February 9, 2024
What to expect in Washington (February 9)
The Senate February 8 voted 67-32 on a procedural motion to advance the legislative vehicle for a national security supplemental funding measure with funding for Ukraine, Israel and other priorities, a day after rejecting 49-50 a supplemental package that included bipartisan border security provisions that succumbed to political pressures. Republican senators are demanding amendments to the package and Senate Majority Leader Chuck Schumer (D-NY) has vowed to "keep working on this bill until the job is done." After this week, the Senate is set to be out for a two-week President's Day recess February 12-23. Weekend work is possible.
"The surprise show of support from Senate Republicans came after a chaotic week, when GOP lawmakers promptly killed the border security reform package they had long demanded be attached to the foreign aid to vote for it. Even if the package ultimately passes the Senate, its chances in the House are more fraught," the Washington Post reported. "The vote to proceed sets up what will likely be days of debate on foreign aid, after Sen. Rand Paul (R-KY) declared he would slow the process to ensure 'every minute' of procedural time be used. Republican senators are still trying to decide what amendments, if any, the conference can rally around to garner more votes … "
Politico: "There's a possibility that senators could be watching the Super Bowl from their Capitol hideaways: If senators can't strike an amendment deal to speed up final passage, they could be stuck in Washington until Tuesday."
Tax — Dispensing with the supplemental could allow the Senate to, upon returning from recess, focus on government funding deadlines March 1 and 8 and the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) TCJA pre-cliffs and Child Tax Credit (CTC) bill, which Republicans say needs a Finance Committee markup. Morning Tax reported on the support of off-Committee members like Senators Roger Marshall (R-KS), Markwayne Mullin (R-OK), and Josh Hawley (R-MO), as well as Senator Marco Rubio's (R-FL) previously stated interest in striking the CTC calculation lookback to the prior year. Another report cited Senator Mike Braun (R-IN) as saying, "If it's got any type of fake pay-for, I vote against it," perhaps echoing Senator Thom Tillis's (R-NC) concerns over the Employee Retention Credit (ERC) crackdown revenue offset.
Aside from insisting on a markup, it isn't clear what Senate Finance Committee Ranking Member Mike Crapo (R-ID) would need to support the plan. Punchbowl News reported that Crapo had already weighed in to limit the CTC lookback in the bill as unveiled, clipping plans to have that in effect for 2023, and some suspect a motivating factor is his wanting to wait to strike a deal in 2025, when Republicans could be in the majority. "There were parts of the bill that needed to be fixed to get my support, and there was not an agreement to fix them," Crapo said. "The bottom line is that Ron [Wyden] and Jason [Smith] went forward."
Exact plans for how the Senate will proceed with the bill aren't clear. "We're going to do everything we can to pull out the stops to be fair to senators and, at the same time, get this done quickly," Finance Committee Chairman Ron Wyden (D-OR) said in today's Bloomberg Daily Tax Report (DTR). The Senate will need at least nine Republicans to pass a tax bill presuming the support of all 51 Democrats, though Senator Joe Manchin (D-WV) has expressed concerns with the CTC expansion.
Meanwhile, the decision to delay until next week a House vote on the rule for consideration of the SALT Marriage Penalty Elimination Act (H.R. 7160), to provide a $20,000 SALT deduction cap for joint filers with adjusted gross income of less than $500,000 for 2023 has been attributed to a number of factors, including a short House work week marked by two failed controversial votes on Israel funding and the impeachment of Homeland Security Secretary Alejandro Mayorkas.
On Thursday, February 15, the House Ways & Means Committee is holding a hearing with IRS Commissioner Daniel Werfel. In a December letter, Committee Republicans called on Commissioner Werfel to testify following the agency's decision to delay implementation of the American Rescue Plan Act's (ARPA) lower 1099-K reporting threshold of $600 rather than $20,000. In Notice 2023-74 on November 21, 2023, the IRS again delayed the reduction to a $600 de minimis threshold for reporting transactions by third-party settlement organizations on Form 1099-K and announced plans for a $5,000 threshold for 2024 to phase in the requirement.
Trade - During the February 7 Ways & Means "Trade Subcommittee Hearing on Advancing America's Interests at the World Trade Organization's 13th Ministerial Meeting," Chairman Adrian Smith (R-NE) said he was disappointed when the Administration withdrew robust digital trade proposals from WTO e-commerce negotiations and that he opposed the waiver of intellectual property rights (IPR) for COVID-19 vaccines that the Biden administration agreed to. He said during Q&A, "It's clear to me that IP giveaways would not end with COVID-19 or health-related products." Other Republicans cited the waiver of IPR obligations under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). (Congressional Research Service)
Rep. Ron Estes (R-KS) said during the hearing, "what's most alarming to me is the interaction of the WTO policies with our global tax system and OECD's Pillar 2," saying the TCJA's FDII and GILTI regimes function as a proverbial carrot and stick. "If you have IP in the U.S. and sell overseas, those profits are taxed at a lower rate. If you have IP overseas, those profits are taxed at a higher rate. This system's been successful in bringing IP back to the United States and stopping corporate inversions. However, the success of this system relies on the US retaining primary taxing right on IP within the United States … " Estes said. "Due to OECD's ordering rules and the US Treasury not defending our tax system, [Qualified Domestic Minimum Top-up Taxes] are given priority over GILTI and FDII. Any QDMTT paid by a U.S. company would generate a foreign tax credit which would be an additional drain on the US Treasury."
Retirement — Ways and Means Committee Ranking Member Richard Neal (D-MA) February 7 reintroduced the Automatic IRA Act of 2024 (H.R. 7293) — he first introduced the proposal in the 109th Congress — to require employers with more than 10 employees that do not sponsor a retirement plan to automatically enroll their employees in IRAs (automatic IRAs) or other automatic contribution plans or arrangements, like 401(k) plans. Smaller employers would be eligible for a new auto IRA tax credit, making the requirement "essentially costless" to implement, a release said.
Health — During the February 6 Ways & Means Committee hearing on "Examining Chronic Drug Shortages in the United States," with witnesses representing oncologists, drug distributors, non-profit drug manufacturers, and economists and academics, there was bipartisan consensus that the US must do more to reduce the reliance on foreign countries in the drug supply chain, increase transparency into active pharmaceutical ingredients (APIs), and address misaligned incentives that favor low-cost drugs over quality. Witnesses spoke about a multipronged solution that should include transparency into raw materials, early notification systems for manufacturing problems, increasing reimbursement for low-cost generic injectables in shortage, as well as trade and tax incentives to attract domestic or near-shore manufacturers.
Congress — The House has been out since Wednesday as Democrats hold their annual issues conference at a resort in Northern Virginia. In addressing members, President Biden touted the successes of the CHIPS and Science Act and Inflation Reduction Act and suggested that Republican concerns over the deficit that have been ramping up are hollow. He said Republicans "are determined to take away the $35-a-month insulin, as well as the $2,000 cap on prescription drugs and Social Security. And they're going to — they want to decimate it — they're straight about it — decimate Social Security and Medicare … They look at a multibillion-dollar tax cut for people at the top 1%. And guess who pays for it? Guess where that comes from?"
House Budget Committee Chairman Jodey Arrington (R-TX) February 7 introduced H.J. Res. 113, a joint resolution proposing a balanced budget amendment to the Constitution of the United States, after raising concerns about the Congressional Budget Office (CBO) February 2024 Budget Baseline for FY2024–2034 showing that "the gross federal debt is on track to grow by $20 trillion in just ten years, reaching a staggering $54.4 trillion."
An op-ed in today's Wall Street Journal, "CBO Gives Republicans a Chance for Real Tax Reform," said the CBO revised estimates of Inflation Reduction Act (IRA) energy provisions to "roughly $1 trillion in the coming decade," student loan forgiveness to $260.7 billion, and regulatory expansion of Affordable Care Act subsidies at least $45 billion, while other analyses say a regulation increasing food stamp benefits would cost upwards of $200 billion. "Legislation repealing these three regulations and green subsidies from 2022 would fund roughly half the cost of extending the expiring tax cuts … " the op-ed said. "To the extent that Republicans can find reasonable 'pay-fors' to make some or all of the extensions permanent, doing so would provide helpful policy certainty."
In recently introduced bills, Senator Sheldon Whitehouse (D-RI) and Rep. Judy Chu (D-CA) introduced the End Tax Breaks for Dark Money Act (S. 3743/H.R. 7244) to "close a loophole in the tax code that allows billionaires to avoid capital gains taxes on appreciated assets donated to dark money organizations."
House Energy & Commerce Committee Chair Cathy McMorris Rodgers (R-WA) is the latest member to announce she is not running for re-election.