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May 24, 2024

What to expect in Washington (May 24)

Efforts in Washington to prepare for the 2025 tax cliff of Tax Cuts & Jobs Act (TCJA) expirations continue to escalate. Senate Finance Committee Republicans met May 22 to discuss establishing working groups on extending and improving expiring TCJA provisions — "very much setting the table," according to Senator Bill Cassidy (R-LA), invoking an oft-used analogy for preparing Washington for major legislative events like the tax cliff. The Bloomberg Daily Tax Report (DTR) subsequently reported Finance Ranking Member Mike Crapo (R-ID) as saying the groups will cover every aspect of the expiring tax breaks to prepare for next year's negotiations and that senators will work on understanding the issues, the options available, and how to approach the expiration. Punchbowl News reported last night that the groups cover:

  • Individual taxes
  • Business measures
  • International tax
  • Retirement
  • Community development
  • Energy

The effort mirrors the 10 tax teams announced by the House Ways & Means Committee on April 24 and expected to get up and running in the coming weeks. There is precedent for establishing such study groups in anticipation of an opportunity to reform the tax code, though prior efforts have been bipartisan rather than the Republican-only groups set up now. Both tax-writing committees established bipartisan tax reform working groups in the years preceding the 2017 TCJA: 2013 for the House, 2015 for the Senate.

Additionally House Majority Leader Steve Scalise (R-LA), echoing Ways & Means Committee Chairman Jason Smith's (R-MO) prior comments that he would aim to act early in the next Congress on expiring tax provisions, said tax could be a first-100-days issue if Republicans were to sweep in the 2024 elections and end up with control of the White House and Congress.

Looking ahead to 2025 has been a main theme of recent tax events in Washington — including the American Bar Association Tax Section conference, a U.S. Chamber of Congress briefing, and the Tax Council Policy Institute (TCPI) Symposium — and the most recent example was a Tax Foundation half-day meeting May 23. Former House Ways & Means Committee Chairman Kevin Brady (R-TX), who ushered in the TCJA during his tenure, said lawmakers should be wary of increasing the corporate tax rate — which doesn't expire but is already part of the conversation about paying for the extension of temporary individual and passthrough provisions — because that could open the door to more inversions and because the corporate rate is among the most, if not the most, pro-growth provisions in the Code. He also said lawmakers should be prepared to present a bill that is revenue neutral or close to it in light of debt and deficit concerns.

Disaster tax bill — Politico Morning Tax reported that Senate Finance Committee Chairman Ron Wyden (D-OR) put a hold on the House-passed Federal Disaster Tax Relief Act (H.R. 5863) because it is also folded into the broader Tax Relief for American Families and Workers Act (H.R. 7024), which is stalled over Republican objections. "The reason why is that there are key Democratic priorities: for example, we couple Child Tax Credit and R&D. It would go all asunder if they were to pull something out," Wyden said. "I'm not going to reward Senate Republican stalling." The report said of the broader bill, "There still haven't been any signs that Senate Majority Leader Chuck Schumer will bring up the Wyden-Smith tax plan for a vote, after he previously said he would only do so if he felt confident it would pass."

Energy tax — Treasury, IRS, and the Department of Energy (DOE) announced May 22 that the DOE Qualified Advanced Energy Project Credit Program Applicant Portal (48C Portal) is now open for any interested applicants to register for a new round of allocations. "Interested applicants, including small-, medium- and large-sized manufacturers, must submit their concept papers by Friday, June 21 at 5 p.m., using the 48C Portal. DOE will accept full applications only on projects where concept papers were submitted prior to the June 21 deadline," according to a release.

An EY Alert, "IRS creates new elective safe harbor using default percentages for determining domestic content bonus for energy credits for certain applicable project components," is available here.

Trade — The May 21 Senate Finance Subcommittee on International Trade, Customs, and Global Competitiveness hearing on "Examining Trade Enforcement and Entry of Merchandise at U.S. Ports" largely focused on disruptions to US trade and ports, with the two main examples being the pandemic and the Key Bridge collapse in Baltimore. Witness John Drake of the U.S. Chamber of Commerce said, "International trade is critical to our nation's economy and way of life. Ports are fundamental to this trade, It does not feel that long ago when we were in the depths of the COVID pandemic and many Americans were facing delays in everything … " Rather than returning to normal, he said, "today we are in a new normal of significant and seemingly daily supply chain challenges."

Senator Ben Cardin (D-MD) emphasized that a bill must be passed for replacement of the Key Bridge and has to be 100% federal share — "when you start the construction phase, you have to have that law in place … We have got to get that bill done as quickly as possible so it's not the reason for the delay on the work being done to replace the bridge." Chairman Tom Carper (D-DE) asked how US ports can be "better prepared to address future emergency situations similar to that which we have witnessed in Baltimore." Drake said, regarding pandemic supply chain issues, "Not a whole lot has changed at the level to prevent the pile up that … we saw back in 2020 from repeating itself" and it's critical that the private sector and government stay in close contact.

In a related development, Finance members Maria Cantwell (D-WA), who is chair of the Senate Committee on Commerce, Science and Transportation, and Marsha Blackburn (R-TN), also on Commerce, May 21 introduced the Promoting Resilient Supply Chains Act (S. 4375) that would create a government-wide approach to monitoring, tracking and strengthening American supply chains, help anticipate and address disruptions before they happen, identify opportunities to grow manufacturing capacity and jobs, and reduce consumer costs.

Meanwhile, House Ways & Means Committee members Nicole Malliotakis (R-NY), Bill Pascrell (D-NJ), and others introduced the Supply Chain Security and Growth Act (H.R. 8504), which would leverage Investment Tax Credits (ITCs) to facilitate a rapid movement of critical US supply chains to Puerto Rico.

Cryptocurrency — The House May 22 passed a bill (HR 4763) that would establish a regulatory system for digital assets mainly by giving new authority to the Commodity Futures Trading Commission (CFTC), though the chairman of the Securities and Exchange Commission asserted that the SEC's authority in this market was clear. The vote on the Financial Innovation and Technology for the 21st Century Act, or "FIT21," was 279-136, with 71 Democrats supporting the bill along with 208 Republicans. HR 4763 is sponsored jointly by House Financial Services Committee Chairman Patrick McHenry (R-NC) and Agriculture Committee Chairman G.T. Thompson (R-PA). The House also approved on Thursday (May 23), by a vote of 216-192, a bill sponsored by House Majority Whip Tom Emmer (R-MN) that would block the Federal Reserve from issuing a central bank digital currency (CBDC).

Congress — A bipartisan border security proposal, the Border Act of 2024 (S. 4361), failed to advance in the Senate on a 43-50 procedural vote May 23. The bill, originally crafted to be appended to the Senate national security supplemental bill in January but omitted due to Republican objections, was brought up without any apparent change in the political dynamics of the issue, which prompted accusations from Republicans that the vote was politically motivated. Democrat-turned-Independent Kyrsten Sinema (I-AZ) suggested Democrats were politicizing the issue as Republicans had previously. "Today — yet again — the Senate has chosen politics. My state is still suffering … We don't have time for your political games," she said. Bill sponsor Senator Chris Murphy (D-CT) said, "Today's vote is more evidence that Republicans just see the border as a political issue, not as a problem to be fixed."

The staff of the Joint Committee on Taxation has provided a broad overview of the current Federal tax system's: (1) income tax on individuals, estates, trusts, and corporations; (2) payroll taxes; (3) estate, gift, and generation-skipping transfer taxes; and (4) excise taxes on selected goods and services. "Overview of the Federal Tax System as in Effect for 2024" is available here.

Both the House and Senate are out of session next week for the Memorial Day recess. What to Expect in Washington won't be published while Congress is away.

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Washington Council Ernst & Young