Close
Close

Budget and debt ceiling deal puts tax legislation in limbo

RFP
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.

Contacts:
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

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.