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June 12, 2024

What to expect in Washington (June 12)

There continues to be focus in Washington on what will happen next year pending the outcome of this year's elections, with the primary topic being the end-of-2025 TCJA expirations and what other issues either party could address using the budget reconciliation process if they sweep the House, Senate, and presidency in November. To that end, Speaker Mike Johnson (R-LA) is attending the weekly Senate Republican policy lunch today to discuss the House Republican plan for reconciliation in 2025, which he suggested in recent press reports would be broad in scope and address multiple issues, tax included.

"Johnson is attempting to put together a package of conservative policy priorities that could — in theory — pass during a second Trump term, should Republicans win big this fall … " Politico reported. "Johnson's meeting with Republicans this week shows an intentional effort at early negotiations around any potential deal, theoretically teeing up a bill for Trump to act on quickly should he retake the White House."

While there is apparent unanimity within the party on the need to extend TCJA provisions, House and Senate Republicans are not as unified on the need to pay for the extensions. House members are more inclined to recognize the need for revenue offsets, while Senators maintain that pro-growth tax provisions need not be paid for. Another Politico story cited House Ways & Means Chairman Jason Smith (R-MO), who has said some Republicans support a corporate tax rate increase (but he is not advocating for that), as saying he could see lawmakers coming up with a total of $2.5 trillion or so in savings, but $4 trillion would be a "huge task." (That is the approximate cost of a full TCJA extension, according to CBO, not accounting for interest.)

At stake in this year's elections from a tax perspective includes: (1) How to address the expiration of TCJA individual and passthrough provisions at the end of 2025 and scheduled changes to business provisions (like GILTI, FDII, and BEAT), plus a potential corporate rate increase and any number of other proposals that could be pulled in to pay for those extensions; (2) the OECD global tax agreement, which Republicans in Congress have very vocally opposed; and (3) the IRA energy tax credits, which not only face Congressional Review Act (CRA) disapproval resolutions but proposed repeal of at least some of the credits to pay for other priorities.

Former President Trump is also set to meet, separately, with House and Senate Republicans on Thursday. "The meetings are part of a push to boost GOP ranks in Congress and help Trump get a jump on his policy agenda should he win back the White House in November," Axios reported June 11. "Trump already is plotting with [Speaker Johnson] to hit the ground running with an agenda that includes tax cuts and rolling back Biden energy policies."

His comments during a Sunday campaign event in Nevada about eliminating taxes on tip income if re-elected have garnered significant attention in the press. "So, this is the first time I've said this. And for those hotel workers and people that get tips, you're going to be very happy," former President Trump said. "Because when I get to office, we are going to not charge taxes on tips, people making tips." President Trump didn't propose exempting tips from tax during his first term.

A story in the June 11 Wall Street Journal cited David Kautter, former Assistant Treasury Secretary for Tax Policy, as saying the proposal also wasn't considered or studied during the first Trump term. The story said the proposal "introduces an untested idea to raise take-home pay that would encourage businesses and employees to recharacterize taxed wages as untaxed tips. Such a move could further complicate Americans' messy relationships with tips, which have spread to new corners of the economy in recent years even as consumers express growing exasperation with requests for voluntary payments on top of prices."

"Under current law, all gratuities that workers receive must be taxed at the same rate as their regular income, and many employers report their workers' tips to the IRS — but much is paid in cash and never reported to the IRS. More than 6 million workers had tips reported to the IRS in 2018, the most recent year for which complete IRS data is available … " said a story in the June 10 Washington Post. "The IRS considers cash and noncash tips as income subject to federal income taxes, as well as Social Security and Medicare taxes. In 2018, the latest year for which complete IRS data is available, the average worker who had tips reported on their W-2 had $6,249 in tips that were taxed."

Health care — On June 11, Vice President Harris and CFPB Director Rohit Chopra announced "a new action by the CFPB that would remove medical debt from credit reports of more than 15 million Americans, raising their credit scores by an average of 20 points and leading to the approval of approximately 22,000 additional mortgages every year. Under the CFPB proposed rule, there would be zero Americans with medical debt listed on their credit reports, down from 46 million in 2020."

"The proposed rule, which will go through a public comment period, would not take effect immediately. It would forbid health care providers to share medical debt with loan providers and prohibit those providers from factoring in medical information when it came to granting loans … " the New York Times reported. "The policy will most likely not take effect until early next year, according to administration officials speaking on the condition of anonymity to discuss details of the proposal. The public comment period runs until Aug. 12. Ms. Harris said the proposal was part of a broader effort by the White House to address medical debt … "

Congress — Hearings of interest today (Wednesday, June 12) include:

  • (10 a.m.), Senate Budget Committee, "Making Wall Street Pay Its Fair Share: Raising Revenue, Strengthening Our Economy"
  • (10 a.m.), Senate Finance Committee, "Youth Residential Treatment Facilities: Examining Failures and Evaluating Solutions"
  • (1:15 p.m.), House Ways & Means Trade Subcommittee, "Looking Beyond 2025 for Trade with Sub-Saharan Africa, Haiti, and Others"

Morning Tax reported that the Budget hearing "focuses on how to force Wall Street and investors to pay more in taxes — calling for, among other ideas, ending the preferential treatment of carried interest, ratcheting up the tax on stock buybacks that Democrats just enacted in 2022 and strengthening the U.S.'s minimum tax on foreign corporate profits."

On Thursday, June 13 (9:45 a.m.), the Finance Committee will meet in executive session to consider 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.

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Contact Information

For additional information concerning this Alert, please contact:

Washington Council Ernst & Young