House Speaker Kevin McCarthy, R-Calif., last week unveiled a proposal to address the debt limit that would rescind $70 billion in IRS funding and repeal the energy credit changes enacted in the Inflation Reduction Act (IRA).
The Limit, Save, Grow Act of 2023 stakes out a negotiating position for House Republicans in the ongoing tug of war over the debt limit. Without legislation, the U.S. is currently projected to default sometime between July and September. The Republican bill is primarily focused on spending but does seek to reverse two major tax provisions from the IRA. It would rescind approximately $70 billion of the $80 billion originally provided by the IRA. There is no official score yet for the Republican bill, but this provision will likely be scored to increase the deficit. The latest numbers from the Congressional Budget Office projected that the $80 billion in IRS funding would bring in an additional $190 billion in revenue, for a net deficit cut of around $110 billion.
The bill would achieve significant savings by essentially repealing the entire energy credit package from the IRA. The IRA enhanced, extended, and created dozens of energy incentives, and these changes were estimated at the time to cost more than $250 billion.
The GOP bill also includes spending provisions that would:
- Cut discretionary spending and cap future growth to 1% for 10 years
- Rescind unspent COVID-19 funding
- Repeal the White House student loan forgiveness plan
- Expand work requirements for food assistance and other government benefits
Any debt limit legislation must pass the Democratic Senate and be signed by the president, so the Republican bill has little or no chance of being enacted as written. If Republicans can pass it in the House, however, it may increase their leverage in negotiations with President Biden. They are currently whipping votes with the hope of passing it this week. Given their House majority of only 222 to 213, Republicans can only lose four votes and still pass it if Democrats are unified in opposition.
President Biden has so far largely declined to engage in substantive discussions, arguing that Republicans shouldn’t be holding the debt limit hostage for policy gains. Democrats may ultimately have to make concessions, but seem unlikely to entertain reversing their tax proposals, which form the core of their signature policy achievement. Democrats have not yet counter-offered any of their own proposed tax increases, which Republicans would themselves seem unlikely to accept.
Negotiations over expired tax provisions remained quiet, as lawmakers wait to sort out the thorny politics of the debt limit before engaging on tax policy in earnest. House Ways and Means Committee Chair Jason Smith, R-Mo., is reportedly preparing an economic growth package that could include retroactively restoring expensing of research and experimental costs under Section 174, extending 100% bonus depreciation (which reverted to 80% for property placed in service after 2022), and retroactively providing relief from the limit on interest deductions under Section 163(j). But this may largely be a messaging exercise as Democrats remain committed to securing child tax credit enhancement in exchange for these priorities.
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