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April 8, 2024

What to expect in Washington (April 8)

Following a two-week recess, the Senate returns to session today (April 8) and the House tomorrow (April 9), with agenda items including revisiting Ukraine aid, supplemental spending and other issues related to the Key Bridge collapse, new bipartisan legislation on data privacy, and decisions about potential Senate consideration of the Tax Relief for American Families and Workers Act (H.R. 7024) business tax and Child Tax Credit (CTC) bill. Both chambers are in session for two weeks before a recess the week of April 22.

The Senate will convene at 3 p.m. with a vote at 5:30 p.m. related to a judicial nomination. The Ways & Means Work & Welfare Subcommittee is set to hold a field hearing in Chicago earlier on Tuesday. House business then includes suspension votes on Tuesday on Natural Resources bills, including some on sea turtles and migratory birds, and later in the week a vote on a Ways and Means Committee bill, the Extending Limits of U.S. Customs Waters Act (H.R. 529), to extend the customs waters of the US from 12 nautical miles to 24 nautical miles from the baselines of the US. A House vote on Ukraine aid likely won't happen until next week.

Federal Aviation Administration (FAA) reauthorization and taxes expire May 10, and the farm bill expires on September 30. In an April 5 Dear Colleague letter, Senate Majority Leader Chuck Schumer (D-NY) noted the April 19 deadline on reauthorizing FISA and said, in the weeks and months ahead, "there is the opportunity to make progress on bipartisan bills that enhance our national security, advance online safety for kids and promote innovation, expand the Child Tax Credit … address rail safety, ensure internet affordability, safeguard cannabis banking … lower the cost of prescription drugs like insulin while expanding access to health care, and more."

Tax — Senate Finance Committee Republicans' concerns about H.R. 7024 have only increased since the bill was unveiled and approved by the House in January, including over the CTC lookback provision and the Employee Retention Credit revenue offset. There are overarching concerns about handing Democrats an election-year win and clearing provisions that may factor in to the larger TCJA tax cliff in 2025, when Republicans could control the Senate, benefiting from their favorable 2024 election map.

There had already been reports that Ranking Member Mike Crapo (R-ID) and second-ranking Senate Republican John Thune (R-SD), the vote-counting Whip, were opposed to acting on the bill this year. An April 4 Bloomberg report added that Majority Leader Mitch McConnell (R-KY) supports efforts to block the package. The report said Crapo in March sent Democrats a list of requested changes to the bill, including requiring parents of children receiving the credit to supply Social Security Numbers to verify their immigration status as well as rescinding the retroactive break for 2023.

An editorial in the April 2 Wall Street Journal criticized the CTC expansion, including the lookback provision allowing use of prior-year earnings to calculate the credit. "Parents wouldn't ski in and out of the labor force every year, but they might work fewer hours, turn down better paying gigs — or work eight years out of 10. Those choices matter if the goal is to lift Americans out of poverty for good," the editorial said.

However, the Washington Post reported April 6, "Privately, some GOP lawmakers have said they're increasingly willing to support the bill with small changes that the measure's Democratic sponsor has already offered," but nonetheless "don't want to outwardly break with a well-liked and powerful member of their caucus" in Crapo. The report said, "in private, a sufficient number of Republicans to overcome a filibuster support the legislation, but many of them do not want to cross Crapo and other GOP leaders who hope to extract more concessions from" Finance Chairman Wyden and Ways & Means Chairman Smith.

A main question has been whether, if the bill were put on the Senate floor without changes, the requisite number of Republican Senators (probably 9 or 10) aside from the Finance Committee members with concerns would vote for it. It is unclear whether Leader Schumer will bring the bill up for a test vote uncertain of whether the required GOP votes are there or knowing they are not, but nonetheless requiring Republican members to vote down the bill and vote against business tax benefits.

On Thursday, April 11 at 2 p.m. is the House Ways & Means Committee hearing, "Expanding on the Success of the 2017 Tax Relief to Help Hardworking Americans."

There were press stories over the recess related to the role tax and health issues will play in the elections.

A story in the March 28 Washington Post, "Democrats Look for New Ways to Tax the Super-Rich," cited the Biden FY2025 Budget proposal for a 25% tax on total income, including unrealized capital gains, for taxpayers with wealth exceeding $100 million, saying it targets "a source of wealth that has long been beyond the reach of the IRS." The article discusses whether targeting such wealth is even possible or worthwhile, saying "Many independent tax experts say such a levy would be almost impossible to enforce: The IRS would struggle to assess anyone's total net worth, much less the complex fortunes of the ultrawealthy," but citing Senator Sheldon Whitehouse (D-RI) as saying it would be worth the IRS's time to conduct the type of complicated investigations needed to collect a wealth tax.

Health — Another Washington Post story said, "President Biden and top Democrats have spent weeks mounting a full-scale blitz to tout the Affordable Care Act" given suggestions by some Republicans that they still want to replace the law. "Biden's celebration and Trump's grudging acceptance of the ACA underline a striking reality: a law once derided as 'Obamacare' and demonized as a big government power grab is becoming a politically untouchable part of the American safety net, like Social Security and Medicare before it," the story said. It noted unsuccessful attempts at repeal, and said, "Some Republicans continue to target the law on Capitol Hill, including in a recent budget proposal that seeks to cut spending on the ACA and other federal health programs. Other conservatives are gritting their teeth and offering more limited critiques of a law they say they still passionately oppose."

On Tuesday, April 9 at 2:30 p.m. is a Senate Finance Health Subcommittee hearing on "Closing Gaps in the Care Continuum: Opportunities to Improve Substance Use Disorder Care in the Federal Health Programs."

On Thursday, April 11 at 10 a.m. is a full Committee hearing, "Bolstering Chronic Care through Medicare Physician Payment."

Elections — An analysis in the Sunday Washington Post, "House, Senate elections are being fought on very different political terrain," noted that the House majority "will most likely get determined by a couple dozen seats in blue-leaning states like New York, New Jersey and California where President Biden will win by comfortable margins," while in the Senate "the majority is almost certain to be determined in three deep-red states — Montana, Ohio and West Virginia — where Trump will likely romp to victory."

Data security — On Sunday (April 7), two key committee chairs from Washington state released a discussion draft of a major bill that would establish federal consumer data privacy rights and allow Americans to sue big-tech companies over violations. The agreement between House Energy and Commerce Chairman Cathy McMorris Rodgers (R-WA) and Senate Commerce Chairman Maria Cantwell (D-WA) on the bill, the American Privacy Rights Act, would also require companies to disclose which data they collect and allow consumers to access and correct it, and to opt out of targeted advertising. Among many other provisions, the bill would also mandate standards limiting the amount of data that companies can collect. "This bipartisan, bicameral draft legislation is the best opportunity we've had in decades to establish a national data privacy and security standard that gives people the right to control their personal information," Rodgers and Cantwell said in a joint statement. "Americans deserve the right to control their data and we're hopeful that our colleagues in the House and Senate will join us in getting this legislation signed into law."

This is the second attempt at a major data security bill for McMorris Rodgers, who negotiated with Frank Pallone (D-NJ), the ranking Democrat on the Energy and Commerce Committee, on the American Data Privacy and Protection Act, which was released in 2022 during the previous Congress. While that bill was approved by Energy & Commerce on an overwhelming bipartisan vote, then-Speaker Nancy Pelosi (D-CA) and other California Democrats opposed the bill's language pre-empting the California data privacy law and other state laws, and Pelosi never brought the bill to the floor. Sen. Cantwell also had issues with the 2022 House bill, and McMorris Rodgers appears to have moved on from that framework. One difference from the previous effort is that the new bill creates a private right of action for individuals to sue if their privacy rights are violated, also a feature of the California law. In a statement, Cantwell said, "A federal data privacy law must do two things: it must make privacy a consumer right, and it must give consumers the ability to enforce that right. Our bill does just that."

For his part, Rep. Pallone appeared to support the new effort but reportedly will seek to strengthen its language on data privacy for children. Staff for the two lawmakers said they planned to formally introduce the bill in the coming days and had had "productive conversations" with House Speaker Mike Johnson (R-LA) and Senate Majority Leader Schumer about a path forward for the bill through regular order, Bloomberg reported.

Energy tax — An April 1 Bloomberg Daily Tax Report (DTR) said the 10% bonus credit for meeting domestic content requirements for purposes of Inflation Reduction Act (IRA) energy credits has spawned a cottage industry "to build a middle ground between credit-seekers and suppliers, where they can confidentially review supplier and contractor direct cost information under protection of non-disclosure agreements." Toward that end, "The last big bit of guidance from Treasury was a year ago, and many are hoping for new rules soon, clearing up some of the confusion and maybe offering alternatives to some of the tougher restrictions … One of the biggest hurdles for credit seekers is a requirement to factor in suppliers' direct costs in calculating domestic content."

An EY Tax Alert, "IRS issues guidance on applying for 2024 Low-Income Communities Bonus Credit Program," is available here.

Global tax - During the 2024 ITPF/Georgetown Law Conference April 5, Scott Levine, acting deputy assistant secretary for international tax affairs at the Treasury Department, said Treasury is committed to working with Congress to find a way forward to ensure US businesses and employees benefit from the level playing field ushered in by the global minimum tax. He said the Biden administration continues to strongly support the implementation of Pillar Two in the US as the best way to level the playing field and protect US interests, but understands implementation begins with Congress. There are numerous technical options that need to be considered should Congress move forward, including whether to reform Global Intangible Low-Taxed Income (GILTI) or adopt a full income inclusion rule (IIR).

Levine said continued US participation in the process allows the US to shape rules through continued guidance to ensure the GloBE rules interact well with US tax rules, and US movement towards adoption makes other countries more receptive to requests for favorable guidance. Treasury and IRS have been successful in a string of favorable administrative guidance including the GILTI allocation key, and extending equally favorable treatment to tax equity partnerships, LIHTC, solar and wind credits, and, more recently, the IRA green energy credits, he said, and continue to work with Inclusive Framework partners to collaborate on consensus multilateral guidance that clarifies the application of Pillar Two in the context of its interaction with the US tax system.

He further said as Pillar Two implementation and the guidance process moves forward, one of Treasury's top priorities is the treatment of the US R&D credit. The preference is to work with negotiating partners and the OECD secretariat to find a way to design additional guidance, Levine said. He said the majority of IF partners have implemented tax provisions to incentivize investment in R&D, but all nations do so differently. "We remain hopeful there is a way to find consensus."

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