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March 22, 2024

What to expect in Washington (March 22)

The House is set to vote today on the six-bill government funding package for appropriations that expire after March 22, including Labor-HHS and Financial Services-General Government. "As of Thursday night, top House Republicans expected they'll have the votes to pass the spending package — but it could be close. They'll need a two-thirds majority to pass the bill, so Democrats will have to help carry it amid a revolt in some quarters of the House GOP Conference … " CNN reported. The measure would next go to the Senate, which needs consent from members to expedite consideration. Second-ranking Senate Republican John Thune (R-SD) said a deal on amendments is being discussed to pass the package today and avoid a partial shutdown, and Senator Ron Johnson (R-WI) has also been pushing for a time agreement. Congress is set to depart for a two-week Spring recess March 25-April 5.

As expected, and pursuant to earlier bipartisan spending agreements, $20.2 billion of the $80 billion in additional funding provided to the IRS in the Inflation Reduction Act (IRA) is pulled back under the measure.

Global tax — The March 21 Senate Finance Committee hearing with Treasury Secretary Janet Yellen on the President's FY2025 Budget proposal focused on the OECD BEPS 2.0 project: the costs of the project to the US, and whether and how the two proposed pillars could be brought before Congress.

Senator Marsha Blackburn (R-TN) said the cost to the US of Pillar 1 is $1.4 billion and the revenue loss from Pillar 2 is estimated to be $60 billion-$120 billion (JCT). Sec. Yellen said: "We're attempting to negotiate in the OECD a Pillar 1 agreement that will bring significant benefits to American businesses that have been hit with unfair and discriminatory tax burdens in many parts of the world. We're really trying to eliminate that. And we're also trying to get tax certainty for American companies that face significant and costly disputes about transfer pricing and other matters. There would be substantial benefits to American businesses from this agreement if we conclude it. Our own internal estimate is — there's a lot of uncertainty — but our own internal estimate is about $500 million."

Senator James Lankford (R-OK) asked whether the plan for Pillar 1 and 2 is "to be an executive agreement only or … to come through this committee?" Sec. Yellen said: "I believe a Pillar 1 agreement would involve congressional action. It's not something that could be just signed into law and effective with an executive order … Pillar 2 also needs to be adopted by Congress."

Senator Todd Young (R-IN) said, "On Tuesday, your Deputy Assistant Secretary for International Affairs, Scott Levine, was quoted saying that while he believes favorable tax treatment for the US R&D credit will be resolved with OECD administrative guidance, it's possible it will be necessary for the Biden administration to revert to what he called 'Plan B.' He went on to clarify that this Plan B referred to legislation, legislation that would have to be passed by this body … Please tell me more about this Plan B, so we know what's coming, including how much this hypothetical legislation is going to cost the American taxpayer." Yellen said: "So, countries participating in the OECD process, understand … and treatment of the R&D tax credit is a critical issue for us. And we believe we have an opening to negotiate with them to try to resolve this in a way that will be favorable … We have resolved a number of issues favorably through administrative guidance."

Tax — Questions regarding 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, could remain unanswered over the two-week recess. On March 20, Majority Leader Chuck Schumer (D-NY) placed the bill directly on the Senate calendar under Rule XIV, which is initiated to bypass referral of a bill to a Senate committee. The move doesn't preclude Finance consideration nor guarantee a floor vote.

Politico reported Senator Thune, the vote-counting Whip, as saying said it's too soon to say whether Democrats would be able to garner sufficient Republican support to reach the 60-vote threshold to clear procedural hurdles for most legislation. "I don't know that we know the answer to that just yet," he said. There's some "pretty hard resistance" to the plan among Republicans but "whether or not there are the requisite number of votes — we just haven't crossed that bridge yet," Thune said in the report.

Senate Finance Committee Republicans have had a litany of complaints about the bill since it was rolled out in mid-January. Punchbowl News reported March 21, "The Senate Finance Committee's top Republican, Sen. Mike Crapo of Idaho, told GOP colleagues privately on Wednesday that he doesn't want to pass a tax bill this year." He later told reporters he does want a bill despite negotiations being at an impasse. "I want this done, too," he said. There have been long-simmering GOP concerns about handing President Biden and Democrats an election-year win, and also clearing some of the tax items now given the possibility that Republicans could win control of the Senate and have greater leverage for a package in 2025, when TCJA individual and pass-through provisions expire.

Like the March 12 manufacturing hearing in the Committee, the Senate Finance hearing with Sec. Yellen provided a forum for some comments about the bill, at least from Chairman Wyden, who said he has offered to take the CTC lookback provision — allowing the use of prior-year earnings to calculate the CTC — out of the bill. He also said, "I understand that some members prefer to wait and try to pass a bill next year. The reality is delay will have serious consequences. A lot of innovative small businesses — for whom the R&D provision in the bill is a lifeline — are telling me they aren't going to be around in 2025 if the Senate decides to wait. I also believe there are a lot more than 60 members who want us to act. So, I'm going to keep at it."

Bill introductions — Separately, Senate Finance Chair Wyden and Senator Angus King (I-ME) March 20 introduced the Getting Rid of Abusive Trusts Act (S. 3988) to "close a loophole" and modify rules dealing with grantor retained annuity trusts (GRATs), which a news release said "are commonly used by the ultra-wealthy to minimize or zero-out any income, gift or estate tax liability on assets worth at least tens of millions of dollars."

On March 21, Senators Sheldon Whitehouse (D-RI) and JD Vance (R-OH) introduced the Stop Subsidizing Giant Mergers Act, legislation to "end tax-free mergers and taxpayer subsidies for acquisitions that consolidate corporate power." The legislation makes exceptions for mergers involving a small business, and corporations that are undergoing a purely internal reorganization would still be able to so without incurring a tax obligation.

The Wall Street Journal reported that, "the bill is a sign of political sentiment against corporate power that unites some Republicans and Democrats who are otherwise far apart on tax policy. And it is a rare attempt to address competition policy through the tax code … Under the proposal, shareholders in all-stock mergers would pay taxes on the difference between their shares' value when they bought them and what they receive in the deal, rather than delaying taxes until they sell the new shares."

On March 19, Senate and House bills (S. 3967, H.R. 7711) were introduced by Senator Tim Scott (R-SC) and Rep. Debbie Dingell (D-MI) to make permanent certain telehealth flexibilities under the Medicare program.

Energy — On March 20, the Environmental Protection Agency announced final national pollution standards for passenger cars, light-duty trucks, and medium-duty vehicles for model years 2027 through 2032 and beyond.

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

This Alert won't be published while Congress is away.

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Washington Council Ernst & Young