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January 12, 2024

What to expect in Washington (January 12)

As the release of details of a business and family tax package proposal more than a year in the making seemed imminent, House Ways & Means Committee Chairman Jason Smith (R-MO) said January 10 he is "not going to put a timeline on anything" and Senate Finance Committee Chairman Ron Wyden (D-OR) said in Law360, "There is no deal … We've got more work to do." Wyden has said lawmakers are aiming to complete consideration by the start of the tax filing season, which is January 29.

The discussed package is reported to total roughly $70 billion and is expected to propose restoring IRC Section 174 R&D expensing and prior parameters for IRC Section 163(j) interest deductibility — possibly retroactive to 2022 and extended through 2025 — plus address the expensing phasedown, the Child Tax Credit (CTC), and maybe other provisions. Politico confirmed speculation in recent days that, on R&D, "The cost of the research and development item will be less than originally predicted because it includes full deductions for domestic R&D only, and not foreign R&D."

Chairman Wyden said Democrats had prevailed in achieving rough parity in the package on spending on the CTC relative to business tax provisions. Senator Maggie Hassan (D-NH), who has long called for restoring R&D expensing, celebrated the prospect of something finally being done on the issue alongside a "tailored expansion of the child tax credit." And Sherrod Brown (D-OH), a principal advocate for a CTC expansion who is up for re-election this year in a state that voted Republican in the 2020 presidential election and 2022 Senate election, said he was happy with that aspect of the deal, the Wall Street Journal (WSJ) reported.

However, other senators and Democratic House members suggested the package falls short. Ways & Means Ranking Member Richard Neal (D-MA) said making the tax credit fully refundable continues to be important to Democrats and some of the proposals in the agreement are "going backward," Bloomberg Government reported. Punchbowl News reported that Democrats pointedly questioned Neal over the issue during a Wednesday meeting. Politico subsequently reported Neal as saying Ways and Means Democrats are against the bill in its current form, citing the desire for a larger CTC and greater refundability.

Support from both Neal and Senate Finance Committee Ranking Member Mike Crapo (R-ID) had been uncertain in the run-up to the bill. Crapo has acknowledged the political difficulties such a bill faces in both the Senate and House.

Finance Committee Democrats are reportedly pushing for housing provisions in any package, and Chairman Wyden laid down a marker for inclusion of that issue in a December 12 floor speech. Ways & Means member Greg Steube (R-FL) expects his disaster relief proposal to be added to the package, which he also said could see a House vote next week, according to Morning Tax.

At the 2024 D.C. Bar Tax Conference January 10, a House Democratic aide suggested that the strong bipartisan support for the United States-Taiwan Expedited Double-Tax Relief Act (H.R. 5988) could make it a strong candidate for inclusion in an eventual package.

Looking ahead, the Law360 article reported: "Wyden said the negotiations are a precursor to next year's tax negotiations as provisions of the 2017 TCJA expire. 'If you improve the child tax credit, you really strengthen your hand for the big tax negotiations that are going to go on [in] 2025 because you'll be starting from a higher' ground, Wyden said."

The staff of the Joint Committee on Taxation (JCT) released a list of provisions of the tax code that expire 2024–2034.

A Congressional Research Service (CRS) reference table describes TCJA provisions and how they are scheduled to change after 2025.

On Wednesday, January 17 at 10 a.m., the Senate Budget Committee will hold a hearing, "The Great Tax Escape: Closing Corporate Loopholes that Reward Offshoring Jobs and Profits." Witnesses:

  • Kimberly Clausing, University of California, Los Angeles School of Law
  • Roy Houseman, United Steelworkers
  • John Arensmeyer, Small Business Majority
  • James R. Hines Jr., University of Michigan
  • Mindy Herzfeld, University of Florida Levin College of Law

Government funding — Broader political dynamics in the House raise additional questions about how a tax bill would be received and supported. The $1.66 trillion FY2024 topline spending agreement announced by Senate Majority Leader Chuck Schumer (D-NY) and House Speaker Mike Johnson (R-LA) on Sunday has caused an uproar from some House conservatives, who effectively shut down any floor business that requires a rule for voting. Voting down rules was also employed by some members to express dissatisfaction with legislation in the fall of 2023, contravening the historical role of the rule vote as mostly a formality.

On January 10, a vote on the rule (H. Res. 947) for consideration of the Stop Settlement Slush Funds Act of 2023 (H.R. 788), to prohibit the Federal government from entering into settlement agreements that include payments directed to appropriate parties, and two resolutions of disapproval on the Standard for Determining Joint Employer Status and the rule relating to Waiver of Buy America Requirements for EV Chargers, failed 203-216. A dozen Freedom Caucus members opposed the rule: Andy Biggs (R-AZ), Eric Burlison (R-MO), Eli Crane (R-AZ), Bob Good (R-VA), Paul Gosar (R-AZ), Marjorie Taylor Greene (R-GA), Anna Paulina Luna (R-FL), Ralph Norman (R-SC), Andy Ogles (R-TN), Scott Perry (R-PA), Matt Rosendale (R-MT), and Chip Roy (R-TX). Rep. Blake Moore (R-UT) voted no for procedural reasons.

"The Republican revolt underscored Mr. Johnson's predicament in trying to steer the spending deal through the closely divided House, where it has enraged a sizable bloc of Republicans, while keeping his grip on his job," the New York Times reported. "The upheaval came as it was becoming clear that Congress would most likely have to resort to yet another short-term spending patch — something Mr. Johnson had previously ruled out — to buy time to push a bipartisan deal to fund the government."

Anticipating that an additional short-term continuing resolution (CR) will be necessary to patch funding beyond the January 19 deadline, Leader Schumer filed a procedural motion on H.R. 2872, the legislative vehicle for a Continuing Resolution, with a procedural vote next Tuesday. The Senate is in pro forma session only today and will next convene for business on Tuesday, January 16.

Congress — Reps. Jamie Raskin (D-MD) and Jim McGovern (D-MA) January 10 introduced a bill (H.R. 6938) to reinstate the pre-Tax Cuts and Jobs Act deduction for personal casualty losses. The TCJA generally eliminated personal casualty and theft losses not associated with a federal disaster area, though the change expires with many other TCJA individual provisions after 2025. A Washington Post story said the impetus for the bill was reports about tax bills faced by victims of scams and other thefts and "would allow people who have suffered losses since the 2017 tax law change to amend their returns and claim the deduction."

The House Financial Services Committee's Capital Markets Subcommittee's Wednesday hearing on "Examining the DOL Fiduciary Rule: Implications for Retirement Savings and Access" aired the mostly partisan debate over the rule, which Subcommittee Chairman Ann Wagner (R-MO) said makes it more difficult to save for retirement "disguised as an attempt to eliminate so called 'junk fees.'" Former head of the Employee Benefits Security Administration (EBSA) Bradford Campbell said the Department acted through "a clever trick I like to call the DOL two-step," in which the agency first "dramatically expanded" the definition of fiduciary advice for purposes of the tax code's prohibited transaction rules, such that "ordinary, perfectly legal and appropriate transactions in which … there is a commission paid to an insurance producer or a broker dealer, now become illegal, prohibited compensation by virtue of calling that a fiduciary relationship." Step two is that the department "creates an exemption that allows you to still be able to get paid for providing that advice, but only if you comply with an extensive series of new conditions, one of which is the imposition of a standard of care that is almost identical to the standard fiduciary standard of care applicable to employer-provided benefit plans."

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For additional information concerning this Alert, please contact:

Washington Council Ernst & Young