Lately on the Hill
Here are your latest legislative updates:
- Potential legislative vehicles for tax policy. There are quite a few tax policies that have been waiting in the wings for Congress to address: changes to Section 174 R&D expensing, bonus depreciation phaseouts, and changes to how business interest expense is computed under §163(j). Last week, we talked about how the most likely legislative vehicle for these business tax extenders is the annual spending bill that Congress negotiates at the end of each calendar year, but there appear to be other potential legislative vehicles that could come up earlier in this session:
- Farm bill. Every five years, Congress takes up legislation known as the “farm bill,” which provides resources for American farmers, rural development, and other nutrition and conservation-related programs. 2023 is a farm bill year, so lobbyists and members of Congress are seeing what tax policies they could work into this legislation. The top runner-up is changes to stepped-up basis rules that reduce capital gains on inherited property. Some legislators see stepped-up basis as a policy that primarily benefits farmers, so expect this policy to come up in farm bill negotiations. Since the farm bill is a compilation of 12 different bills, including a tax title, Congress could also add business tax extenders into the farm bill.
- Technical glitch fix. A drafting error in the recently passed SECURE 2.0 Act retirement bill has resulted in a technical glitch that prohibits workers from making catch-up 401(k) contributions beginning in 2024 (pre-tax or Roth). Congress or the IRS are likely going to fix this soon, so if Congress does take up a technical corrections bill, they could add in other tax policies that have bipartisan support.
- Trade legislation. There has been bipartisan support in passing legislation to address U.S. competition with China, which means a trade bill is likely to come up in this session. In the past, tax provisions have made their way into trade bills, which means this is another chance for Congress to address the unresolved business tax extenders.
- Supply chain legislation. Multiple committees and both parties are starting to discuss legislation to address supply chain issues within the American economy. For example, a bill was recently introduced in the House to incentivize new truckers through temporary tax credits and workforce grants (the Safer Highways and Increased Performance for Interstate Trucking Act). Another proposed bill would like to make sure transportation carriers in the U.S. are not required to use Chinese data collection systems. Supply chain legislation appears to have bipartisan support, so it is feasible tax policy could emerge out of these negotiations as well.
- Your weekly debt limit update. President Joe Biden and Speaker Kevin McCarthy met last Wednesday to discuss the debt limit. The White House clarified that this was not a negotiation. In the meantime, more Republicans are walking back a desire to cut Medicare and Social Security spending, which means new contenders for spending cuts are trending: Environmental Protection Agency funding, defense spending, and targeting “waste, fraud and abuse.” So far, everyone is just floating ideas, and tax increases are not on the table yet.
- New bills introduced. Here is a round-up of the latest bills introduced in Congress over the last week. Some are making a comeback after an unsuccessful run in the last session, but some are new to us:
- Rep. August Pfluger (R-TX) introduced the Natural Gas Repeal Act, proposing to strike the “Natural Gas Tax” imposed by the Inflation Reduction Act. This is one of the many energy-related bills that the House Energy and Commerce Committee will take up at the hearing on legislation “to restore American energy dominance.”
- Reps. Jodey Arrington (R-TX) and Dan Kildee (D-MI) introduced the Supply Chain Disruptions Relief Act to provide relief to car dealerships. A version of this bill passed in the Senate at the end of the last session, but did not get voted on in the House before Congress recessed for the holidays, so this bill is starting the voting process all over again in this session.
- Sen. Jon Kennedy (R-LA) introduced the Require Employees to Uniformly Return Now (RETURN) Act, which proposes to require that IRS employees working from home return to the office full time until the tax return processing backlog is resolved.
- Sens. Ben Cardin (D-MD) and Steven Daines (R-MT) introduced the New Markets Tax Credit Extension Act, which would permanently authorize a federal tax credit for businesses or economic development projects in areas with poverty rates of at least 20 percent, or median incomes at or below 80 percent of the area median. Learn more about the NMTC program.
- Here is a list of bills that Republicans took up in the House this week. Note, most of these are around ending the public health emergency related to the COVID-19 pandemic. Coincidentally, the White House announced plans to end the administration’s COVID-19 emergency declaration on May 11. This will impact immigration policy, Medicaid, and the student loan repayment pause that expires June 30.
IN CASE YOU MISSED IT
- Democratic members of the House Ways & Means and House Oversight Committees wrote a letter to the IRS urging the agency to investigate the data-sharing practices of companies like H&R Block, TaxAct, and TaxSlayer, which allegedly disclosed taxpayers’ sensitive personal and financial information to Meta. Democrats on the Senate Finance Committee also have an ongoing investigation into this issue.
- A group of House Republicans is asking President Biden to submit a budget that could be balanced within 10 years without raising taxes (which some say is impossible without significant cuts to defense spending, Medicare, and Social Security, and raising taxes). The president is required to submit a budget to Congress by the first Monday in February. Although this is a statutory deadline, presidents—including Biden—have missed this deadline in the past (last year, the White House version of the federal budget was released on March 28). The White House said they’ll release a budget for fiscal year 2024 in March and Republicans are preparing their version of the budget to release in April. It’s basically a “show me yours, I’ll show you mine” situation.
- The IRS issued Notice 2023-16, modifying the definitions of certain vehicle classifications for the new, previously-owned, and qualified commercial clean vehicle tax credits. Fact Sheet 2023-04 has been updated accordingly for this new guidance.
- The IRS also proposed the Service Industry Tip Compliance Agreement (SITCA) program, a voluntary tip reporting program between the IRS and employers in various service industries. This program is intended to replace other existing tip reporting compliance programs, including the Tip Rate Determination Agreement (TRDA), Tip Reporting Alternative Commitment (TRAC), and Employer designed TRAC (EmTRAC). This program would not impact the gaming industry.
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.