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House Tax Bill Racing Toward Floor Vote but Has a SALT Problem

Posted on June 16, 2023

A $200-billion-plus GOP tax bill could reach the House floor as early as the week of June 19, though strife within the Republican caucus could push the vote until after Congress’s July Fourth recess.

Between a debt limit imbroglio that consumed the first five months of the year and a long summer recess, negotiating time grows short for those who want a tax bill featuring a return of full research and development expensing attached to must-pass legislation this autumn.

“If we don’t get it done next week, then we’re out of here for two weeks,” said senior House Ways and Means Committee member Mike Kelly, R-Pa. After that recess, the House reconvenes July 11 for three weeks and then takes a six-week recess until September 12.

“We don’t have that many days left; that’s the trouble,” Kelly said.

Other committee Republicans, who met the morning of June 15 as a caucus, confirmed that the hope is to bring the bill to the floor the week of June 19, if possible. Otherwise, July becomes the target. Besides the R&D measure, the bill has provisions to delay the bonus depreciation phaseout beginning this year, roll back 2022’s tightening of net interest deductibility, and temporarily boost the standard deduction.

Muddying the picture is a slowdown on the House floor because of a flap within the GOP caucus over the recent debt limit deal. Another hurdle will be to win support from Republicans in high-tax states who want a boost in the $10,000 deduction cap on state and local taxes to be included in the legislation.

Republicans hold a 222-212 majority and can afford to lose only five votes since Democrats are expected to universally oppose a tax package that would repeal more than $200 billion worth of energy tax credits in the Inflation Reduction Act (P.L. 117-169).

House passage of the bill would set up a replay of last year’s long and unsuccessful negotiations to pair the business tax provisions with an expansion of the child tax credit. Republicans, though, would be in a stronger position this year since Democrats controlled both chambers in the last Congress. Plus, House Republicans would be the only party with legislative text that has already passed one chamber that could be inserted into a compromise package.

Another meeting that occurred June 15 was between Ways and Means Committee Chair Jason Smith, R-Mo., and Republican members of the SALT Caucus, which relaunched earlier this year with 10 House GOP members, more than enough to sink the package.

Rep. Marcus J. Molinaro, R-N.Y., a SALT Caucus member, said the group had a “robust conversation” with Smith.

“I look forward to continuing the conversation,” Molinaro said. “Chairman Smith obviously heard us and is willing to continue to listen, and we will continue to talk with him.”

The SALT Caucus, however, is headed in the opposite direction from the path chosen by the majority of Republicans. The Republican Study Committee, which boasts a large majority of House Republicans among its members, released its proposed fiscal 2024 budget June 14, which would bar the deduction of any state and local taxes from federal taxes.

Prepping for Negotiations

“They might be trying to go to the floor as early as next week,” PwC’s Rohit Kumar said of House GOP plans, while noting that lingering hard feelings among Republicans from the debt limit bill have made the House floor a “somewhat chaotic venue.”

That was also a problem for former House Speaker Nancy Pelosi, D-Calif., who had an even narrower majority and postponed votes on Democrats’ giant Build Back Better tax package at least twice in late 2021 amid revolts by moderates and the SALT Caucus’s Democratic members.

If Republicans can’t pass the bill the week of June 19, they’ll need to pass it before the August recess, Kumar said. Another critical date is September 30, which is the end of the federal fiscal year and also marks the expiration of federal authority to collect aviation excise taxes, including those on airline tickets.

A tax bill could “hitch a ride” on a spending bill, Kumar said on PwC’s Policy on Demand webcast. But it’s been more than a quarter of a century since Congress last finished its spending bills by September 30. Kumar suggested another option would be if the Federal Aviation Administration reauthorization bill also doesn’t pass in time, necessitating a bill to temporarily reauthorize aviation excise taxes. That would be a revenue bill and therefore a potential vehicle for a tax package.

While Kumar gives “better than a 50-50 shot” that Congress will pass a tax bill this year, he said the odds are that it will happen between Thanksgiving and the end of the year rather than in September.

If the House package does pass the week of June 19, or in July, “the next thing that will happen — which will be sort of behind the scenes — is those necessary conversations” about the child tax credit, low-income housing tax credit, and other proposals that didn’t make it into the House bill, he said.

In the Senate, Finance Committee Chair Ron Wyden, D-Ore., said he had expected the House tax bill to be one-sided. But Wyden, who said he had a “constructive lunch” with Smith in recent weeks, voiced openness to negotiations about middle-ground options should the bill pass the House and make its way to the Senate.

“I have sensed for a long time that they are going to pass a partisan, Republicans-only bill,” Wyden said June 15. “And after that, there will be an opportunity, if they want to, to talk about something that will be proportional.”

Wyden stressed that expanding the child tax credit remains a top priority for Democrats, echoing the sentiment from a June 14 hearing on the subject. For those talks to go anywhere, Democrats will have to consider concessions on strengthening work requirements for the credit, as both Senate Republicans and Smith have called for.

Paying the Piper

“Clearly they’re trying to place a marker down, anticipating negotiations with the Senate,” Ron Kind of Arnold & Porter Kaye Scholer LLP said of the rush to get a GOP tax bill through the House.

Smith’s past comments about a willingness to consider a child tax credit provision in negotiations and the wide bipartisan support for the R&D measure will aid in those talks, Kind said.

But the former longtime Ways and Means Democrat sees two problems emerging in negotiations. First, the parties will “find themselves back in the same argument” as in last year’s negotiations, when the same issues were on the table — the three Tax Cuts and Jobs Act-related business tax breaks and an expansion of the child tax credit, Kind said.

Second is that Senate Democrats will reject using a rollback of the Inflation Reduction Act energy tax credits to pay for the package. Democrats, though, have a rule requiring that tax cuts must be offset with spending cuts or revenue raisers. House Republicans only have a rule requiring that any mandatory spending increases must be offset with spending cuts.

“The problem is the pay-for,” said Kind, who voted against a 2019 Democratic child tax credit bill because it wasn’t paid for. “I don’t see their pay-for in the House bill flying in the Senate.”

If those energy tax provisions are stripped out, as expected, and not replaced with other offsets, that could make it hard for House Democrats to support a compromise when it comes back to the House possibly needing Democratic votes to pass.

“The trade last year on credits — child tax credits versus more corporate tax breaks — didn’t go very far,” said Ways and Means member Lloyd Doggett, D-Texas. “Frankly, I have some concern about a trade that simply borrows the money to do both. I want to see the child tax credit, but I want to see a fully paid-for child tax credit.”

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