Lately on the Hill
Congress is back in session full swing: House Republicans are ready to negotiate the debt limit and more than a dozen new tax bills have been introduced in the last week.
- Debt limit update. House Republicans released their official opening offer for debt limit negotiations: the Limit, Save, Grow Act of 2023, and House Speaker Kevin McCarthy said he plans to take the bill to a floor vote this week and skip committee markups.
- As detailed last week, the bill includes a variety of policies to decrease government spending by $130 billion while increasing the debt limit by $1.5 trillion or suspending it through March 31, 2024 (whichever occurs first), and capping government spending for the next decade (but allowing for 1% annual growth). The bill also proposes to roll back or modify certain clean energy tax credits included in the Inflation Reduction Act, including tax credits for carbon sequestration, clean hydrogen, sustainable aviation fuel, renewal electricity production, and electric vehicles.
- Given the variety of policies included in this proposed bill and the fact certain House Republicans have never voted for a debt limit increase in the past, there is some doubt that McCarthy can get the votes he needs to pass this bill. Remember, McCarthy only has margin to lose four Republican votes. However, there is a thinking that some Republicans may be willing to vote on this bill knowing that it won’t pass in its current form in the Senate and President Joe Biden won’t sign this into law, so this could be a tactic for Republicans to show a united front against the White House even when individual legislators may not support every single item in the bill. In response, President Biden called these proposed policies “wacko notions,”1 and Senate Republicans said they think if McCarthy can get this passed in the House, it may bring the White House to the negotiation table.
- The Problem Solvers Caucus has released a backup plan in case McCarthy’s bill doesn’t move forward in time: a framework of steps to avoid default and advance a “sustainable budget.” This includes suspending the debt ceiling through December 31, 2023; creating a fiscal commission to review and recommend a package to stabilize long-term deficits and debt; adopting controls for the fiscal year 2024 budget and appropriations cycle; and adopting bipartisan budget process reform recommendations from the House Select Committee on the Modernization of Congress and the Joint Select Committee on Budget and Appropriations Process Reform.
- New bills introduced. Tax Day seems to have inspired legislators to release a slew of new tax bills! Remember, these are initial drafts that have not gone through committee yet and are more likely to be used in negotiations as part of bigger legislative packages versus passing as standalone bills.
- Reps. Bill Pascrell, Jr. (D-NJ), Don Beyer (D-VA), and Katie Porter (D-CA) introduced the Ending Wall Street Tax Giveaway Act to end the carried interest exception and tax carried interest compensation at ordinary income tax rates and treating it as wage income subject to employment taxes. The capital gains option would still apply for taxpayers who truly put money at risk, such as private equity partners who invest their own money in their funds.
- Reps. Ron Estes (R-KS) and John Larson (D-CT) reintroduced the American Innovation and R&D Competitiveness Act to permanently bring back immediate research and development expensing retroactive to tax years beginning after December 31, 2021.
- Reps. Vern Buchanan (R-FL) and Judy Chu (D-CA) introduced the Performing Arts Tax Parity Act, which would update the Qualified Performing Artist tax deduction to help struggling actors and performers by increasing the availability of this above-the-line deduction to taxpayers with income up to $100,000 (individuals) and $200,000 (married joint filers). Currently, the deduction is only available to those making less than $16,000 per year.
- Rep. David Kustoff (R-TN) introduced the Small Business Taxpayer Bill of Rights Act, which proposes to establish a taxpayer bill of rights for small businesses and cover topics like civil damages, disputes with the IRS, and otherwise providing taxpayer protections from improper IRS abuse. Sen. John Cornyn (R-TX) introduced companion legislation in the Senate.
- Rep. Ralph Norman (R-SC) introduced the Capital Loss Inflation Fairness Act, which would increase the capital loss limit against ordinary income from $3,000 to $13,000 for individuals and married taxpayers filing jointly, and includes an annual adjustment for inflation.
- Rep. Claudia Tenney (R-NY) introduced the Motorsports Fairness and Permanency Act, which would make permanent the seven-year cost recovery period for investments in motorsports entertainment complexes.
- Rep. Diana Harshbarger (R-TN) introduced the Simplify, Don’t Amplify the IRS Act, which proposes reforms to bring more transparency and accountability to the IRS, including increasing the penalty for releasing private taxpayer information and prohibiting the IRS from launching targeted audits. Sen. Mike Braun (R-IN) introduced companion legislation in the Senate.
- Rep. Katie Porter (D-CA) reintroduced two bills: the Trust in Government Act, which directs Treasury to expand electronic tax filing and offer support via email, and the Streamlining IRS Operations Act, which would require that tax returns filed on paper be digitized.
- Rep. Suzanne Bonamici (D-OR) and Sen. Cory Booker (D-NJ) introduced the Tax Refund Protection Act, which would update the rules covering tax professionals, like tax attorneys and accountants, to make sure Treasury can license and regulate for-profit tax preparers.
- Sen. Bernie Sanders (I-VT) introduced the For the 99.5 Percent Act, which would establish a progressive estate tax ranging from 45% to 65% on estates valued between $3.5 million and $1 billion. The legislation also would end tax breaks for dynasty trusts, close other loopholes in the estate and gift tax realm, allow farmers to lower the value of their farmland by up to $3 million for estate tax purposes, and increase the maximum exclusion for conservation easements to $2 million. Companion legislation was introduced in the House by Rep. Jimmy Gomez (D-CA).
- Sen. Sheldon Whitehouse (D-RI) introduced the Medicare and Social Security Act, which proposes to extend Social Security and Medicare solvency by up to 20 years, and require taxpayers exceeding $400,000 in income to contribute more to the Social Security and Medicare funds. The proposed bill also would subject owners of pass-through businesses with more than $400,000 in income to Medicare tax at 1.2%.
- Sens. Ted Cruz (R-TX), John Kennedy (R-LA), Mike Lee (R-UT), and John Barrasso (R-WY) reintroduced the Chemical Tax Repeal Act, which would repeal the Superfund tax imposed by the Infrastructure Investment and Jobs Act.
- Sens. Shelley Moore Capito (R-WV) and Kyrsten Sinema (I-AZ) introduced the American Investment in Manufacturing (AIM) Act, which would restore the earnings before interest, tax, depreciation, and amortization (EBITDA) measure for U.S. businesses for purposes of the interest expense limitation calculation under Internal Revenue Code Section 163(j). Prior to 2022, businesses could deduct 30% of their EBITDA. A new limitation that went into effect in 2022 limits the deduction to only EBIT.
IN CASE YOU MISSED IT
- In response to a request from the House Ways and Means Committee, the Joint Committee on Taxation released a memo with data on claims for certain energy credits by industry and by gross receipts of the taxpayer in 2019 and 2020. The data shows that energy credits under Sections 45 and 48 are largely claimed by companies exceeding $1 billion in gross receipts (accounting for 90% of credit claims), and that banks and insurers are the top industries claiming these credits.
- The House Ways and Means Committee received a whistleblower letter from an IRS employee “regarding allegations of misconduct in the handling of a high-profile case.” Chair Jason Smith (R-MO) issued a news release that the committee will “conduct a review of this matter.”
- The House Financial Services Committee published draft legislative text for a proposed stablecoin, digital dollar bill as part of the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion hearing on April 19, titled “Understanding Stablecoins’ Role in Payments and the Need for Legislation." The committee also heard from SEC Chair Gary Gensler on SEC regulation of digital assets. However, Democrats have indicated they want to start from scratch on this bill since it was drafted before the FTX collapse.
- The Digital Assets, Financial Technology and Inclusion Subcommittee will hold a hearing on Thursday, April 27, at 2 p.m. ET titled, “The Future of Digital Assets: Identifying the Regulatory Gaps in Digital Asset Market Structure."
- Indiana storm victims, and victims of severe storms, straight-line winds, and tornadoes in Indiana from March 31 to April 1, now have until July 31, 2023 to file various federal individual and business tax returns and make tax payments.
- Victims of severe storms, straight-line winds, and tornadoes in Oklahoma from April 19 to April 20 have until August 31, 2023 to file various individual and business tax returns and make tax payments.
This newsletter features developing content that is subject to change at any time. It does not constitute legal or tax advice. Consult your professional advisors prior to acting on the information set forth herein.
- 1“Biden Blasts GOP ‘Wacko Notions’ Amid Debt Limit Standoff,” apnews.com, April 19, 2023