Key Takeaways
- Journalists have reported as news a rumor from last week that a tax bill could pass Congress by year-end.
- Senate Committees lash-out at wealthy tax cheats, but it won’t likely matter.
Last week’s Capitol Hill Recap led with a rumor that that tax bill was in the works. Articles are now reporting the same thing.
What Went Down:
- Journalists have reported as news a rumor from last week that a tax bill could pass Congress by year-end.
- Senate Committees lash-out at wealthy tax cheats, but it won’t likely matter.
Let’s Get To It:
Reporting Rumor:
Last week’s Capitol Hill Recap reported a rumor that lawmakers were looking to pass tax legislation by year-end. Publications this week are reporting this rumor as news.
Republicans are looking to move $35 to $40 billion of business relief in an end-of-year tax bill, which Senate Democrats are hoping to match dollar-for-dollar with an expanded Child Tax Credit, Rep. Kevin Hern (R-Okla.) said Tuesday.
Strong candidates for that pot of money would include greater flexibility on business interest expensing, an extension of bonus depreciation and restoring immediate deductions for research and development expenses.
Bloomberg ($)(scroll down):
House Ways and Means Chair Jason Smith (R-Mo.) crossed the Capitol Thursday and spent time on the Senate floor, where he was spotted chatting with several senators.
The move was unusual because members of the House and Senate typically spend a majority of their time working in their own chambers. Smith demurred on why he was at the Senate vote, but said his discussions with Finance Chair Ron Wyden(D-Ore.) on a potential year-end tax deal were positive.
Adding to the idea that a tax bill could pass by year-end is the fact that Senator Elizabeth Warren (D-Mass.) on November 9th blasted lawmakers for wanting to move tax legislation. She criticized them for wanting to move a bill that would include R&D expensing, expand the 163(j)-interest deduction (from EBIT to EBITDA), and up Bonus Depreciation to 100%.
Normally, lawmakers don’t criticize legislation that isn’t moving.
Still, for tax legislation to get a vote in both chambers a couple of hurdles must be cleared:
- Get nearly all House Republicans to agree on a SALT cap.
- Get most Senate Democrats to agree on a Child Tax Credit expansion that Senate Republicans could also support.
Getting agreements on these two issues will not be easy but is paramount to passing a tax bill from Congress.
Businesses and business organizations are sensing that action on tax legislation could be in the offing and have upped pressure on lawmakers to support the passage of a tax bill this year.
The current thinking is that a tax bill could be attached to a spending bill, which creates another problem.
House and Senate leaders are not on the same page when it comes to passing spending legislation. Meanwhile, funding for the Federal government ends on November 17th – which is roughly one week away.
Legislative Outlook: The chambers must agree on the same spending bill for tax legislation to be added to it. Also, spending bills that include tax provisions are normally large spending bill, like an omnibus spending bill that funds the Federal government for an entire year.
If lawmakers chose to pass short-term funding bills, then the odds decrease that tax legislation will be added to spending legislation. (It’s not that tax legislation couldn’t be added to a short-term spending bill, it’s that it has not happened in the past.)
If a tax bill does not pass Congress by year-end, lawmakers and staffers on both tax-writing committees have said that the next opportunity to pass tax legislation will be 2025, which is already expected to be a doozy when it comes to tax legislation.
The individual tax provisions in the Tax Cuts and Jobs Act expire at the end of 2025. Efforts to extend at least some of them will be a huge undertaking for that year.
Senators Talk Tax:
Two Senate Committees held hearings this week that aimed for the jugular when it comes to wealthy taxpayers paying their fair share.
The Senate Finance Committee on November 9th held a hearing about taxing the rich.
One of the main tax issues raised during the hearing was taxing unrealized capital gains. Senate Finance Chairman Ron Wyden (D-Ore.) pushed the idea of “mark-to-market” taxation. Under this proposal, assets would be pegged at fair market value annually and then taxed at that value, whether or not a gain has been realized.
“Put simply: mark-to-market would require billionaires to pay tax every year, just like everyone else,” Wyden said.
Senate Finance Ranking Member Mike Crapo (R-Idaho) noted that unrealized capital gains are not just for the rich. He stressed that middle-income and lower-income taxpayers also have unrealized capital gains and applying mark-to-market taxation to their assets would likely require them to sell the asset to pay the tax. This could badly affect homeownership.
Crapo also noted that all lawmakers are opposed to tax evasion.
“We should dispel the notion that there is any support for taxpayers who evade their tax obligations; we all agree taxpayers should pay the tax they legally owe,” he said.
Another issue raised at the hearing was extending tax breaks in the 2017 tax reform bill for taxpayers earning less than $400,000 a year. These tax provisions are scheduled to expire in 2025.
Currently, there is bipartisan, bicameral support to extend these tax breaks – assuming that lawmakers can agree on how to define the income.
It was noted in the hearing that the Biden Administration (and many congressional Democrats) want to extend the reduced rates for taxpayers who earn less than $400,000 a year in “total positive income.” Here’s the problem: there is no agreed-upon definition for what this phrase means.
Committee Member Marsha Blackburn (R-Tenn.) asked witnesses at today’s hearing to define “total positive income” and none could. Chairman Wyden said that he would speak with the Administration about defining the phrase.
Based upon how this phrase is defined will likely determine if bipartisan, bicameral support will continue to extend these tax breaks. If Republicans disagree with the Administration’s definition, then there could be tumult over extending these tax breaks for lower income-earners.
The other congressional panel that examined taxing the rich this week was the Senate Budget Committee. It held a hearing on November 8th on how wealthy taxpayers are cheating the federal government from revenue.
The bottom line to this hearing was that more money going to the IRS would allow greater tax enforcement. Basically, every extra dollar the IRS gets from Congress would result in a $3.00 increase in revenue to the federal government. Democrats on the Committee want to give more money to the IRS to allow the agency to enforce tax laws.
Yay?
Here’s the thing: The Senate Budget Committee does not have the jurisdictional authority to pass tax legislation. The Senate Finance Committee can pass tax legislation, but turning that bill into law is a different matter.
Legislation that modifies tax law must begin in the House; specifically, the House Ways and Means Committee. That panel is currently run by Republicans who are more focused on cutting taxes than increasing them, which was the primary focus for both Senate hearings.
Legislative Outlook: The hearings in the Senate Budget and Finance committees should be considered “messaging” hearings. Their primary goal was to chum-up attention on how wealthy people avoid paying taxes. These hearings were not about passing legislation.
Pardon if this recap missed a monumental moment, but we can recap it next time!
Adios amigos!