Budget and debt ceiling deal puts tax legislation in limbo

Tax Hot Topics newsletter Congress and the White House agreed on a deal to set new spending caps and raise the debt ceiling earlier than expected, eliminating two potential vehicles for renewing the temporary tax provisions known as extenders and technical corrections to the Tax Cuts and Jobs Act (TCJA).

The House voted to approve the package on July 25 and the Senate is likely to follow suit before it adjourns for its summer recess on Aug. 2. The legislation increases budget caps by roughly $50 billion for the coming fiscal year and $54 billion the following year, and suspends the debt ceiling for the next two years.

The two-year deal allows lawmakers to avoid contentious showdowns over the budget and debt through the 2020 election and well into the next Congress and possibly a new administration. However, addressing these issues before their fall deadlines raises some uncertainty for pending tax legislation. Senate Finance Committee Chair Chuck Grassley, R-Iowa, pushed unsuccessfully to attach the extender to the legislations. The Setting Every Community Up for Retirement Enhancement (SECURE) Act and technical corrections are also in need of legislative vehicle.

Tax writers in the House and Senate still must agree on the details of any tax package. Grassley has long called for extenders legislation, but House Democrats were unwilling to entertain the issue for much of the year. The Ways and Means Committee finally advanced a series of bills in June that represent an opening offer on a compromise package. The proposal would extend through 2020 nearly all of the tax provisions that expired at the end of 2017 as well as several that are set to expire at the end of 2019. In exchange, the legislation seeks to bolster the earned income tax credit, the child tax credit, and the child and dependent care tax credit by approximately $100 billion. It includes limited offsets only for the extenders and no technical corrections. Republicans will push back on such large tax cuts without offsets, and will be pursuing technical corrections and extenders without pay-fors.

Assuming Republicans and Democrats can find consensus on the two issues, the best remaining vehicle may be appropriation bills. The budget deal sets spending for the next two years, but does not actually extend government funding. Government funding must extended before current funding expires on Oct. 1. The budget deal should make process of passing appropriations bills less contentious, but controversy is still possible. Democrats claim they have an agreement against any new policy riders or “poison pills,” but nothing in the budget deal actually precludes these.

A stand-alone tax package is also possible. The House has sent the Senate two tax bills they can work from, the SECURE Act, (H.R. 1994) and the Middle Class Health Benefits Tax Repeal Act (H.R 748).

The SECURE Act, a package of retirement incentives, passed the House 417-3 in May. Tax writers originally tried to get this through the Senate by unanimous consistent, but ran into a handful of objections. It still has overwhelming bipartisan support, and lawmakers are looking for possible vehicles or avenues to enactment. The Middle Class Health Benefits Tax Repeal Act, which repeals the Affordable Care Act’s “Cadillac” tax, also passed the House by an overwhelming bipartisan majority earlier this month. The Senate version of the bill (S. 684) has 42 co-sponsors, split equally between Democrats and Republicans. It is unclear whether it will get a vote in the Senate, but Grassley has already identified it as a potential path forward on extenders.

Dustin Stamper
Managing Director
Washington National Tax Office
T +1 202 861 4144

Omair Taher
Senior Associate
Washington National Tax Office
T +1 202 861 4143

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