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January 24, 2024

What to expect in Washington (January 24)

House leadership has listed under "Items that may be considered" by the chamber the week of January 29 the $78 billion Tax Relief for American Families and Workers Act of 2024 (H.R. 7024), suggesting that the bill could get a floor vote when the chamber returns. House Speaker Mike Johnson (R-LA) hasn't commented on the bill publicly and remains under pressure from some Republicans objecting to the bill's Child Tax Credit (CTC) enhancements as well as those representing districts President Biden won in 2020 — many of which are in high-tax states — over the bill's omission of relief from the $10,000 SALT deduction cap. The bill, approved by the Ways & Means Committee last week, addresses TCJA pre-cliffs and includes an expanded CTC and other issues.

It was previously suggested that the bill may need to pass under a procedure known as "suspension of the rules" on the House floor (requiring a two-thirds majority vote) as a necessary end-around the Rules Committee that is stacked with conservatives, and while that is still seen as likely, the House Document Repository doesn't designate whether it would be processed in that manner or pursuant to a rule. If the bill is to be amended — including to provide SALT relief — it will first need to go to the Rules Committee and the now-perilous procedural step of voting on the rule will need to occur on the House floor before the bill can be debated.

Government funding and other bills have been shaped by conservative Republicans in the House and their concerns over additional spending, and it isn't yet clear how the bill may be received in the full chamber. However, as the 40-3 Ways & Means Committee vote on Friday demonstrated, there will likely be significant Democratic support. Politico Morning Tax: "The Speaker has been meeting with members to discuss the deal and any concerns they might have in anticipation of the possible vote next week. That clearly would include the conservative members who have been a thorn in Johnson's side on spending matters, though other Republicans — like those residing in blue states that want relief from the current cap on state and local deductions — have also pushed for changes to the tax bill."

Even if there is a successful House floor vote, the future of the package is uncertain in the Senate, where leaders would have a more difficult time putting the bill on the floor as a standalone measure, as opposed to attaching it to a large, fast-moving appropriations bill or other measure. Some Finance Republicans have insisted on a committee markup and at least one, Senator Thom Tillis (R-NC), has been openly skeptical about the Employee Retention Credit (ERC) crackdown as the revenue offset. Politico cited Senator John Cornyn (R-TX) as saying Republicans discussed the matter over lunch Tuesday, Senator Tillis thinks the ERC item is "a phony" pay-for and, "I think he's got a good point."

There are other issues, as well. Punchbowl News reported, "The top Republican on the Senate Finance Committee, Mike Crapo of Idaho, also said that GOP hang-ups on the tax package include concerns about the child tax credit expansion and allowing families to temporarily use prior-year income to claim it. Crapo, though, said he has no qualms with cutting off employee retention tax credit claims early as part of the package — though he doesn't want it to set a trend for tax bills." The report also cited Senator Crapo as suggesting the level of support in a House vote could influence how senators regard the bill.

Senator Marco Rubio (R-FL), who has his own CTC expansion proposal, wrote to the Wall Street Journal January 22, "House Ways and Means Chairman Jason Smith deserves credit for not re-creating President Biden's child allowance … . House Republicans haven't gone far enough, though. Their deal would index the $2,000 credit per child to inflation … , but without a base increase, negotiators have locked in erosion from Mr. Biden's inflation … . Doing nothing isn't an option, because Republicans' pro-family tax cuts from 2017 will expire in 2025. My proposal for the child tax credit would retain the connection to work but allow families to start receiving the credit with their first dollar of earned income, at a rate of 15.3%, to offset combined employee and employer payroll tax liability … . We should also dramatically increase the size of the tax credit to $3,500 a child ($4,500 for young children)."

Congress — Only the Senate is in session this week. The main order of business was to be a Ukraine-Israel national security supplemental bill with significant border security provisions, but a bipartisan proposal on border issues hasn't been finalized. Senator Chris Murphy (D-CT) was widely reported as saying negotiations are largely done and in the final stages, but Senator James Lankford (R-OK) said Senate action on the bill will not happen this week. "We still have a handful of issues to resolve but there is no reason for us to wait weeks to get this bill on the floor," Senator Murphy said after the regular Tuesday party policy lunches. "And so, I am hopeful that our Republican colleagues will work with us to wrap up the supplemental, both the policy changes and the funding necessary to effectuate the policy changes in the next few days so that we can answer the call for Ukraine." The Senate will conduct votes related to three judicial nominations today.

There were multiple news reports of tensions among Republicans on the issue during Tuesday's policy lunch. The Hill reported, "Senate conservatives Tuesday vented their frustrations with Senate GOP leaders over an emerging border security deal that is slated to come to the Senate floor in the next few weeks, warning that an agreement with President Biden may wind up being worse than doing nothing at all. Republicans including Sens. Mike Lee (Utah), Ron Johnson (Wis.) and Ted Cruz (Texas) complained about being left in the dark about key details and warned that the deal could hurt Republicans' chances of keeping control of the House in the 2024 election … "

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Washington Council Ernst & Young