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June 14, 2024

What to expect in Washington (June 14)

Talks have begun between House and Senate Republicans about using the budget reconciliation process to address the end-of-2025 TCJA expirations and other major issues if they sweep the House, Senate, and presidency in the November elections. Speaker Mike Johnson (R-LA) attended the weekly Senate Republican policy lunch June 12 to discuss the ambitious House Republican plan for reconciliation in 2025, which he has suggested would be broad in scope and address many issues, including tax. Speaker Johnson said Republicans would be "aggressive within the confines of the rules" in their use of a reconciliation vehicle addressing TCJA expirations, pro-growth policies, and regulatory reform, Bloomberg reported. "Democrats have used reconciliation much more aggressively than the Republican Party has in recent years," Johnson said. "We're not going to make that mistake again."

Senators were cited as having warned of the limitations of the reconciliation process. "You have to keep your expectations realistic about what you can do there," said Senate Minority Whip John Thune (R-SD). "We have restrictions over here that the House doesn't have to comply with." Budget reconciliation permits legislation impacting revenues and spending to pass the Senate with 51 votes rather than the regular 60-vote "filibuster" threshold, but the so-called Byrd Rule in the Senate imposes restrictions including blocking proposals that do not produce a change in outlays or revenues, produce changes in outlays or revenues that are merely incidental to the non-budgetary components of the provision, and increase outlays or decrease revenue beyond the budget window unless a provision's title remains budget neutral, for example.

Expectations that Republicans would seek to extend the full slate of expiring TCJA provisions, with the inclusion of revenue offsets unsettled, have evolved with comments suggesting the party wants to pursue even more tax cuts. "Speaker Mike Johnson told Senate Republicans on Wednesday that he wants to go big in a possible GOP-run Washington next year. So far, a fresh round of tax cuts is at the top of his wish list," Politico reported. "Exiting a meeting with the Senate GOP, Johnson said tax cuts and 'regulatory reform,' shorthand for paring back government regulations, are two of his biggest priorities … " House Republican leaders have been reported as aiming for a corporate tax reduction, despite indications that some in the party back increasing the rate to help pay for extending individual and other provisions.

Former President Trump told the Business Roundtable group of CEOs June 13 that he wants to further reduce the 21% corporate tax rate by one percentage point to an even 20%, the AP reported. Republicans had eyed a 20% rate for the TCJA, which was reflected in an earlier version of the bill before being bumped to 21%. Trump also met, separately, with House and Senate Republicans on Thursday, with the Senate meeting noted for its cordiality.

Speaker Johnson's and President Trump's outspoken speculation about tax plans is contrasted by Senate Finance Committee Ranking Member Mike Crapo (R-ID), who would likely chair the panel if the Senate flips, largely demurring on the issue and keeping the activities of the Finance GOP tax working groups under wraps compared to the more public Ways & Means tax teams. "We aren't there yet to answer those kinds of questions," he said, according to Politico. "I'm not making decisions on any policies that we should move next year until we have the whole picture understood and in front of us — which would include knowing who controls the White House, who controls the Senate, who controls the House." Setting expectations for how much speculation he will offer, Crapo said, "I am not going to tell you that this is what we ought to do next year, or this is what we ought not to do next year because we are looking at all of it now."

IRA — There also continues to be discussion of the risk of GOP-controlled government to Inflation Reduction Act (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. Bloomberg reported Senate Majority Leader Chuck Schumer (D-NY) as saying Wednesday (June 12) that protecting IRA credits is a priority for Democrats. "This is a seminal issue in the election," Schumer said during a briefing with the League of Conservation Voters at the Capitol. "Our Republican colleagues say that if they get into office, they will use reconciliation to repeal the IRA … This is no idle threat." Conversely, "If Democrats retain power after the election, 'we're going to go way beyond' the IRA on climate and clean energy initiatives, Schumer said. 'You ain't seen nothing yet.'"

Wall Street hearing — During a June 12 Senate Budget Committee hearing on "Making Wall Street Pay Its Fair Share," Democrats advocated long-proposed ideas for increasing taxes on higher-income individuals and corporations, particularly in the financial industry, and Republicans made the case for TCJA extensions. Chairman Sheldon Whitehouse (D-RI) said Congress should change the treatment of carried interest and "lock in a real corporate minimum tax on foreign profits so huge corporations can't pay zero." Ranking member Chuck Grassley (R-IA) emphasized that average Americans increasingly own stocks, either directly or indirectly through retirement plans, and said IRA direct pay and transferability provisions make it easier for corporations, banks, and private equity firms to pay lower taxes. In questioning from Senator Alex Padilla (D-CA), witness Joseph Stiglitz said stepped-up basis allows wealthy Americans to totally avoid taxes on income through capital gains. Senator Mitt Romney (R-UT) said, "The idea of eliminating the tax-free step up in basis at death is one thing we ought to look at and probably makes sense."

Tax Court — The Finance Committee met in executive session on Thursday (June 13) to favorably report the nominations of James Ives to be Treasury Inspector General (by a 26-1 vote), and Rose Jenkins (25-2), Adam Landy (26-1), and Kashi Way (25-2) to be judges on the United States Tax Court.

IRS — In Notice 2024-47, the IRS waived the penalty under IRC Section 6655 for a corporation's failure to pay estimated tax payments attributable to a portion of the corporation's alternative minimum tax (CAMT) due on or before August 15, 2024, for a tax year beginning in 2024. This is the third time the IRS has waived the penalty. In June 2023, the IRS waived the penalty for the 2023 tax year. In April 2024, the IRS waived the penalty for the installment due on April 15, 2024, for a tax year beginning in 2024 (and May 15, 2024, for a fiscal-year taxpayer with a tax year beginning in February 2024).

Health care — On June 11, the House Rules Committee compiled a list of 350 amendments to be considered with the National Defense Authorization Act (NDAA) that did not include the BIOSECURE Act. While the bill continues to have bipartisan and bicameral support, the decision limits the chances of passage this year. In response to the decision, the office of Rep. Brad Wenstrup (R-OH), who introduced the amendment, issued a statement, saying, "While we are disappointed the BIOSECURE amendment was not made in order, we understand the need to focus this year's NDAA on servicemembers to greatly improve their quality of life with long overdue pay raises, better housing conditions, and more. … We look forward to the BIOSECURE bill, which passed out of House Oversight 40-1, coming to the floor sometime soon, and we hope the Senate will do its part in moving the bill as well."

NDAA — More broadly regarding the NDAA, the Washington Post reported June 12: "The Pentagon this week is once again at the center of America's culture wars, as the Republican-led House considers adding divisive provisions from its far-right members to its version of the annual defense policy bill. Far-right lawmakers have proposed amendments to the $895.3 billion legislation that would restrict service members' access to reproductive health care and certain diversity protections. They also are seeking to block future U.S. assistance to Ukraine and Palestinian civilians, expand the military's presence along the Mexico border, and roll back environmental protections sought by the Biden administration."

Banking — The White House stepped into a simmering crisis at a top federal banking regulator on June 13, nominating Christy Goldsmith Romero to serve as chairman of the Federal Deposit Insurance Corp. (FDIC), which has been wracked by scandal as newspaper reports and a third-party investigation uncovered a decades-long toxic work culture at the agency. Romero, who has been a Democratic commissioner at the Commodity Futures Trading Commission (CFTC) for two years, previously served as inspector general for the Troubled Assets Relief Program (TARP), which bailed out dozens of banks that were caught in the 2008 financial crisis. Goldsmith Romero also served as a senior staffer at the SEC. Democrats saw the need for a quick nomination after current FDIC Chairman Martin Gruenberg announced a few weeks ago that he would step down from his position, but only after the Senate confirmed his successor. That approach, called for by Senate Banking Committee Chairman Sherrod Brown (D-OH), would avoid an interim situation in which Gruenberg resigned without a successor in place, handing control of the FDIC's board to Republican Vice Chair Travis Hill and almost certainly blocking the approval of key pending rules this year, such as the global "Basel III Endgame" bank capital regime, which has been fiercely opposed by Republicans and the banking industry. Whether Goldsmith Romero can actually get confirmed by a 51-49 Senate in which Republicans have often voted in lockstep against the president's nominees, with a dwindling legislative calendar left in this Congress, remains an open question. In Goldsmith Romero's favor is the fact that she was unanimously confirmed to the CFTC on a voice vote in 2022.

The situation at the FDIC was examined at a House Financial Services Committee hearing on June 12 at which Republicans condemned the idea that Gruenberg would stay on while awaiting a new chair. "Resigning after the confirmation of a new chair is just more of the status quo," Chairman Patrick McHenry (R-NC) said. "Chair Gruenberg knows this, which is why he told employees at the FDIC to continue as if he would be there until the end of the year. That is outrageous." After Goldsmith Romero was nominated, McHenry said she "must immediately begin taking steps to reverse the toxic culture overseen by Gruenberg to rebuild trust between FDIC employees and management. The Senate must move forward with confirmation proceedings expeditiously to curtail Chair Gruenberg's ability to further damage the agency and endanger financial stability." Democrats at the hearing said the misconduct described in the FDIC report had taken place under several administrations. Ranking Member Maxine Waters (D-CA) said, "Republicans are attacking the Democratic chair, who has already announced he will step down. But you won't hear them call for Republican Vice Chair Travis Hill to step down despite him being a senior official under former Chair [Jelena] McWilliams when allegations of misconduct persisted." Witnesses at the hearing said FDIC employees are suffering from low morale and the agency is facing recruitment challenges. A Cleary Gottlieb investigative report detailed violations drawn from more than 500 employee complaints. While Gruenberg himself did not appear at the hearing, declining Republicans' invitation due to a scheduling conflict, Chairman McHenry said he looked forward to having Gruenberg at a future hearing. The FDIC is reportedly working with the committee to find an appropriate date.

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