This week (June 23-27)

Congress:The House and Senate are in session.

There are two hearings in the House Ways and Means Committee:

• Health Subcommittee hearing on "Health at Your Fingertips: Harnessing the Power of Digital Health Data," on June 25 at 9 a.m.
• Joint Social Security and Work & Welfare Subcommittee hearing with the Social Security Commissioner, Frank Bisignano, on June 25 at 2 p.m.

Last week (June 16-20)

OBBBA: The coming days will be pivotal for the Senate Republican version of the House-passed One Big, Beautiful Bill Act (OBBBA, H.R. 1), as the dust continues to settle after the release of the Finance Committee tax and health sections on June 16. The focus is on the middle of next week for Senate consideration of the Republican leadership's amendment to the House-passed bill, with some indications that Wednesday or Thursday night is the target for a "vote-a-rama," which is the rapid consideration of amendments to close debate on a budget reconciliation bill that is limitless and usually lasts all night. During the leadup to floor consideration is the "Byrd Bath" review of provisions that may violate the Byrd rules relating to what is allowable in a reconciliation bill, as the parliamentarian meets privately with Republican and Democratic staff to determine whether a provision meets strict revenue parameters or may be considered extraneous, including if it: does not produce a change in outlays or revenue; produces a change in outlays or revenues which is merely incidental to the nonbudgetary components of the provision; or would increase the deficit for a fiscal year beyond the budget window. Morning Tax reported that "Democrats will start laying out their challenges to the Senate parliamentarian on tax issues starting" June 20 and "a number of the Democratic challenges will delve into GOP senators' preference for a current policy baseline." Punchbowl News reported that the full Byrd Bath for the Finance Committee portion of the bill — with Republican and Democratic staff together — is set to begin on Sunday (June 22) and that "Democrats plan to challenge around 60 health and tax provisions." Discussions will continue on open issues including Inflation Reduction Act (IRA) energy tax credit changes and the state and local tax (SALT) deduction cap.

Attention on the current policy baseline used by the Senate, which doesn't count the cost of making the TCJA expiring provisions permanent, waned as the House and Senate decided on separate reconciliation instructions for each chamber in the budget resolution in April. But the approach, which hasn't really been used in prior reconciliation bills, is a focus again now that it will likely be challenged and ruled on by the parliamentarian. "Republicans are bracing for an answer to one consequential question they punted on earlier this year: whether they can use an accounting maneuver known as 'current policy baseline' to make it appear that extending Trump's 2017 tax cuts would cost nothing," Politico reported.

The Senate Finance tax package that will be incorporated into the broader leadership substitute amendment differs significantly from the House-passed version in that it was constructed using a current law baseline, though the two bills include some common provisions and overall share broad outlines. Both include permanence for main Tax Cuts & Jobs Act (TCJA) individual provisions expiring at the end of 2025, but the Senate bill also makes permanent the TCJA pre-cliffs — on bonus depreciation, IRC Section 163(j) interest deductibility, and IRC Section 174 R&D expensing — and increased amounts for the standard deduction and Child Tax Credit. The two bills also include President Trump's tax proposals with some differing details, including the Senate deduction limits on the no tax on tips and overtime proposals, at $25,000 and $12,500 respectively. Senate Majority Leader John Thune (R-SD) and other leaders had planned to spend this week negotiating changes to the bill before planned floor consideration next week, and those efforts appeared to be continuing even though the Senate has been out of session since Wednesday. Initial reactions to the bill from other Republican Senators, many of whom were first briefed about the long-awaited Senate Finance Committee plan on Monday, indicated that socializing the bill among members and gaining sufficient support prior to a floor vote could be a formidable task and may take longer than planned. "This is just the opening shot," said Senator John Cornyn (R-TX) in a Bloomberg report, suggesting changes could be in store. Senate Republicans did have the benefit of the House bill having been out for weeks to gauge how best to tailor their proposal to members and stakeholders. Senate Finance Committee Chairman Mike Crapo (R-ID) confirmed that the bill will not be marked up in committee, meaning there will be a more leadership-driven effort to modify the bill to address the concerns of Republican Senators.

The House was in recess this week but Republican members there have been vocal in expressing concerns with the IRA and SALT provisions in the Senate Finance Committee language, and Senate leaders are cognizant of reactions in the other chamber given the goal of having the House approve the eventual Senate bill without further deliberation. Punchbowl News reported June 17, "Senate GOP leaders desperately want to work out problems with the House now to avoid a formal conference. But they also need to sell their own senators." Chairman Crapo said in the report, "Certainly everything that we've put out is out there for consideration, and we'll see how people react to it."

A WCEY Alert and summary materials are available here.

SALT: One issue clearly still under deliberation is the SALT cap, with some House Republican members representing New York indicating the bill will not win their votes when it comes back to the House if it doesn't retain the House-passed $40,000 cap. Leader Thune and others suggested the SALT issue is open for negotiation with the goal of settling on a mutually agreeable proposal, despite the fact that no Senate Republicans represent states where the cap is a major issue. SALT was one of the final issues to be closed out prior to the House OBBBA vote. The issue still threatens support for the bill when it returns to the House because the Senate Finance Committee language retains the current policy $10,000 cap as a placeholder for negotiations, instead of the $40,000 cap in the House bill (provided fully only for households with less than $500,000 in annual income). Senator Markwayne Mullin (R-OK), a former House member himself, has reportedly held discussions with House members — some of whom have declared a bill that extends the $10,000 cap DOA in the House — over retaining the $40,000 cap but lowering the income threshold.

IRA energy credits: Both the House and Senate Finance Committee language terminate many IRA energy tax credits after the end of the year. The Senate Finance Committee version does allow solar and wind projects to qualify for clean electricity credits in 2026 and 2027. Politico reported, "Senate Republicans are extending some of the House's aggressive phase-out dates for credits benefitting 'baseload' energy technologies like nuclear, geothermal and hydropower, leaving one GOP proponent of the incentives, Sen. Thom Tillis [R-NC], 'generally satisfied.'" Senator Shelley Moore Capito (R-WV) and others are reportedly working to extend the phaseout period for the hydrogen credit past 2025.

A story in the June 20 Wall Street Journal, "Clean Energy Projects Hinge on Senate Showdown," reported, "Republican Sen. Thom Tillis, who backs the subsidies and is up for re-election next year in closely divided North Carolina, said the Senate language released Monday 'moved substantially' in the right direction from an earlier House version, and that he is still in negotiations with colleagues. [Leader Thune] said Wednesday that the energy credits language in the bill is 'not totally settled yet.'" The story said: "Solar and wind production and investment tax credits would wind down through 2026 and 2027 in the Senate proposal, instead of around 2032 in the current law. Battery storage avoided an early sunset. The House version included difficult-to-meet provisions that would have meant an immediate rollback of credits. The Senate extended the time that nuclear, hydropower and geothermal projects would be eligible for credits."

Leaders must consider not only the demands of Republican Senators but possibly GOP House members as well, given the goal to have the House approve the eventual Senate bill as-is, without having to through a conference committee process to iron out the House and Senate differences, which could take the month of July. Politico reported Rep. Andrew Garbarino (R-NY) as saying the Senate didn't go far enough in changing the House bill and continuing the tax credits for a longer period of time, "The layered phase out of the technology neutral tax credits picks winners and losers at a time when our nation is in need of quickly dispatchable power sources." Other members want a more conservative approach to the credits. Rep. Chip Roy (R-TX), a Freedom Caucus member who has been vocal about several issues in relation to the bill, posted on social media June 19: "One of the most egregious provisions in the Inflation Reduction Act is the transferability of credits to third parties. Billions in credits getting traded for cash behind closed doors with little to no oversight. Foreign companies and hedge funds are gaming it, costs/debt explode."

Global tax: Another difference between the House bill and the Finance Committee language is the Finance Committee package of international tax changes. Among other things, the rates for main TCJA international provisions — global intangible low-taxed income (GILTI) and Foreign-derived intangible income (FDII) deductions, and base erosion and anti-abuse tax (BEAT) — would all be increased to 14%, QBAI would be eliminated for GILTI and FDII, and expense allocation for GILTI would be limited. "Net CFC Tested Income" would be the new name for GILTI — some Republicans were said to have long objected to the current name — and FDII would be redesignated "Foreign-Derived Deduction Eligible Income."

But these international tax reforms also include trade-offs that may create winners and losers and have initiated a round of lobbying to modify the proposals. For example, along with making the pre-cliff relating to 163(j) permanent, the language includes a revenue raiser prohibiting the inclusion of GILTI, Subpart F or the Section 78 gross up as part of the 163(j) base. Another change, to the BEAT, would narrow the definition of a BEAT payment to only those payments subject to less than a "sufficient rate of tax," specified as an effective tax rate of 18.9%. But a trade-off is that the base erosion safe harbor is set at 2%, and a prior proposal to exclude from base erosion payments those payments already subject to US tax, like GILTI or Subpart F, was not included in the package.

The IRC Section 899 retaliatory tax plan included in the Finance Committee package is also different than that included in the House bill. The increase in withholding tax rates of 5 percentage points per year would be capped at 15 percentage points, instead of the cap of 20% over the statutory rate or treaty rate in the House bill, and all the IRC Section 899 penalty provisions would be delayed until 2027. The Senate withholding tax rate increases would apply automatically to only to taxpayers headquartered or our citizens of countries that enact and apply undertaxed profits rules (UTPRs) under Pillar 2, but only the so-called Super BEAT provision would apply to taxpayers from countries that have enacted and apply digital services taxes (DSTs). Like the House bill, the Senate bill's new IRC Section 899 could also apply when a jurisdiction has certain other extraterritorial taxes identified by the Treasury Secretary. The one-year delay in IRC Section 899 is seen as providing the US Treasury time to negotiate a solution in relation to countries with so-called unfair foreign taxes.

Treasury: On June 18, Leader Thune took a procedural step (filed cloture) in relation to the nomination of Ken Kies to be Treasury Assistant Secretary for Tax Policy, setting up a vote as soon as next week.

Bill intros: Senate Finance Committee Ranking Member Ron Wyden (D-OR) introduced two bills that update his partnership discussion draft released in 2021: S. 2094, to modify the partnership rules for taxation of basis-shifting transactions involving related parties, and S. 2095, to improve the rules related to partners and partnerships.

Rep. Val Hoyle (D-OR) and Senator Brian Schatz (D-HI) have introduced a bill (S. 2127, H.R. 4035) to impose a tax on certain trading transactions. The Wall Street Tax Act would establish a 0.1% tax, phased in over five years, on the sale of stocks, bonds, and derivatives.