Lawmakers prepare for frantic July

 

While Congress remains in recess until next week, a plethora of legislative priorities await lawmakers’ return to Washington. And even though midterm elections are roughly four months away, there is precious little time before many lawmakers shift their focus from legislating to campaigning. The House is scheduled to return for roughly three weeks before adjourning on July 29 for its August recess, while the Senate is tentatively in session for approximately four weeks before adjourning on Aug. 5 for its August recess. Below are some of the major outstanding legislative priorities lawmakers are hoping to tackle this month.


 

Reconciliation bill

 

Senate Majority Leader Chuck Schumer, D-N.Y., and key reconciliation holdout Sen. Joe Manchin, D-W.V., have re-engaged in negotiations over a potential new, slimmed-down reconciliation bill that could include as much as $1 trillion in tax increases. However, it remains unclear how serious Manchin is about a potential deal, and whether the rest of the Democratic caucus would agree to what Manchin is demanding. Any reconciliation bill must be passed before the government fiscal year ends on Sept. 30, but realistically, a break-through would be needed much sooner—with the next few weeks before Congress’ August recess proving the most pivotal period for the reconciliation bill to date.


 

Innovation legislation

 

In addition to a potential reconciliation bill, 107 lawmakers from both the House and Senate will spend the next several weeks continuing their negotiations on the innovation bill currently in conference—however, hopes that committee will restore expensing of research and experimentation (R&E) costs and create a tax credit for semiconductors have dimmed in recent weeks.

The underlying innovation bill is with a formal conference committee charged with merging the Senate-passed version of the United States Innovation and Competition Act (USICA), with the House-passed bill known as “America COMPETES.” Neither underlying bill currently carries a tax title, but that does not preclude the conference committee from adding one in conference. Nevertheless, Schumer and House Speaker Nancy Pelosi recently discussed setting aside issues on which the two chambers and two parties won’t find consensus—such as tax and trade issues—choosing to instead focus on areas where they can find ultimate, and speedy, agreement.

The timeline for completion of the conference committee and final passage of the updated legislation remains uncertain. Negotiators and leadership failed to get agreement by their initial goal of July 4, but they remain hopeful that the ultimate legislation can pass before the August recess. Still, potential additions and revisions to the underlying bills could take weeks—if not months—to resolve.


 

SECURE 2.0

 

The Senate Finance Committee on June 23 unanimously approved a $45 billion plus package of bipartisan retirement tax provisions, clearing the way for lawmakers to begin reconciling the bill with separate House and Senate versions.

There are now three separate bills in the House and Senate covering retirement tax incentives. The House passed the Securing a Strong Retirement Act of 2022 in a 414-5 vote on March 29. Two separate Senate committees have now passed companion versions. The tax provisions are generally covered in the Enhancing American Retirement Now (EARN) Act that just passed the Senate Finance Committee (SFC). The Senate Health, Education, Labor and Pensions Committee (HELP) has also approved legislation that addresses auto-enrollment rules.

The legislative effort together is commonly referred to as SECURE 2.0 because it builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act enacted in 2019. Lawmakers will now look to reconcile the three bills. The SFC and House bills share core tax provisions, including:

  • Requiring catch up contribution to be Roth contributions
  • Raising the age for required minimum distributions from 72 to 75
  • Lowering the threshold for part-time workers to qualify for participating in retirement plans
  • Allowing employers to make matching contributions based on employee student loan repayments

The bills also include several similar provisions with key differences, including:

  • Encouraging (Senate) or mandating (House) auto-enrollment
  • Increasing catch-up contribution limits
  • Increasing the Saver’s Credit
  • Increasing the small employer startup credit

The overwhelmingly bipartisan support for all three versions bodes well for the chances of a package being enacted later this year, but hurdles remain. Lawmakers will likely begin trying to resolve the differences in their bills and attach the legislation to another vehicle later in the year.

 

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