Cautious optimism has continued to grow around a bipartisan deal to revive several popular business tax provisions that changed in 2022 and 2023.
House Ways and Means Committee Chair Jason Smith, R-Mo., and Senate Finance Committee Chair each made recent comments to the press indicating that chances have improved for reaching a deal to restore research expensing under Section 174, reinstate 100% bonus depreciation and provide relief for the Section 163(j) limit on interest deductions. Democrats have been negotiating on a deal that would trade business tax benefits for child tax credit relief and Wyden recently indicated he may also be willing to accept housing tax incentives. A recent agreement on technical corrections to the retirement reform law known as SECURE 2.0, though an easier legislative lift than extenders, indicates that all sides are at least talking and able to work with each other, which should not be taken for granted in this current Congress.
With few vehicles left to carry a tax title in 2023, tax writers appear focused on reaching an agreement in early 2024, potentially to attach to the spending agreements that will be needed before government funding expires on Jan. 19 and Feb. 2.
Despite the renewed optimism, many challenges remain. Concerns around the U.S.’s overall fiscal situation on the political right could erode support for an expensive tax cut package. There are no easy revenue offsets to pay for a package that could approach $100 billion if all three business provisions are extended retroactively through 2025 and Democrats negotiate equivalent tax benefits. Congress could also consider a smaller package that only addresses the business provisions prospectively or only addresses R&E expensing under Section 174, which is the most popular provision. There are also still major policy differences between Republicans and Democrats on the scope of potential child tax credit relief and the need for work requirements.
The calendar is also working against tax writers. The further Congress gets into 2024, the harder a deal becomes as another filing season is set to open, campaign politics become more prominent, and the benefit of retroactive changes begins to appear less helpful. The next eight weeks may be Congress’ last change to address the provisions before 2025.
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