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February 16, 2024

What to expect in Washington (February 16)

The House February 14 failed to adopt 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. The vote was 195-225 with 18 Republicans opposed and, while some press stories portrayed the development as another unsuccessful rule vote for Speaker Mike Johnson (R-LA), he expressed uncertainty prior to the vote — quipping he would "see how that one shakes out" — and brought the bill up as a concession to high-tax state Republicans who pushed for SALT cap relief in a broader tax bill.

Members of both parties have threatened since the TCJA to withhold support on tax bills unless relief was provided from the $10,000 deduction cap that was included among offsets for tax benefits in the 2017 law, albeit with the knowledge that it would fall disproportionately on Blue States. Even holding the rule vote was probably the greatest measurable progress on the issue yet. Ways & Means member Rep. Nicole Malliotakis (R-NY) was quoted as saying she is confident in winning SALT changes in 2025, when TCJA individual and passthrough provisions expire and other changes promise a major debate on the tax system.

The February 15 Wall Street Journal said of districts in New York, New Jersey, and California where residents are particularly impacted by the cap: "The Republicans who represented those districts in 2017 couldn't block the cap, which was designed to raise money from high-income households to pay for across-the-board tax rate cuts. And lawmakers of both parties who have held those swing seats since 2017 haven't been able to get the rest of Congress to repeal or raise the $10,000 limit, which has been hitting harder in recent years because it isn't pegged to inflation … Whoever is sitting in those swing seats in the next Congress will be back again, pushing against the cap."

During the February 15 House Ways & Means Committee hearing with IRS Commissioner Daniel Werfel, he said, regarding how quickly IRS would be able to make the child tax credit adjustments called for under the pending Tax Relief for American Families and Workers Act of 2024 (H.R. 7024), "Well, we gave you a range of six to twelve weeks required for implementation from the point of enactment. The reason we give a range is because we need to see the final language. But I'm committed to work diligently to make sure we're closer to the six-week end of that range than the twelve-week." He also said that, regarding Republican efforts to roll back the IRS funding increase in the Inflation Reduction Act (IRA), "for every $100 million taken from the IRS, the deficit grows by $600 million over 10 years."

Energy — During the February 14 House Budget Committee Hearing on the Congressional Budget Office's (CBO) Budget and Economic Outlook, CBO Director Phillip Swagel noted the $428 billion increase in estimates for IRA clean energy tax credits included in the February 7 baseline update. Swagel said "the costs of the energy-related tax provisions are much higher than the staff of the Joint Committee on Taxation originally projected. And those costs reflect new emission standards, market developments, and actions taken by the administration to implement the tax provisions." During questioning from Rep. Lloyd Doggett (D-TX), Swagel said, "working with JCT, we project an increase in the cost and, as you say, that's more uptake: there are more credits for electric vehicles, for wind and solar and that will add to the cost … "

CBO specifically said $224 billion of the increase is from revised projections of amounts claimed for clean vehicle tax credits attributable to more stringent EPA vehicle emissions standards, Treasury providing greater flexibility than JCT anticipated including for leased vehicles, and transferability. Estimates for other energy-¬related tax provisions increased $204 billion, due to greater investment in the manufacturing of batteries and in wind and solar power generation than was anticipated in August 2022.

Global tax - On February 15, Treasury announced a US agreement with Austria, France, Italy, Spain, and the United Kingdom to extend through June 30, 2024, the October 21, 2021, moratorium on unilateral measures, including digital services taxes (DSTs), "in light of the continuing multilateral negotiations at the G20/OECD Inclusive Framework."

Trade — Politico reported February 14 that House Ways and Means members are nearing release and possible markup of a bill to renew the Generalized System of Preferences (GSP). During a March 2023 trade hearing, Rep. Vern Buchanan (R-FL) said reauthorization of a Miscellaneous Tariffs Bill (MTB) and GSP package should be an "easy layup." The Senate legislation that was a precursor to the 2022 CHIPS and Science Act included MTB, GSP, and other trade provisions, which were not included in the final bill. Politico said there "is less momentum to renew" the MTB.

Congress - The House and Senate are essentially out for the President's Day recess through February 23. The Senate will next convene at 3:00 p.m. on Monday, February 26, with a judiciary vote at 5:30 p.m. The House earlier this week canceled Friday votes and is in pro forma session today, after which the chamber is not scheduled to be back until February 28. Congress faces government shutdown deadlines on March 1 and March 8.

Rep. Mark Green (R-TN), Chairman of the House Committee on Homeland Security, is the latest member to announce he will not run for re-election.

Surveillance authority - The House's Republican leadership on February 14 shelved plans to bring a bill to the floor revising and reauthorizing Section 702 of the Foreign Intelligence Surveillance Act (FISA), which allows U.S. intelligence agencies to collect overseas electronic communications from people who aren't U.S. citizens. The shift came shortly after a House Rules Committee meeting on the FISA bill revealed there was no clear agreement on a rule to allow floor consideration of amendments, amid sharp divisions over how far Congress should go in providing privacy protections, Roll Call reported. "In order to allow Congress more time to reach consensus on how to best reform FISA and Section 702 while maintaining the integrity of our critical national security programs, the House will consider the reform and the reauthorization at a later date," said Raj Shah, a spokesperson for Speaker Johnson, in a social media post.

The FISA program is controversial because it permits the warrantless collection of private messages in certain circumstances where Americans are in contact with a foreign surveillance target, a feature criticized by lawmakers and civil liberties advocates. But the Biden administration and the intelligence community oppose reformers' proposal to require warrants for any communication that would pull in American citizens. The House Judiciary Committee and Intelligence Committee have each advanced competing versions of a FISA bill. This week, Republicans had posted a new bill for floor consideration that more closely resembled the Intelligence Committee legislation, but on Wednesday it became clear that both sides sought to offer amendments and the outcome would be uncertain.

Judiciary Committee Chairman Jim Jordan (R-OH) said that without amendments, the FISA bill "still relies on the FBI to oversee itself — the same FBI who we know has done all kinds of things that they shouldn't have done," Roll Call reported. Ranking Member Jerrold Nadler (D-NY) also said the reforms in the bill were so modest as to be ineffective. The law's temporary extension will expire April 19 unless Congress intervenes.

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

What to Expect in Washington won't be published next week when Congress is in recess.

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For additional information concerning this Alert, please contact:

Washington Council Ernst & Young