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June 5, 2024

What to expect in Washington (June 5)

The House is getting started on the dozen annual government funding bills with floor consideration of the Military Construction, Veterans Affairs, and Related Agencies (H.R. 8580) appropriations measure under an open rule that allows for amendments (which is less common in the House than in the Senate); teeing up the Department of Homeland Security and State and Foreign Operations Appropriations bills; and releasing text of the Financial Services and General Government Appropriations (FSGGA) bill.

In the State and Foreign Ops bill, House Republicans proposed "terminating more than 18 unnecessary programs, including the Organization for Economic Cooperation and Development (OECD)." Tax Notes reported that, "the OECD's budget is split into two parts, one that levies contributions that take into account the size of a member's economy, and the other based on participation in particular programs," and that some may view the proposed termination of US participation as House Republicans expressing their desire to sink the two-pillar global tax agreement that they have long derided, for a variety of stated reasons.

The FSGGA bill would reduce IRS funding $2.2 billion below the FY24 enacted level, to $10.119 billion, with most of the reduction in enforcement funding. Policy riders include those to prohibit "government-run tax preparation software that Congress has not authorized," likely referring to the Direct File program that the IRS has announced will be expanded and made permanent; and prohibit FinCEN promulgation of beneficial ownership reporting rules.

The prior-year House GOP appropriations legislation proposed cuts to the OECD and IRS and other funding that weren't in the March government funding bill negotiated with the Democratic-controlled Senate. Similar differences between the House and Senate in their approach to the appropriations process are expected this year. The expiration of current government funding after September 30 is one of only two deadline items that must be addressed by Congress before the November elections, and, if history is any guide, could easily be patched via a continuing resolution (CR) until a post-election lame-duck session that could close out the year.

On the other September 30 deadline, the expiration of the farm bill package of agriculture and nutrition programs, the June 4 Washington Post reported that a long-term approach may be delayed until after the elections because "the Republican-controlled House is writing a version of the bill that would spend less on future low-income food assistance and more on large-scale commodity farmers, while the Democratic-controlled Senate is mulling a proposal to do the opposite." Farm bills usually span five years, with the last enacted in 2018 and an extension of that policy (through September 30, 2024) enacted in the November 2023 CR. The report noted that the 2018 bill predated the pandemic and its supply chain issues, world events that affected the agriculture industry, skyrocketing farmland prices, and the Inflation Reduction Act (IRA) climate-focused law "that weighs heavily on agriculture."

Looking ahead — If either party sweeps in the elections, they would be expected to use the budget reconciliation process to enact their policy vision on tax and other issues, and Speaker Mike Johnson (R-LA) has been reported as having grand aspirations for such a bill, intending to address a wide range of issues. House Republicans are more open to revenue offsets than their Senate counterparts, and changes to the corporate income tax rate — while not expiring after 2025 — have been cited, including by Ways & Means Chairman Jason Smith (R-MO) as one potential source backed at least some Republican members.

At the CNBC CEO Council Summit June 4, Speaker Johnson suggested there would be a continued focus in the next Congress on spending concerns. "We're probably going to have small majorities on one side or the other for the foreseeable future. So, you will need very thoughtful, very responsible members of Congress to sit around a room and arm-wrestle over this to figure out what the real answers are," he said. "We have some ideas. And we will have groups working on that."

Asked about the potential desire of some Republicans to "trade an increase in the corporate rate in order to keep the personal rates down" as individual TCJA provisions expire after 2025, Speaker Johnson said, "I don't intend to choose. I think we need to do both. And I think you can do that if, at the same time, you're dialing back the regulatory state and you're doing your best to reduce mandatory and discretionary spending. And there are ideas on how to do that. So, I think you have to spur economic growth. And the best way to do that is to bring the taxes down."

Meanwhile, Democrats continue to highlight May 8 Congressional Budget Office (CBO) estimates that TCJA extensions could top $4 trillion. "Last month, the CBO reported that an extension of the 2017 Trump tax cuts would add a whopping $4.6 trillion to the deficit. Hear that, deficit hawks on the other side of the aisle, who keep complaining that the deficit's getting higher? The Trump tax cuts would add a whopping $4.6 trillion to the deficit — that's 50% higher than original estimates!" Senate Majority Leader Chuck Schumer (D-NY) said on the floor June 3, restating prior remarks from May. "This latest CBO report is a harsh reality check for the self-proclaimed fiscal hawks on the right who complains about the deficit. They complain about spending $50 million to help feed kids, but they seem to have no concern about a tax cut that mainly goes to the wealthy and big corporations that increases the deficit by $4.6 trillion."

On a separate matter, the House-passed Tax Relief for American Families and Workers Act (H.R. 7024) that would expand the Child Tax Credit, address the TCJA pre-cliffs on IRC Section 174 5-year R&D amortization, 163(j) interest deductibility, and bonus depreciation, and more, Leader Schumer was reported by Bloomberg as declining to speculate June 4 on whether he will bring the measure up for a vote given Republican objections to the bill. He said he is hopeful Senate Finance Committee Ranking Member Mike Crapo (R-ID) will be open to negotiation, but the report said Chairman Ron Wyden (D-OR) views Senator Crapo's offer as unrealistic.

Tax Court - The Senate Finance Committee held a June 4 hearing on the nominations of James Ives to be Treasury Inspector General, and Rose Jenkins, Adam Landy, and Kashi Way, who is Legislation Counsel at the Joint Committee on Taxation, to be judges on the United States Tax Court. Chairman Ron Wyden (D-OR) said Finance members "are big fans of the Staff at the Joint Committee on Taxation" and "couldn't do our jobs without your professionalism," while noting that their work occurs largely behind the scenes. "You've had a very good base of support from colleagues on both sides of this committee," he told Way.

"On the staff of the Joint Committee on Taxation, we consider a number of different perspectives. We always try to be honest brokers in a nonpartisan way. We work with Republicans and Democrats, and try to give the best tax advice possible," Way said. "And I think, certainly, that experience has influenced me and my perspective. And if I was confirmed as a judge, I would try and bring that experience and that perspective and listen to all sides and try to be as fair as possible and take all different perspectives into consideration."

Chips — A story in the June 3 Wall Street Journal said the 2022 Chips & Science Act has been beneficial to large chipmakers, if less so for companies important in other parts of the chip-making supply chain, and "is being challenged by fast-growing chip industries in competing countries, political complexity regarding the allotments at home and the sheer expense of manufacturing chips." The law included a 25% tax credit for chip manufacturing equipment (the IRC Section 48D Advanced Manufacturing Investment Credit) that "expires in 2026, and industry lobbyists are already preparing to push for an extension." Further, "In the absence of more grant money, tax breaks for purchases of chip manufacturing equipment might end up having a deeper impact, industry executives said."

Trade — Wednesday, June 5 is the Senate Finance hearing on "Revitalizing and Renewing GSP, AGOA and Other Trade Preference Programs." The House Ways & Means Committee approved a bill April 17 that addresses the Generalized System of Preferences (GSP), which provides duty-free tariff treatment to products imported to the US from developing countries.

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