TAX TAKE: BBBA: It Ain't Over 'Til It's Over… But What Happens in the Meantime?
With the voting rights bill taking center stage on the Senate's agenda for at least the next couple of weeks, those focused on tax policy matters have shifted their attention to other potential legislative vehicles on which tax provisions might have the opportunity to ride. Which brings us to the omnibus appropriations legislation on tap for Congress's consideration next month, when the continuing resolution to fund the federal government expires on February 18 and the temporary measure to lift the debt ceiling may well also require Congressional action. Many are anticipating (hoping?) that the tax writing committees will shift their attention to constructing a package that could be added to the omnibus bill. Given that this would be a non-reconciliation vehicle, it is uncertain whether the parties can work together in a bipartisan fashion to agree on the constructs of a tax package, particularly since the cost of the package will likely need to be paid for with offsetting tax increases.
Assuming a package can move forward, the question becomes what provisions have bipartisan support, making them likely candidates for inclusion. A "base" of the package is likely the "extenders" package of temporary tax relief provisions that expired at the end of 2021. In addition, there are a myriad of bipartisan retirement incentive proposals that could also be considered for inclusion. Also top of mind are two key TCJA "extenders" (more like built-in cliffs): the transition from the full deductibility of R&D expenditures to a five- or 15-year amortization schedule (which was included in the House-passed BBBA bill) and the shift from EBITDA to EBIT when calculating adjusted taxable income for purposes of determining the amount of allowable interest expense that can be deducted under section 163(j). Whether the R&D provision would be pulled from the pending BBBA bill and moved to a potential omnibus package will be an interesting political calculation for Democrats to consider but may open the door for other BBBA provisions that have bipartisan support to be considered as well. On one hand, inclusion of any BBBA provisions may be interpreted as a sign of uncertainty that BBBA will move forward. On the other, Democrats may be reluctant to hold up provisions that have significant bipartisan support. The tax-writing committees could also consider going much broader to include technical corrections as well the "extenders" package scheduled to expire at the end of 2022, which includes the beginning of the TCJA-scheduled phase down of 100 percent bonus depreciation beginning next year, although in all likelihood those provisions are likely to be addressed in a year-end lame duck package.
We here at #TaxTake have more questions than answers this week, but we suspect that we're not alone. This is a pivotal time for the Administration and Congressional Democratic leadership to consider what they would like their legislative achievements to be as they shift their attention to the midterm election season. With over 20 Democratic House members having moved into the Administration, running for other office, or retiring, this will be a busy campaign season as they seek to retain control of the House. Meanwhile, Senate Majority Leader Chuck Schumer (D-NY) is threatening to amend the filibuster rules if they cannot garner enough support to pass the voting rights bill, which could of course come back to bite the Democrats should they lose their very slim majority in the Senate. All that to say, the calculus for a legislative win ahead of what promises to be a brutal election cycle becomes even more calculated. Stay tuned – we think if nothing happens with the BBBA in Q1 of 2022, nothing will happen at all – and any early signals of tax legislation that may pass (or not) outside of this bill could portend its demise (or not) going forward. #TaxTake
In the News
In comments to CNBC, Jorge discussed the future of the enhanced child tax credit. "If you significantly dial back child tax credit relief, is this the right time?" Jorge asked. He noted that the current spike in Covid-19 cases could cause Congress to rethink its priorities once both houses return to session.
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