January 19, 2024
What to expect in Washington (January 19)
The House Ways & Means Committee today is marking up the $78 billion Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) proposed by Chairman Jason Smith (R-MO) with Senate Finance Committee Chairman Ron Wyden (D-OR), addressing TCJA pre-cliffs and the Child Tax Credit (CTC) plus the United States-Taiwan Expedited Double-Tax Relief Act, disaster relief, and affordable housing provisions. The Joint Committee on Taxation staff revenue estimate released late January 17 showed CTC and business tax provisions even at roughly $33 billion each, and the bill close to paid for with $77.2 billion from enforcement provisions for the Employee Retention Tax Credit (ERTC), including increased penalties, enhanced disclosure requirements, and barring additional claims after January 31, 2024. Under the bill, restoring IRC Section 174 expensing for domestic R&D and the prior IRC Section 163(j) interest deductibility parameters are proposed to be retroactive to 2022 and extended through 2025. Also included are an extension of 100% bonus depreciation and an increase in the IRC Section 179 small business expensing amount.
The markup is expected to feature Democrats, led by Ways & Means Ranking Member Richard Neal (D-MA), pushing for greater refundability of the CTC in the wake of criticism from off-Committee but influential members like Rep. Rosa DeLauro (D-CT), who cited as a failure the fact that the bill doesn't make the full child tax credit available as a refund to families with little or no taxable income. A Bloomberg reporter on social media January 17 cited Rep. Neal as saying he will seek tweaks to the CTC portion but that he is also optimistic Congress can pass the bill. Democratic votes are not needed to get the bill out of committee but will be needed to pass under a procedure known as "suspension of the rules" on the House floor (requiring a two-thirds majority vote), which may be necessary as an end-around the Rules Committee that is stacked with conservatives. Chairman Smith said he will work to pass the bill in the House in the coming weeks (the House is scheduled to be out next week). House Democratic leader Hakeem Jeffries (D-NY) January 18 withheld a full endorsement but gave limited approval, saying "some movement on the Child Tax Credit is clearly better than no movement, and the provisions related to the Low-Income Housing Tax Credit and disaster relief are also meaningful."
Tax Notes suggested a deeper ERTC crackdown may be proposed to pay for enhancements under the bill, citing Democratic tax-writing sources as saying "they are looking at an immediate — and possibly retroactive — end to ERC claim filing, which they say would pay for another $20 billion or so worth of provisions … The added funds could be used on the Democratic side for improvements to the child tax credit, while Republicans might opt for expanding the proposed rollback of research and development amortization to cover foreign as well as domestic investments."
A column in the January 17 Washington Post lauded the CTC provisions, saying, "low-earning families often cannot receive more than a tiny child tax credit (if any) for any children beyond their firstborn. Meanwhile, higher earners get cash back for every kid. This backward logic is thanks to how the child tax credit 'phases in' based on income. The new agreement fixes this, allowing poor families with multiple kids to claim the same benefit for each of their children." Further, the column said, "Families temporarily undergoing economic hardship could also choose between the current year and the prior one when calculating their credit. For instance, imagine a working mom who made enough money last year to qualify for the full credit for her preschooler. But then her earnings dropped this year because she took time out of work to care for a sick relative or maybe a newborn. Under the new proposal, her earnings from last year could be used to determine her family's eligibility … the agreement still satisfies Republicans' preference for something akin to a minimum work requirement but provides more flexibility for how that requirement can be met."
However, the Wall Street Journal (WSJ) published an editorial critical of the bill, for reasons including that it undermines the incentive to work in return for the CTC and complicates Republican efforts to extend many more tax cuts that expire at the end of 2025. "The problem, and it's a big one, is the price that Ways and Means Chairman Jason Smith is willing to pay to get Senate Democrats to agree to the business breaks," the editorial said. "The deal announced Tuesday would expand and further entrench the $2,000 per child tax credit. The overall deal would cover the 2023, 2024 and 2025 tax years and cost roughly $78 billion."
Government funding — The Senate January 18 approved 77-18 a continuing resolution (CR) to extend government funding beyond the January 19/February 2 deadlines, until March 1/March 8 respectively. The House approved the measure 314-108. Appropriators have until March to agree to the full slate of 12 appropriations bills. Politico: "Top Hill leaders might have agreed on overall spending levels nearly two weeks ago, but appropriators can't get to work writing legislation until the two appropriations chairs — Sen. Patty Murray (D-Wash.) and Rep. Kay Granger (R-Texas) — work out their own deal on how to divvy up the topline number among the 12 individual bills, setting what's known among wonks as the 302(b)s."
The President's January 17 meeting with the "Big Four" congressional leaders — Senate Majority Leader Chuck Schumer (D-NY), House Speaker Mike Johnson (R-LA), House Democratic leader Hakeem Jeffries (D-NY) and Senate Republican leader Mitch McConnell (R-KY) — to discuss the Ukraine-Israel national security supplemental yielded some optimism over bipartisan border security talks. Senator McConnell suggested the Senate could vote as soon as next week in "a unique opportunity to accomplish something in divided government that wouldn't be there under unified government" as it relates to border policy. "Senator Lankford has done an excellent job. And one of the things that I keep reminding my members is if we had a 100% Republican government — President, House, Senate — we probably would not be able to get a single Democratic vote to pass what Senator Lankford and the administration are trying to get together on."
The WSJ reported that President Biden is acceding to demands for a tougher border policy. "An immigration deal being crafted in the Senate would limit migrants' ability to claim asylum at the southern border, a White House concession some progressives say shows that President Biden's leftward shift on immigration as a 2020 candidate was a blip in his long political career. Biden's willingness to negotiate with Republicans lays bare what many liberal Democrats have long feared — that he is willing to move to the right to cut a deal on immigration and secure funding for the wars."
Tax — The January 17 Senate Budget Committee hearing on "Corporate Loopholes that Reward Offshoring Jobs and Profits" took aim at the current structure of the global intangible low-taxed income (GILTI) minimum tax. Kimberly Clausing of UCLA, a former Biden Treasury official, advocated implementing a country-by-country version of GILTI and eliminating the tax-free return on foreign tangible assets — points she made during a previous Senate Budget hearing in April 2023. Asked by Senator Chris Van Hollen (D-MD) about requiring CbCR reporting, Clausing said the simple information required to be provided would increase transparency for corporations and is a "market-friendly nudge" for them to share information with the public. Senator Ron Johnson (R-WI) suggested, ahead of the expiration of some TCJA provisions in 2025, looking at areas of agreement and crafting a bipartisan package that can be considered in Congress.
In IR-2024-14 January 18, the Internal Revenue Service and the Treasury Department announced, "a major milestone in implementation of key provisions in the Inflation Reduction Act with more than 1,000 projects registered through the new IRS Energy Credits Online (ECO) tool."
Today, January 19 (12:00 p.m. ET), is the EY Webcast, "Tax in a time of transition: Legislative, economic, regulatory and IRS developments."