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February 14, 2024

What to expect in Washington (February 14)

The Senate early February 13 approved a national security supplemental bill with funding for Ukraine, Israel, and other priorities by a 70-29 vote, with the support of 22 Republicans. Senate leaders and President Biden implored House Speaker Mike Johnson (R-LA) to bring the measure up for a House vote, saying it would pass with bipartisan support.

Speaker Johnson cited the lack of meaningful provisions on border security, an issue that complicated the Senate effort as a bipartisan group worked for months on a compromise (required by the 60-vote threshold for most bills) that was ultimately deemed insufficient by the Speaker and former President Trump and omitted from the bill. "Now, in the absence of having received any single border policy change from the Senate, the House will have to continue to work its own will on these important matters. America deserves better than the Senate's status quo," Johnson said on the eve of the Senate vote.

On CNN, House Democratic leader Hakeem Jeffries (D-NY) said the Senate bill would garner at least 300 House votes and that "all legislative options are on the table and that certainly includes a discharge petition," referring to the seldom-used process by which a majority can bring a measure to the floor without leadership, under very strict parameters.

Senate approval of the supplemental allowed the chamber to depart for their scheduled President's Day recess through February 23. The Senate will next convene at 3:00 p.m. on Monday, February 26, with a judiciary nomination vote at 5:30 p.m.

Upon returning from recess, the Senate may focus on government funding deadlines of 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. Regarding the appropriations bills, Senate Majority Leader Chuck Schumer (D-NY) said February 13 that Appropriations Committee Chair Patty Murray (D-WA) and Ranking Member Susan Collins (R-ME) are "working on getting these bills done. So, I'm very optimistic that we can get them done by March 1st."

Tax — There hasn't been much additional news on Senate prospects for H.R. 7024 aside from Finance Committee Chairman Ron Wyden (D-OR) urging Majority Leader Schumer to bring the measure up later this month, when the Senate reconvenes the week of February 26. Bloomberg reported Chairman Wyden as saying businesses face consequences for the Senate's inaction on the business and child tax break bill and, "Delays have costs."

Regarding a measure that, in conjunction with House consideration of H.R. 7024, high-tax state Republicans were promised would be brought up for consideration, 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, could occur today.

Morning Tax said February 13 that "there are plenty of reasons to wonder whether Republicans can actually clear this procedural hurdle. For starters, House Republicans have had historic problems passing rules this Congress, even sometimes on must-pass measures that are a far cry from the SALT bill — a proposal that stands no chance in the Senate and pushes a policy change that surely doesn't have the support of most House Republicans. For their part, Democrats, as a rule, don't help Republicans pass a rule, and it would take a real shift in philosophy for them to change their approach."

Tomorrow, February 15, at 10 a.m., the House Ways & Means Committee holds 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.

Former Ways & Means member Rep. Tom Suozzi (D-NY) has won the New York special election to replace former Rep. George Santos (R-NY), defeating Republican Mazi Pilip. With his return to Congress, the House party ratio will be 219-213.

Trade — Echoing points made by Ways & Means Committee members during a WTO-focused trade hearing last week, a Wall Street Journal (WSJ) editorial bemoaned that US Trade Representative Katherine Tai "last autumn withdrew support for digital trade principles being negotiated at the WTO that would protect cross-border data flows and source code and bar discrimination against U.S. companies." Additionally, the editorial said, "Ms. Tai also shelved digital trade protections in negotiations over the Indo-Pacific Economic Framework trade deal."

Social Security — Natasha Sarin, formerly of the Biden Treasury Department and now a Yale professor, said in a Washington Post op-ed, "The right way to fix Social Security is to enhance, not detract from, the progressivity of the program. One way to do this is by raising more tax revenue from those at the top. … Within Social Security's current structure, that could mean collecting more money from payroll taxes (today, higher earners pay taxes on only the first $168,600 of income they receive) without increasing benefits paid out to the wealthy."

Sarin, who with former Treasury official Kimberly Clausing argued in a paper last summer that lawmakers facing the 2025 TCJA cliffs should at least aim for a revenue-neutral reform, or, ideally, set revenue-raising targets to additionally reduce the deficit, suggested in the op-ed that, "Deciding not to extend Trump's tax cuts — which disproportionately benefit the very top — would save nearly $3 trillion over the next decade. That would single-handedly generate enough money to keep Social Security solvent for a decade."

The op-ed was rooted in the Congressional Budget Office (CBO) forecast that by 2033, the Social Security Trust Fund will be exhausted.

Friday, February 16 (12 p.m.) is the EY Webcast, "Tax in a time of transition: legislative, economic, regulatory and IRS developments."

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Washington Council Ernst & Young