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March 20, 2024

What to expect in Washington (March 20)

Congressional leaders and the White House reached a deal on full-year funding for the Homeland Security Department after the previous plan to extend current funding levels was deemed insufficient to meet border security needs. Homeland Security is part of the six-bill tranche of appropriations bills that expire after March 22, which also includes Labor-HHS and Financial Services-General Government appropriations.

Politico reported, "The fiscal 2024 accord on Homeland Security cash follows days of harried negotiations and a last-minute intervention from the White House over the weekend, with Biden administration officials rejecting a fallback plan that would have saddled the agency with stagnant funding through September. The White House had insisted that a year-long stopgap for DHS would prove detrimental to border security efforts, in anticipation of a migration surge this spring. Legislative text of the six-bill funding bundle is now expected late Tuesday or Wednesday, potentially teeing up a House vote on Friday at the earliest, if Speaker Mike Johnson adheres to a pledge to give Republicans 72 hours to review legislative text."

The Senate would need consent from all members to expedite consideration of the measure. The New York Times reported, "the delay in striking the deal could pave the way for a brief lapse in government funding over the weekend. It will take congressional staff time to draw up text of the bill, which wraps six spending measures into a sizable piece of legislation." After clearing the spending bill, Congress is set to depart for a two-week Spring recess March 25-April 5.

Tax — It's unclear what could happen, either before or after the Spring recess, in relation to potential Senate consideration of the Tax Relief for American Families and Workers Act (H.R. 7024) business tax and Child Tax Credit (CTC) expansion bill, which passed the House in a bipartisan 357-70 vote January 31. It appears unlikely to be attached to appropriations legislation, though it still could come up as a standalone or with other must-pass legislation. Senate Finance Committee Democrats and Republicans have traded offers to modify the CTC provisions, to no avail. Senator Todd Young (R-IN), who is probably the Finance Republican most in favor of the bill as a longtime proponent of a return to R&D expensing rather than five-year amortization, was reported by Semafor as acknowledging that each side is "driving a fairly hard bargain."

A Senate vote would force Republicans to go on record against restoring beneficial tax provisions for businesses, which they have traditionally been eager to back. Senator Thom Tillis (R-NC) has said he has had to explain his opposition to the bill to several CEOs pushing for the business tax provisions, telling them that he needs to consider the entirety of the bill, including the CTC expansion, as well as process issues like the inclusion of revenue offsets. Others said they don't want to hand President Biden and Democrats a win.

The Wall Street Journal reported, "The tax-bill stalemate doesn't portend a full breakup between American businesses and the Republican Party. After all, GOP lawmakers favor the bill's tax breaks for research, interest costs and capital spending, while President Biden just released a budget that would raise corporate taxes. But other issues at play on this bill — concern about handouts to low-income households and senators' leverage in congressional dealmaking — dominate debate among Republicans and show how businesses lack an automatic path for some Washington priorities." Further, "Without a Wyden-Crapo deal, the tax bill may end in a showdown vote as early as April with two possible outcomes. Democrats could find enough Republicans willing to buck Crapo and send the bill to Biden for his signature or Republicans could kill the bill and own the consequences."

The end of the tax filing season may be a symbolic or political deadline for action, but not a technical one. Politico Morning Tax said, "Now, supporters of the tax bill have noted that April 15 won't serve as a functional deadline for getting the tax bill done, because the IRS would still be able to deliver any extra CTC benefits to taxpayers even after the filing season is over. But it's still not totally clear when the political will for getting a bipartisan tax bill done during a presidential election year might evaporate, though it almost certainly will at some point."

Meanwhile, a Bloomberg Daily Tax Report (DTR) story said the TCJA's corporate tax rate reduction from 35% to 21% may be at risk with the 2025 tax cliff, when individual and other provisions expire, and revenue offsets may be required for at least part of the cost. "There are only a handful of big levers that can be pulled to raise revenue," said Jose Murillo, EY National Tax Department Leader, in the article. "Provisions are only permanent until Congress decides to change them."

Energy tax — In a March 18 Washington Post op-ed, retiring Senator Joe Manchin (D-WV), a sometime critic of the Biden administration's actions on energy issues, this time lauded these efforts, saying, "We are exporting more fossil fuel energy than we import. Our country has never been more energy-independent than we are today. This is something to celebrate. And it would not have been possible without the Inflation Reduction Act and the Bipartisan Infrastructure Law that Biden signed. Thanks to these two historic laws, we are unlocking major opportunities throughout the country, implementing an 'all-of-the-above' energy strategy that we need today while continuing to innovate the technologies we want for tomorrow."

Further, Senator Manchin said, "the fact is that the United States and its allies need fossil fuels for reliable power. That need cannot be met today with the technologies of tomorrow. Those technologies need more investment to become viable. This is why we made the largest investment in climate and energy technologies in U.S. history. For example, the Inflation Reduction Act invests $10 billion in tax credits to build clean technology manufacturing facilities in the United States, such as facilities that make wind turbines and solar panels."

Meanwhile, Treasury reported a significant level of uptake for IRA energy credits, with more than 45,500 projects requesting registration numbers through the new IRS Energy Credits Online (ECO) portal as of March 8. "Before the Inflation Reduction Act, it was more challenging for companies to access tax incentives to finance projects and deploy new clean power. The law included two new mechanisms to fix this and translate credits into financing, ensuring more clean energy projects are built quickly and affordably, and more communities benefit from the growth of the clean energy economy," said Deputy Treasury Secretary Wally Adeyemo.

An EY Tax Alert, "IRS issues final regulations with few changes on direct-pay elections for certain energy credits under IRC Section 6417 and advanced manufacturing investment credits under IRC Section 48D," is available here.

Global tax — Tax Notes reported this morning: "The United States is working to protect the benefits of the research credit under the pillar 2 global minimum tax, possibly through OECD administrative guidance, a top Treasury official said. 'We're trying to come up with a kind of a range of potential fixes,' Scott Levine, acting Treasury deputy assistant secretary for international tax affairs, said March 19 at the Tax Executives Institute's midyear conference in Washington, adding that Treasury is open to speaking with stakeholders about the issue. 'As far as our immediate goals, I think that we will ultimately try to get this fixed through administrative guidance, if possible, and if not, then we'll go to plan B.'"

Hearings - The Senate Finance Committee's customary post-Budget release hearing with Treasury Secretary Janet Yellen on the President's Budget is set for Thursday, March 21 at 10 a.m.

The Ways & Means Committee is holding a hearing today (March 20) at 2 p.m. with HHS Secretary Xavier Becerra, and another tomorrow (March 21) at 2 p.m. with SSA Commissioner Martin O'Malley.

Friday, March 22 is the EY Webcast, "Tax in a time of transition: legislative, economic, regulatory and IRS developments."

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Washington Council Ernst & Young