February 10, 2024
This Week in Tax Policy for February 9
This Week (February 12 - 16)
Congress: The House is in session. The Senate has scheduled a two-week recess for President's Day, February 12-23, but may be in over the weekend for votes related to the national security supplemental.
IRS hearing: On Thursday, February 15 at 10 a.m., 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.
SALT bill: A House vote may occur 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. A vote was expected earlier, and the delay has been attributed to several factors, including a short House workweek marked by controversial votes. The SALT relief issue is bipartisan for members from high-tax states, but the bill is seen as unlikely to be enacted, as other Republicans support the TCJA's $10,000 cap. Asked about the issue by Rep. Josh Gottheimer (D-NJ) during a February 6 House Financial Services Committee hearing, Treasury Secretary Janet Yellen said, "I agree that SALT has had a disproportionate impact on different states. There are also fiscal implications from the legislation that you discuss. I haven't had a chance to examine, and it's really up to the White House and the President to decide whether or not to be supportive of this." A story in the February 6 Washington Post said Rep Mike Lawler (R-NY) "and other New York and California Republicans represent districts that President Biden carried in 2020, and they may face longer odds to reelection after liberal state legislatures redraw congressional districting maps. Bringing home a SALT expansion, the lawmakers say, could be key to the economic planks of their campaigns."
Last Week (February 5 - 9)
Tax bill outlook: The Senate was occupied last week with the national security supplemental bill to provide Ukraine, Israel, and other funding, and whether to add border security provisions at least three months in the making, which were ultimately omitted due to political pressures. Still simmering in the background ahead of a two-week recess was the question of how and when the Senate will get to the House-passed $78 billion Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) addressing TCJA pre-cliffs, the Child Tax Credit (CTC), US-Taiwan double-tax relief and other issues. The most significant holdup at this point appears to be the desire of at least some Republican senators, particularly those on the Finance Committee, to have their "day in court" to publicly debate the bill and offer amendments, regardless of whether those amendments are accepted. Some Republicans on the Finance Committee have publicly said they would like the Committee to mark up the bill, and Senator John Cornyn (R-TX) said February 6 there is consensus among Republicans that a markup is required, in the most direct comments on the topic since the bill passed the House January 31. "We need to go through the Finance Committee, so I don't think it's on the fast track," Senator Cornyn said in a Bloomberg report. Punchbowl News reported that Ranking Member Mike Crapo (R-ID) met with Republican committee members Tuesday afternoon and said he requested a markup from committee Democrats. "We need to deal with a number of issues that senators want to raise," Crapo said. Views expressed by Republicans on the tax bill include:
However, aside from insisting on a markup, it isn't clear what Finance Ranking Member Crapo 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. "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 9 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. While bringing the bill to the Senate floor as a standalone measure seems unlikely, eventually including it as a title in an omnibus appropriations package may be the most likely path forward,
Case study: While the path forward in the Senate is unclear and flush with pitfalls, the strong House vote on the Tax Relief for American Families and Workers Act has been hailed in press reports as a case study in how Speaker Johnson can move legislation with a fractious Republican caucus and razor-thin majority — especially in light of difficulties with other measures like, this week alone, two failed controversial votes on Israel funding and the impeachment of Homeland Security Secretary Alejandro Mayorkas. A Washington Post analysis cited the tax bill vote, 357-70 under suspension of the rules January 31, as an example of how "House Speaker Mike Johnson (R-La.) once again found a way around the blockade from his far-right faction that regularly tries to sabotage the normal flow of legislation if it's deemed insufficiently pure for conservatives. It's the fifth time in four months House GOP leaders have used this fast-track process for what are considered important legislative matters but are usually considered under a formal rule that the majority party is tasked with passing. Faced with a renegade faction that votes against those rules, Republicans instead have turned to the suspension calendar to pass these critical bills." Politico said the tax bill vote reflected "A combination of leadership tactics, old-fashioned logrolling, an end-run around the most virulent opposition, intense lobbying by business and the support of interest groups across the ideological spectrum, even if some of it was grudging. Not least, members and aides say, it was also a result of close cooperation and good-faith negotiations between the new Republican chair of the House Ways and Means Committee, Jason Smith, and the veteran Democratic chair of the Senate Finance Committee, Ron Wyden."
Pillar 2 and US tax rules: At the February 7 Ways & Means Trade Subcommittee hearing on "Advancing America's Interests at the World Trade Organization's 13th Ministerial Meeting," Rep. Ron Estes (R-KS) said, "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 … " he 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."
Congress: The current House party ratio of 219-212, which gives Republicans only 3 votes to spare in any party-line bill on the House floor, follows the resignation of Ways & Means member Rep. Brian Higgins (D-NY) from Congress February 2, to head a performing arts center. With his departure, Rep. Jimmy Gomez (D-CA) has rejoined the Ways & Means Committee and was named to the Tax and Work and Welfare subcommittees.
Politics of tax: The House had a short workweek because Democrats held their annual issues conference at a resort in Northern Virginia February 9. Biden administration officials have previously forecast that the President is spoiling for a debate over tax fairness, and he has alluded to such in speeches. In addressing members at the retreat, 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?"
President Biden's election message on tax and other issues may emerge more clearly after the State of the Union Address, on March 7, and annual budget release. Bloomberg Government reported that President Biden will send his FY2025 budget proposal to Congress on March 11.
CBO revisions: Further to Republican concerns over the deficit, 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." CBO did say the deficit for 2024 is $0.1 trillion smaller than CBO projected in May 2023, and the cumulative deficit for the 2024—2033 period is $1.4 trillion smaller. "The biggest factor contributing to smaller projected deficits is a reduction in discretionary spending stemming from the Fiscal Responsibility Act and the Further Continuing Appropriations and Other Extensions Act, 2024," the report said.
An op-ed in the February 9 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."
IRA guidance tracker: This table describes select IRS guidance related to the Inflation Reduction Act.