Capitol Hill Recap: Tax Bill Stuck in the Senate

The tax bill that last month won overwhelming bipartisan support in the House has apparently stalled in the Senate.

What Went Down:

• Tax legislation that easily passed the House is not playing out the same way in the Senate as lawmakers in that chamber grumble about its contents.
• Talks are already happening about the expiration of tax reform provisions in 2025. One discussion: How to pay for the extensions.
• The IRS gets a new lawyer.

Let’s Get To It:

Stuck in Neutral:

Legislation containing R&D expensing for domestic firms, expanding the 163(j)-interest deduction, upping Bonus Depreciation to 100%, modifying the Child Tax Credit, and other provisions, that all passed the House with resounding, bipartisan support has apparently stalled in the Senate.

The reason the legislation is stuck is because Senators want to make changes to the bill, but making those changes is not their top priority.

Funding is the top priority.

Lawmakers in both chambers of Congress are staring down a potential partial shutdown of the Federal government on Saturday. Another partial shutdown could occur the following Saturday.

Lawmakers have reportedly agreed on a spending plan. That plan must pass both chambers and be signed into law to keep at bay a partial shutdown of the Federal government. Votes on the spending plan could come later today.

There has been some talk that the tax bill that passed the House last month could be added to legislation extending Federal government funding. Some tax staffers don’t foresee this happening. They contend that the tax bill needs improvement.

They also assert that the tax bill does not have enough support to pass the Senate. Therefore, adding it to spending legislation would essentially cause the spending bill to fail, producing a partial shutdown of the Federal government. 

On another funding topic, the Senate recently approved a foreign aid package providing funds to Ukraine and Israel. Senators are now waiting to see how the House responds to the bill. They are preparing themselves for dealing with potential changes to the legislation. 

Once Senators focus on the tax bill (and assuming it’s not attached to spending legislation), they will be dealing with basically one issue: The Child Tax Credit.

Senate Finance Ranking Member Mike Crapo released a statement about how he feels about the credit.

From his statement:

“I remain concerned the CTC [Child Tax Credit] provisions undermine the work requirement and represent a significant shift… [T]he prior year’s earnings provision must be dropped and replaced with actual tax relief…”

More information about the Child Tax Credit situation was reported in last week’s Recap.

It is important to note that the bill’s business-related tax provisions are not controversial, in either the Senate or the House. The Joint Committee on Taxation summary of the legislation is here. Also, if these provisions are enacted their life is short-lived. They are scheduled to expire at the end of 2025.

Senator Crapo will only support the tax bill if a majority of Senate Republican also back the package. The rumor is if Senator Crapo is a “no” on the bill then all other Senate Republicans will oppose it as well. However, some Republican Senators are telling the press that they support the legislation. Passage will require at least nine of them supporting the package. 

It also remains unclear if the tax bill will go through committee action or head straight to the Senate floor. If Senators amend the bill, those changes must be approved by the House before the legislation can be signed into law.

Getting one chamber to approve changes made by the other chamber can be time-consuming. Also, Senate changes to the Child Tax Credit could turn some House members who originally supported the bill into opposing the bill.

In the Year 2025:

The year 2025 is roughly nine months away, but tax folks on Capitol Hill are talking about it.

Next year is when individual tax measures in the 2017 Tax Cuts and Jobs Act expire, and the debate over what to extend, modify or expire is already happening between lawmakers and tax staff.

According to the Congressional Research Service, the provisions slated to expire in 2025 include:

• Current marginal tax rates;
• The Pass-thru deduction;
• Current estate and gift tax exemptions;
• Modifications to itemized deductions;
• Modifications to the Alternative Minimum Tax.

Offsetting the cost to extend these provisions is also a discussion point – and extending them is an expensive proposition. Ten-year estimates range from $4.5 trillion to $6 trillion. And how these extensions will be paid-for (or if they will be paid-for) is unclear.

Senator Sheldon Whitehouse (D-RI.) this week said that the cost to extend these measures should be paid-for.

He suggested that revenue gained by creating a carbon tax could be used to pay for extending these provisions. (He also mentioned that it could be used to expand the Child Tax Credit.)

Legislative outlook: Enacting a carbon tax would likely require Whitehouse’s political party to hold the majority in both chambers of Congress and run the White House.

Sidenote: President Joe Biden is scheduled to deliver his State of the Union Address next week. He could discuss extending tax measures in the 2017 tax reform bill that benefit taxpayers earning less than $400,000 a year.

Important to note: The outcome of the 2024 elections will have an enormous impact on which tax provisions are extended, modified, or left to expire in 2025.

Senate Vote:

The Senate this week confirmed Marjorie Rollinson to be the next Chief Counsel at the IRS. The Chief Counsel is the IRS’s head lawyer and leads a large group of attorneys focusing on both litigation and subject matter expertise (including issuing guidance implementing tax legislation). 

Rollinson won the nomination from the Senate Finance Committee on January 31. This was the second time that the panel approved her nomination. The committee approved her for this post last November. However, she did not receive a floor vote by year-end, forcing the committee to re-appoint her.

The position of IRS Chief Counsel has not been filled since the current president took office. The agency’s current principal deputy chief counsel has been doing the job. Rollinson will be the first woman to hold the post.

Pardon if this recap missed a monumental moment, but we can recap it next time!

Adios amigos!