Tax legislative roundup: Government funding, Taiwan, extenders

Congress is returning to a slew of unfinished priorities and with little time to address them. The immediate focus will be on government funding, but lawmakers are also still considering various tax priorities.

Government funding

The House and Senate have reconvened and with just 18 days before government funding is set to expire. With the 12 appropriations bills nowhere near completion, lawmakers are all but certain to need a continuing resolution (CR) to keep the government funded beyond Sept. 30. House hardline conservatives are already lodging objections and demanding policy concessions in order to support a CR. The Democratic Senate is unlikely to agree to concessions, raising the possibility of shutdown. House Speaker Kevin McCarthy, R-Calif., could roll conservatives by securing Democratic support for a short-term CR, but risks losing his leadership in the blowback. The result could be Congress a series of short-term funding extensions consuming much of the fall, a maneuver that dampens prospects for a tax agreement. A single long-term omnibus spending bill would be a better vehicle to carry a tax package.

Aviation taxes

Authorization and funding for the Federal Aviation Administration is also set to expire on Sept. 30 along with the excise taxes that fund the FAA. An extension of both the FAA and the related taxes are likely, which would include the following taxes: 

• 3-cents-per-gallon excise tax on noncommercial aviation gasoline
• 8-cents-per-gallon excise tax on noncommercial aviation kerosene
• 5% tax on the base ticket price
• $4.80-per-person domestic segment tax for a single takeoff and landing (indexed for inflation)
• $21.10-per-person international travel facilities tax for flights that begin or end in the U.S. ($10.60 for a flight that begins or ends in Alaska or Hawaii, indexed for inflation)
• 25% tax on the amount paid for transporting property by air

Business extenders

Discussions over a tax package have been subsumed by the more urgent spending fights. The two sides appear no closer to an agreement to trade child tax credit (CTC) enhancements for restoring research expensing under Section 174, reinstating 100% bonus depreciation, and providing relief for the Section 163(j) limit on interest deductions. Republicans have signaled they are open to child tax credit relief and Democrats have acknowledged this relief must be proportional to the business provisions. But there are still many hurdles that could scuttle a deal, including Republican demands for CTC work requirements and deficit concerns.

Taiwan tax benefits

The prospects are better for legislation to confer treaty-like benefits to Taiwan. The Senate Finance Committee is looking to quickly mark up their draft legislation soon, which has bipartisan support. The effort is complicated by competing legislation form the Foreign Relations Committee that would instead allow the administration to negotiation a tax agreement with Taiwan.

Republican target tax-exempt political activity

House Ways and Means Chair Jason Smith, R-Mo., issued an open letter criticizing the political activity of some tax-exempt organizations and asking for public input. Hearings and draft legislation addressing the issue are possible this fall.

Other priorities

Lawmakers are also considering housing legislation that could include tax credits, technical corrections to recent retirement tax provisions, and legislation raising the threshold at which Form 1099-K reporting is required for third-party payment networks under Section 6050W. The current political climate makes housing legislation very difficult. The need for retirement technical corrections was greatly reduced by recent IRS guidance. It’s also possible the IRS extends Form 1099-K relief and relieves pressure for Congress to act.