Lawmakers spin wheels on debt limit, express hope on tax extenders

 

Negotiations over raising the debt limit have made little progress, but key tax writers in both parties expressed openness to a future deal on tax extenders.

 

The debt limit is still dominating Capitol Hill and making it more difficult for any other legislative priorities, despite the lack of substantive negotiations. House Speaker Keven McCarthy, R-Calif., said recently that he had not met with the White House on the topic since early February.

 

Further complicating matters, the Congressional Budget Office published updated estimates last month indicating the U.S. could reach its debt limit as soon as July, and indicated that federal budget deficits are growing to historically high levels faster than previously forecast. The debt limit likely needs to be resolved before any deal is possible on the tax extenders, but congressional leaders are signaling new optimism on a potential future tax deal.

 

Democrats and Republicans have been discussing trading enhancements to the child tax credit for key business provisions, including 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).

 

One of the biggest obstacles has been matching the costs of proposals on both sides. Senate Finance Committee Chairman Ron Wyden, D-Ore., said last week, “We’ve talked about a balanced kind of approach. We’ve got to get this done.”

 

House Ways and Means Committee Chairman Jason Smith, R-Mo., also expressed optimism. “I feel very confident that we can find common ground with the Child Tax Credit getting some very good feedback from folks on the other side of the building, but also on our side of the building,” Smith said. He further noted that while the final product is tough to predict, there are “open grounds of communication right now” and there may be opportunities to find common ground with Wyden on housing tax credits.

 

Any extenders deal also would likely need a broader legislative vehicle. Other tax priorities that could drive action include a technical correction needed for the SECURE 2.0 legislation to allow catch-up contributions in 2024 and potential relief from new Form 1099-K reporting thresholds.

 

Neither issue needs to be addressed until the end of the year, however.

 

There has been speculation that lawmakers could attach tax provisions to the upcoming “farm bill” (the reauthorization of the Agriculture Improvement Act of 2018), or the reauthorization of the Federal Aviation Authority (the “FAA bill”).

 

Lawmakers generally try and keep these bills “clean” of extraneous provision, and timing is also an issue. Neither the FAA bill nor the farm bill needs to be passed before Sept. 30, 2023 — when federal government funding is also set to expire. It is possible lawmakers do not have any opportunities to move a bipartisan tax extenders package until the end of the year. Given the legislative uncertainty, taxpayers should be preparing returns and making payments based on current law.

 

 

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