offset, which Chairman Wyden said is possible. IRS Commissioner Danny Werfel is briefing the Finance Committee on the credit today and, as a Covid-era policy, House Republicans support reining it in. "Even if tax writers reach a deal, it is uncertain whether the ERC changes would be part of it or whether the fractious Congress would approve it quickly," the report said. "The tax package would likely be attached to other legislation, and Congress is already struggling with spending and immigration proposals."

Ways & Means Republicans were expected to discuss the plan at their regular weekly lunch today, but also reportedly talked over the issue as members were coming into town last night, according to a DTR reporter's social media post. Ways & Means Democrats are meeting at 2 p.m. today to discuss the proposal. Rep. Rosa DeLauro (D-CT), who isn't on Ways & Means but is nonetheless a very influential House Democrat, was reported as being dissatisfied with how the CTC portion of the deal is shaping up.

The 2024 D.C. Bar Tax Conference begins in Washington today with sessions on international, energy, and other tax issues, and a tax legislative panel during the noon hour.

Government funding — The $1.66 trillion FY2024 topline spending agreement announced by Senate Majority Leader Chuck Schumer (D-NY) and Speaker Johnson January 7 has been met with some resistance from conservatives for essentially keeping the June 2023 Fiscal Responsibility Act (FRA) and its $69 billion side deal to boost funding intact. Conservative members are also focused on changes to border policy and shutting down the government, if necessary to get them, while Senate Republicans continue working with Democrats on more modest border changes that could unlock requisite votes for a Ukraine-Israel national security supplemental. "It's the only tool we have," Rep. Chip Roy (R-TX), a Freedom Caucus member, said on Fox News January 8. "I'm not trying to rattle about shutdown for the sake of it, but the people I represent, they're like, 'Good lord, shut down the border or shut down the government … "

As the editorial page in the January 9 WSJ said, there are elements for Republicans to celebrate, including warding off $14 billion in supplemental spending the Senate Appropriations Committee inserted into its spending bills; $16 billion from clawing back the IRS funding boost and unspent Covid funds; and meeting budget deadlines to let Republicans focus on the border. "Could [conservatives] do better with a three-seat margin in the House and Democrats in charge of the Senate and White House?" the editorial asked.

"The spending agreement CUTS $16 billion in Democrat spending priorities — the first nondefense spending cut in several years. This is a step in the right direction as House Republicans fight for conservative policy riders and reprioritizing funds," Speaker Johnson said on social media last night.

There is increasing talk that an additional short-term continuing resolution (CR) will be necessary to patch funding beyond the January 19 deadline. Second-ranking Senate Republican John Thune (R-SD) said January 9 that a CR until March may be necessary, several news outlets reported. House conservatives are pushing Speaker Johnson to stick to his own commitment not to pursue additional stopgap measures.

Nominations — The nomination of Marjorie Rollinson to be Chief Counsel for the Internal Revenue Service was resubmitted to the Senate along with many others January 8, consistent with indications that a Finance re-vote is necessary because of the change to the 2nd session of the 118th Congress. "Nominations that have been neither confirmed nor rejected by the Senate at the time the Senate adjourns sine die or for a period of more than 30 days are returned to the President … " the Congressional Research Service explained. "If a nomination is returned to the President, it is no longer eligible for consideration by the Senate. The President may submit a new nomination, either for the previously returned nominee or for a new candidate. This new nomination is referred to its committee of jurisdiction, which must report out or be discharged before the Senate can vote on confirmation … "

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Washington Council Ernst & Young