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February 28, 2024

What to expect in Washington (February 28)

The Senate is scheduled to hold a procedural vote on the nomination of Marjorie Rollinson to be IRS Chief Counsel at approximately 5:45 p.m. this evening. She was nominated in June and had a Finance Committee re-vote January 31 (necessitated by the change in session of Congress). As Finance Chairman Ron Wyden (D-OR) said, "Ms. Rollinson has decades of tax and management experience in both the public and private sector, including several years at the Office of the Chief Counsel that she has been nominated to run. If confirmed, Ms. Rollinson would be the first woman to serve as Chief Counsel."

The House is back from recess today (February 28) with only a few days until, absent congressional action, a partial government shutdown this weekend when some appropriations — Military Construction-VA, Agriculture, Transportation-HUD, and Energy & Water — run out after March 1 (the rest of government funding expires March 8). President Biden convened House Speaker Mike Johnson (R-LA), Democratic Leader Hakeem Jeffries (D-NY), Senate Majority Leader Chuck Schumer (D-NY), and Republican Leader Mitch McConnell (R-KY) at the White House on Tuesday to discuss government funding and the national security supplemental. Speaker Johnson was said to commit to want to avoid a partial shutdown, possibly by moving funding deadlines to later in March, and Sen. Schumer told him a continuing resolution would be necessary to accomplish that.

"We believe that we can get to agreement on these issues and prevent a government shutdown, and that's our first responsibility," Speaker Johnson said after the meeting. A bipartisan deal on the totals for the dozen annual spending bills was struck at the end of January, but there are policy issues to be sorted out still, including on nutrition and other programs.

Some Republicans had been forecasting a partial shutdown, but Politico cited Senate Appropriations Committee Ranking Member Susan Collins (R-ME) as saying government funding is in better shape than people realize, and that some appropriations bills will be posted in a day or two. "Negotiations on the other eight bills, including the Homeland Security spending measure set to expire after March 8, are not going as well, Collins said." Additionally, following the regular Tuesday policy lunches, Senator McConnell said, "I think we're getting close on the first four bills. Hopefully that won't require another short-term C.R. And hope springs eternal."

Punchbowl News this morning: "Johnson has offered to shift existing government funding deadlines from March 1 and March 8 to March 8 and March 22. But Johnson is only willing to do that if he has an agreement with Democrats on the four bills due to expire on March 1 — Agriculture, Energy and Water, MilCon-VA and Transportation-HUD — plus two other measures, Interior and Financial Services and General Government. Those six bills would be extended to March 8 under this plan."

Some conservatives want a longer-term CR that they argue can abandon Fiscal Responsibility Act (FRA) side deals between Republicans and the White House to boost non-defense discretionary spending. The FRA's 1% spending cut mechanism that would trigger on April 30 would reduce spending to $850 billion for defense and $736 billion for non-defense discretionary spending, but Freedom Caucus member Chip Roy (R-TX) contends there is more savings to be achieved from a full-year CR compliant with FRA caps.

"Under the FRA, a full-year CR would have to comply with the $1.59 trillion discretionary spending cap for fiscal 2024 — with a $886 billion defense and $704 billion non-defense spending cap," Rep. Roy wrote in the Washington Examiner. "Under this plan, neither defense spending nor veterans spending would be reduced by one penny — current defense levels comply with the cap, and veterans' spending is exempt from the sequester. However, non-defense spending would breach the FRA caps by $73 billion, meaning a roughly 10% cut from $777 billion to $704 billion."

A January 4 Congressional Budget Office (CBO) memo said: "The set of caps that applies to discretionary funding depends on the timing of the enactment of appropriation acts and the duration for which funding is provided."

Tax — Of course, appropriations legislation is eyed as a possible legislative vehicle for the House-passed $78 billion Tax Relief for American Families and Workers Act of 2024 (H.R. 7024), which has essentially been in limbo since the House passed the measure January 31. Senate Republicans have concerns related to the Employee Retention Credit (ERC) and Child Tax Credit (CTC), plus giving Democrats an election-year win.

Morning Tax February 27 cited Senate Finance Committee Chairman Wyden as saying, "It's been out there for five weeks, and they haven't even said — these critics — here's what we want, and here's what we'll vote for if we get the following things … If a senator wants to get to yes, they can do it, because this is something that has been vetted." He also said its possible Republicans don't want to get to "yes."

Tax Notes reported that "Finance member John Cornyn, R-Texas, wouldn't say what changes he wants as a prerequisite for his support, but advocated a chance to amend the bill. 'We don't actually legislate. We don't actually go through committees, markups, and give everyone a chance to have their say, and then take it to the floor and have an open amendment process,' Cornyn said. He argued that allowing for changes to the bill 'would dissipate a lot of the frustration, a lot of the anger because people work hard to get here, and they want to participate in the process.'"

The Bloomberg Daily Tax Report (DTR) reported that, "Ways and Means Committee Chair Jason Smith (R-Mo.) is going all in trying to ease GOP senators' concerns about the child tax credit expansion in the $78 billion bipartisan tax package he helped broker. Smith has been using his pulpit to push back on claims that expanding the child credit would be a boon for Democrats and undocumented migrants, or that it will discourage work."

Energy tax - On the flip side of recent indications by Republicans that they have some Inflation Reduction Act (IRA) energy tax credits in their sights for revenue offsets, and some outside observers saying repeal of the credits could help pay to extend TCJA expiring in 2025, some Democrats are now saying next year's fiscal cliff could be an opportunity to act on even deeper anti-climate change proposals.

During a February 27 Brookings Institution event, Senate Budget Committee Chairman Sheldon Whitehouse (D-RI), who also sits on the Finance Committee, suggested it will take a carbon pricing proposal to put the US on a path to adequately confront climate change, and 2025 tax expirations and resulting negotiations could be an opportunity to act. Senator Whitehouse also said that while Republicans might be voting against energy tax incentives, they are going to ribbon-cutting ceremonies for projects in their districts and eager to support the local benefits of the provisions.

Whitehouse, who sponsors legislation to install a carbon border adjustment environmental trade policy that includes charges on imports from particularly carbon-intensive manufacturers, said the big question is what will be the vehicle for a major anti-climate change proposal: a 2025 tax bill, budget reconciliation, or a bill following a potential future climate-related major emergency involving wildfires or coastal flooding.

Related to Senator Whitehouse's remarks, a story in this morning's Wall Street Journal said, "A U.S. manufacturing and mining boom launched under President Biden is just getting started. Most of it is heading to Republican-leaning communities … More than three-quarters of the factory and mining investments will go to congressional districts held by Republicans, according to data on green-economy announcements. On a statewide basis, $112 billion in investment would go to Republican or Republican-leaning states … Manufacturing for solar components is clustering in Ohio, Texas and Georgia. Battery plants and mining are growing in Nevada."

Former Biden Treasury official Kimberly Clausing, one of the authors of a paper released in conjunction with the Brookings event, suggested 2025 could produce a grand bargain on tax. The paper said, "Because much of U.S. climate policy currently operates through the tax code, 2025 could prove to be a crucial year for U.S. climate policy choices: At the end of 2025, a large number of [TCJA] provisions are scheduled to expire. That creates an opportunity for pragmatic evaluation of the trade-offs that result from — among other factors — lower tax revenues and continued incentives to invest in decarbonization."

The paper said the "scheduled expirations of lower tax rates, fiscal pressures, and unmet climate targets suggests that a range of climate policy options could be under consideration as policymakers debate future tax policy," and it considers the energy and economic implications of repealing or expanding IRA incentives, and a carbon fee.

A New York Times op-ed by counselor to the Treasury Secretary in the Obama administration and former "car czar" Steven Rattner said: "Whoever wins the election will quickly face major tax decisions, as many provisions of Mr. Trump's Tax Cuts and Jobs Act are set to expire at the end of next year. The act conferred most of its tax relief on business and wealthy Americans. And contrary to Trump administration promises, it never came close to paying for itself through increased economic activity. With our budget deficit stubbornly high (nearing $2 trillion annually) do we really want to spend $3.4 trillion to extend its giveaways for a decade? Another Trump presidency would almost surely bring an assault on a signature Biden administration accomplishment, the Inflation Reduction Act. That (inaptly named) law has unleashed a flood of new energy projects that will give a substantial push to reducing our fossil fuel emissions."

Congress — On Tuesday, February 27, the Senate Health, Education, Labor & Pensions Committee voted 11 to 10 to advance the nomination of Julie Su to be Secretary of Labor.

Today, February 28 (10 a.m.), the HELP Committee will hold a hearing on "What Can We Do to Expand Defined Benefit Pension Plans for Workers?"

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Washington Council Ernst & Young