Lately on the Hill
- Debt limit update. The top four congressional leaders—House Speaker Kevin McCarthy (R-CA), House Minority Leader Hakeem Jeffries (D-NY), Senate Majority Leader Chuck Schumer (D-NY), and Senate Minority Leader Mitch McConnell (R-KY)—are meeting with President Joe Biden at the White House again today. This group met initially last Tuesday. In their respective press conferences, Biden said the meeting was “productive” and McCarthy said he “didn’t see any new movement.”1 The parties walked away with an agreement to meet last Friday and tasked congressional staffers and White House aides to huddle up and figure out what a potential compromise could look like, including identifying categories for potential spending cuts. The staff negotiators did not make enough progress to merit another meeting on Friday, so that meeting has been rescheduled to today.
- As of now, it appears the policies that have the most hope to succeed include:
- Rescinding unspent COVID-19 relief funds (from any of the six bills passed between 2020 and 2022 that included COVID-19 aid).
- Capping discretionary government spending. This is one of the top asks by Republicans, who want to cap non-defense discretionary spending at fiscal year 2022 levels. However, Schumer continues to insist that the Democrats’ position is that budget talks and raising the debt limit should be addressed separately.
- Energy permitting reform to make getting permits for domestic energy production projects faster and more efficient. This is a favorite policy of Sen. Joe Manchin (D-WV), who introduced the Building American Energy Security Act of 2023. This bill received bipartisan support in a floor vote in December 2022. Last week, the White House also released the priorities that the Biden administration would like to see included in permitting reform legislation. There is doubt, however, that all the parties could come up with an agreement on this in the two weeks we have left before the “x” date estimated by Treasury Secretary Janet Yellen.
- Another big ask by Republicans is increasing work requirements for social government programs like Medicaid and food stamps. This policy proposal has been a hard no for Democrats. Over the weekend, Biden said he’s voted for more stringent work requirements for social programs in the past, but he won’t make changes to Medicaid benefits. Republicans also would like to repeal parts of the Inflation Reduction Act (IRA). This also is a no-go with Democrats and the White House.
- The Republican Main Street Caucus sent a letter to Biden and Schumer urging them to negotiate in good faith with McCarthy to lower spending and raise the debt limit responsibly.
- Democrats are urging Biden to invoke the 14th amendment, which says that the government’s debt “shall not be questioned,” and raise the debt ceiling on his own. This is a worst-case scenario since legal scholars say this is unconstitutional and is likely going to end up in the Supreme Court. Biden has not ruled this out as an option but is optimistic an agreement will be reached in time.
- In its most recent analysis, the Congressional Budget Office projects there is a “significant risk that at some point in the first two weeks of June, the government will no longer be able to pay all of its obligations.” Furthermore, funding government operations for the rest of this month also remains uncertain as it depends on revenue collections.
- As of now, it appears the policies that have the most hope to succeed include:
- New bills introduced. Here is a roundup of some of the latest tax-related bills introduced in Congress:
- Rep. Pete Sessions (R-TX) introduced the Health Care Fairness for All Act, which would create a new insurance tax credit and allow taxpayers to pay for healthcare with tax-advantaged Roth Health Savings Accounts.
- Reps. Randy Feenstra (R-IA) and Wiley Nickel (D-NC) introduced the Access to Credit for our Rural Economy (ACRE) Act of 2023, which would exclude interest on rural or agricultural real property loans from gross income. This exemption already applies to farm credit institutions. This exemption also would apply to single-family home mortgage loans in rural communities with fewer than 2,500 residents and for mortgages less than $750,000.
- A bipartisan group of representatives introduced the Affordable Housing Credit Improvement Act, which seeks to expand the Low-Income Housing Tax Credit (Housing Credit) by increasing the amount of credits allocated to each state, increasing the number of affordable housing projects that can be built using private activity bonds, and improving the Housing Credit program to better serve at-risk and underserved communities.
- Reps. Anna G. Eshoo (D-CA) and Blake Moore (R-UT) introduced the Protecting Circuit Boards and Substrates Act, which seeks to incentivize domestic printed circuit board (PCB) manufacturing and research and development by establishing a financial assistance program, modeled on the CHIPS Act, within the U.S. Department of Commerce for American facilities manufacturing or researching PCBs, and providing a 25% tax credit for entities that purchase American-manufactured PCBs.
- Reps. Julia Brownley (D-CA) and Carol Miller (R-WV) introduced the Veteran Entrepreneurs Act of 2023, which would create a tax credit of up to 25% of initial franchise fees for veterans to encourage franchise ownership.
- Rep. Thomas Massie (R-KY) reintroduced the Senior Citizens Tax Elimination Act, which would repeal the inclusion of Social Security benefits in gross income.
- Reps. Michelle Steel (R-CA) and Carol Miller (R-WV) introduced the Permanent Tax Cuts for American Families Act of 2023, which would make permanent the enhanced standard deduction established by the Tax Cuts and Jobs Act (set to expire in 2025).
- A group of legislators introduced the Retaining Educators Takes Added Investment Now (RETAIN) Act, which would create a fully refundable tax credit for teachers, paraprofessionals, mental health providers, and other professionals in Title I schools and early childhood education programs to reward experience and incentivize retention.
- Democrats also introduced the Respect, Advancement, and Increasing Support for Educators (RAISE) Act of 2023, which would provide public school educators with a minimum of $1,000 in refundable tax credits and as much as $15,000, depending on the level of poverty in the schools they serve. The bill also would double the educator tax deduction, which teachers can use to offset the cost of school supplies.
- A bipartisan group reintroduced legislation to modify the amount of money transferred to Puerto Rico and the U.S. Virgin Islands from the excise taxes collected on rum that is produced in or imported into the rest of the U.S. from the two U.S. territories.
- Sen. John Barrasso (R-WY) reintroduced the Book Minimum Tax Repeal Act, which would repeal the corporate alternative minimum tax imposed by the IRA.
- Sens. Roger Wicker (R-MS) and Debbie Stabenow (D-MI) reintroduced the Lifting Our Communities through Advance Liquidity for Infrastructure (LOCAL Infrastructure) Act, which would amend the federal tax code to restore state and local governments’ ability to use advance refunding to manage bond debt and reduce borrowing costs for public projects.
- Sens. Tim Kaine (D-VA) and Mark Warner (D-VA) reintroduced the School Infrastructure Modernization Act of 2023, which would make it easier for school districts to use the current federal historic rehabilitation tax credit to upgrade historic school buildings that will continue to operate as schools after renovation.
- A bipartisan group of senators introduced the Rural Jobs Act, which would designate $500 million in New Markets Tax Credit investments for low-income rural communities that have a population smaller than 50,000 inhabitants.
IN CASE YOU MISSED IT
- The IRS issued Notice 2023-38, which provides guidance to owners of green energy projects, such as wind, solar, and energy storage technologies on the rules taxpayers must satisfy to qualify for the domestic content bonus credit amounts under the IRA.
- The IRS released updated draft instructions for Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.
- The Congressional Budget Office published a report examining factors that explain why corporate tax payments have not grown with corporate economic profits. The report found that differences in the treatment of foreign profits account for much of the growth in the gap between economic profits and the corporate tax base.
- Iowa passed pass-through entity legislation that would allow partners or shareholders to claim a credit against the individual and corporate income taxes and the franchise tax.
- Tax-related upcoming hearings include:
- Senate Finance Committee hearing on IRA energy tax credits (Thursday, May 18, at 10:15 a.m. ET)
- Senate Budget Committee hearing on tax cuts and the national debt (Wednesday, May 17, at 10 a.m. ET)
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: Debt Meeting ‘Productive,’ Default ‘Not an Option,’” apnews.com, May 9, 2023