President Joe Biden recently pushed new tax changes in his State of the Union address, proposing to quadruple the 1% excise tax on corporate stock repurchases and resurrect a “billionaire” minimum tax.
Neither change is likely to advance while Republicans control the House. Biden provided no new information on a the “billionaire tax,” but he was presumably referring to his past budget proposal that targeted the unrealized gains of taxpayers with more than $100 million in assets. The 1% excise tax on public stock buybacks was enacted as part of the Inflation Reduction Act and took effect on Jan. 1, 2023.
House Speaker Kevin McCarthy, R-Calif., wasted no time throwing cold water Biden’s proposals, as he reinforced his promise to not raise taxes in a closed-door caucus meeting following the State of the Union.
Key members of the Ways and Means Committee echoed McCarthy’s comments on tax increases but signaled some openness to compromising on the expanded child tax credit. They expressed support for a smaller extenders package if Democrats are willing to negotiate with Republicans on work requirements for the expanded child tax credit and add Republican priorities to a package — like 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).
The comments offer some hope for resurrecting a potential deal, but negotiations over an extenders have floundered for months now. A breakthrough on the child tax credit would be needed, and other legislative issues — like the debt limit — have taken priority on Capitol Hill.
Any extenders deal may also need a broader legislative vehicle. There is some speculation that a technical correction needed for the “SECURE 2.0” legislation enacted on Dec. 29, 2022, via the omnibus spending bill (H.R. 2617), could be one option to move a tax title.
The legislation contains a drafting error that may bar individuals from making any catch-up contributions (pre-tax or Roth) beginning in 2024. The error involved the unintentional elimination of a subparagraph in the body of the legislation to allow for a conforming amendment.
While it is not yet certain if a legislative fix will be necessary, there would be major bipartisan support for such a technical corrections bill in the event it is needed. Such a bill likely would be attractive as a larger tax vehicle, potentially providing an avenue for an extenders deal.
There is also bipartisan interest in providing relief from the new Form 1099-K reporting changes. The IRS recently issued guidance postponing the new $600 reporting threshold for third-party payment networks under Section 6050W that had become effective for payments in 2022 under the American Rescue Plan Act of 2021. The $600 threshold is now scheduled to be in place for 2023, and there may be bipartisan support for raising it (for more information about the 1099-K requirements, see our prior story, “IRS delays $600 threshold for 1099-K reporting.”
Neither the Form 1099-K relief or catch-up contribution fix needs to be addressed immediately. Congress could wait until late this year to address them, which would rob lawmakers of a potential near-term vehicle to move other tax priorities.
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