Lately on the Hill
- Debt limit update. House Republicans and the White House have finally struck a debt limit deal.
- On Sunday, House Republicans released the Fiscal Responsibility Act of 2023. The White House wanted to include tax provisions and potential tax increases to raise revenue, but Republicans held firm that tax increases were off the table. So, here’s what made it in instead:
- Raise the debt limit through January 1, 2025 to get everyone past the 2024 elections.
- For the next two years, cap nondefense spending at fiscal year (FY) 2023 levels but increase defense spending by 3%. For eight years after that, there are spending cap suggestions, but Congress won’t be bound by them, unlike the first two years.
- An incentive for Congress to pass all 12 appropriations bills by the end of the year: if they don’t, spending will be cut by 1% compared to FY 2023. Note that for some years, if Congress can’t come to an agreement on new funding bills, it’ll pass a continuing resolution, which basically takes the prior year budget and rolls it into a new budget.
- Rescind $1.4 billion of the $80 billion in additional funding received by the IRS under the Inflation Reduction Act. Another $20 billion of that IRS funding will later be redirected over two years to other nondefense spending.
- Rescind approximately $30 billion in unspent COVID-19 relief funding.
- Increase work requirements on federal welfare programs by raising the work requirement age from 49 to 54 (gradual increase).
- Federal agencies taking administrative actions that would increase mandatory spending by more than $1 billion over years or $100 million in any given year would be required to submit a proposal to the Office of Management and Budget (OMB) to reduce spending by an equal or greater amount through other actions. OMB would have to return the proposed action to the agency if offsets aren’t identified. This measure aims to codify administrative “pay-as-you-go” rules that were implemented by OMB in 2005.
- Modify the National Environmental Policy Act to streamline environmental review processes. This includes a win for Sen. Joe Manchin (D-WV) since the bill gives the West Virginia Mountain Valley Pipeline the green light.
- End the Biden administration’s student loan payment and interest pause after August 30.
- But there is doubt about whether this deal will get the necessary votes in Congress. Last week, the House Freedom Caucus wrote a letter to House Speaker Kevin McCarthy to hold the line in negotiations; add policies like border security to the Limit, Save, Grow Act; and rapidly pull back IRS and unspent COVID aid funding.1 The House Freedom Caucus is 35 votes in the House, so McCarthy can’t afford to lose them. Democrats also have expressed their concerns that Biden appears to be giving in to Republican demands. The White House is holding meetings with key congressional Democrats to get them to vote yes on this bill.
- As of May 24, the Treasury’s cash balance was $49.5 billion.
- Fitch Ratings has placed the U.S.’ AAA rating on “Rating Watch Negative” with a warning that the credit rating agency may downgrade U.S. debt if Congress fails to raise the debt limit before the “x” date and is unable to pay its debts.2
- A vote is expected as early as tomorrow, but this also may drag into this weekend and past Treasury’s estimated June 1 “x” date. The House Rules Committee meets today to vote on this bill, which must make it past committee before advancing to a floor vote.
- On Sunday, House Republicans released the Fiscal Responsibility Act of 2023. The White House wanted to include tax provisions and potential tax increases to raise revenue, but Republicans held firm that tax increases were off the table. So, here’s what made it in instead:
- Tax legislation coming soon. While the debt ceiling negotiations have been going on, other members of Congress have two potential tax bills in the works:
- SECURE 2.0 technical fixes. Leaders of the House Ways and Means Committee and the Senate Finance Committee told Treasury and the IRS that Congress intends to introduce technical corrections legislation to correct erroneous statutory language in the SECURE 2.0 Act. There is bipartisan support on this, so expect it to pass Congress this year. The proposed corrections will likely include, at a minimum:
- Delineating limits on startup tax and employer contribution credits and settling when increased required minimum distribution ages would kick in.
- Spelling out when individual retirement account Roth contributions are permissible and confirming that catch-up contributions are permissible for all savers, correcting a much-publicized error that would have seemingly eliminated the program entirely.
- 2023 tax package. Republicans on the House Ways and Means Committee are almost done drafting a tax bill that includes rolling back certain changes under the Tax Cuts and Jobs Act: research and development expensing, bonus depreciation, and interest expensing. Rep. Carol Miller (R-WV) thinks her bill to increase the Form 1099-K tax reporting threshold from $600 back to $20,000 should be included in the package. Republicans hope to get some support from Democrats to push forward this bill in 2023, but that would likely require adding in an expanded Child Tax Credit and lifting the state and local tax cap. The draft bill is expected to be released as soon as the debt limit discussions are resolved, likely in early June.
- SECURE 2.0 technical fixes. Leaders of the House Ways and Means Committee and the Senate Finance Committee told Treasury and the IRS that Congress intends to introduce technical corrections legislation to correct erroneous statutory language in the SECURE 2.0 Act. There is bipartisan support on this, so expect it to pass Congress this year. The proposed corrections will likely include, at a minimum:
- New bills introduced. Here is a roundup of some of the latest tax-related bills introduced in Congress:
- Reps. Judy Chu (D-CA) and Mike Carey (R-OH) introduced the Simplify Automatic Filing Extensions (SAFE) Act of 2023, which would allow taxpayers to automatically qualify for a filing extension by paying 125% of the prior year’s tax liability.
- Rep. Blake Moore (R-UT) introduced the Small Business Growth Act, which would increase the Section 179 deduction cap to $2 million with a phase-out threshold of $3.5 million.
- Rep. John Larson (D-CT) introduced Social Security 2100, which seeks to expand the Social Security program by increasing benefits by 2% for all Social Security beneficiaries, cutting taxes for middle-income beneficiaries, and making changes to the cost-of-living adjustment to reflect inflation.
- Reps. Mike Thompson (D-CA) and Ron Estes (R-KS) reintroduced the Financing Our Energy Future Act, which would give renewable energy projects access to master limited partnerships, a tax incentive currently only available to oil, gas, and coal projects.
- Rep. Matt Gaetz (R-FL) introduced the Put Zombie Donors to Rest Act, which would require a billing address and credit verification value (CVV) for contributions to political organizations.
- A bipartisan group in the House introduced the Adoption Tax Credit Refundability Act of 2023, which would make the current Adoption Tax Credit fully refundable.
- Rep. Adrian Smith (R-NE), on behalf of the House Ways and Means Committee, introduced a resolution to encourage the Biden administration to negotiate a tax agreement with Taiwan.
- House Ways and Means Committee Chairman Jason Smith (R-MO) introduced the Defending American Jobs and Investment Act, which would impose “reciprocal taxes” in response to the Organisation for Economic Co-operation and Development’s (OECD) attempts to establish a global minimal tax. Specifically, the tax rates on U.S. income of wealthy investors and corporations in foreign countries complying with the OECD global minimum tax would increase by 5 percentage points each year for four years, after which the tax rates would remain elevated by 20 percentage points while the extraterritorial taxes are in effect.
- A group of senators introduced the Main Street Tax Certainty Act, which would make permanent the §199A 20% pass-through deduction. This deduction is currently set to expire at the end of 2025.
IN CASE YOU MISSED IT
- A Treasury Inspector General for Tax Administration audit found that due to limited resources, the IRS was unable to develop programming to adjust accounts systematically that did not timely pay on the Social Security tax deferral under the Coronavirus Aid, Relief, and Economic Security Act. As a result, penalties and interest have not been assessed on 66,839 accounts. The IRS is still identifying taxpayers who have not fully paid the required deferral and will continue to do so through at least 2024.
- The IRS issued Notice 2023-43 with guidance on the expansion of the Employee Plans Compliance Resolution System under the SECURE 2.0 Act.
- The IRS is once again reminding businesses to watch out for tell-tale signs of misleading claims involving the Employee Retention Credit. Here are the warning signs to look for.
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.