Tax bills hang in balance of spending deal

Tax Hot Topics newsletterCongress is expected agree on a short-term spending deal this month, a move that could bolster the odds of pending tax legislation being passed by year’s end.

Lawmakers approved a bill in July that set new spending caps and raised the debt ceiling for the next two years, but stopped short of actually extending government funding before it expires on Oct. 1. With a possible government shutdown now looming and Republicans and Democrats still far apart on appropriations, Congressional leaders have indicated they will likely pass a continuing resolution to keep the government open at existing funding levels until a long-term agreement can be reached.

The delay would buy time for the top tax writers in the House and Senate to find consensus on tax priorities to potentially add to an omnibus spending deal. The tax priorities with the most likely chance of enactment include the tax extenders, a very limited set of technical corrections to the Tax Cuts and Jobs Act, and retirement incentives.

The House Ways and Means Committee approved a bill along party lines in June that would renew all of the extenders that expired in 2017 and those set to expire at the end of this year. The bill proposed paying for it by accelerating the expiration of the increased estate and gift tax exclusion by three years. This was dismissed as a non-starter by Senate Finance Committee Chair Chuck Grassley (R-Iowa), although he has hinted that the lines of communication are still open. Ways and Means Chair Richie Neal (D-Mass.) has indicated he is not wedded to revenue offset.

Technical corrections will be more difficult, as Democrats continue to resist efforts to help fix a bill they had no say in writing and which they are campaigning to repeal or adjust. However, a handful of changes agreeable to Democrats, like a fix granting bonus depreciation for qualified improvement property, remain very possible.

The SECURE Act (H.R. 1994), a package of retirement incentives, is another possibility. Efforts to fast-track it by unanimous consent have been stymied by a handful of holdouts, but it remains popular and could be attached to other tax legislation. The Middle Class Health Benefits Tax Repeal Act (H.R 748), which repeals the Affordable Care Act’s “Cadillac” tax, has 62 Senate co-sponsors, but it is uncertain whether Senate Majority Leader Mitch McConnell will bring it to the floor.

A spending package presents the last must-pass legislation for Congress this year and is perhaps the most viable vehicle for extenders, technical corrections and other outstanding tax items. Without it, Congress would likely have to bundle all pending tax legislation into a separate stand-alone package. The House has sent the Senate two tax bills they can work from, both of which passed with overwhelming majorities and enjoy strong bipartisan support in the Senate.

Congressional leaders have indicated that a stand-alone tax package could make it onto Congress’s year-end agenda. However, the lack of urgency around tax issues would make the bill more susceptible to falling by the wayside, particularly if other unforeseen issues emerge.

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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