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TAX TAKE: One Step Up and Two Steps Back

Tax Alert

Last week, Congress took a step forward on resolving its spending disagreements and two steps back on tax policy.

On spending, Congress approved legislation (H.R. 7643) that avoids a partial government shutdown otherwise set to occur last weekend. In doing so, House Speaker Mike Johnson (R-LA) secured more time to resolve differences over Fiscal Year 2024 funding levels and related policy demands by some in his caucus. The two main tranches of federal spending are now extended through March 8 and March 22. 

On tax policy, however, the House-passed Tax Relief for American Families and Workers Act (H.R. 7024) got a big reality check in the Senate from Finance Committee Ranking Member Mike Crapo (R-UT). The bill includes just under $80 billion in tax relief, roughly divided between tax extensions for businesses and an expansion of the child tax credit (CTC). In several statements last week, Sen. Crapo threw up a thicket of concerns with the bill, including an ultimatum on the CTC.

"Allowing individuals to receive a refundable credit when they have zero annual earnings – as the prior year's earnings provision allows – is a departure from longstanding policy tying the CTC to work," Sen. Crapo warned. He said this provision "must be dropped and replaced with actual tax relief."

Sen. Crapo criticized the decision by Senate Finance Committee Chairman Ron Wyden (D-OR) and House Ways and Means Committee Chairman Jason Smith (R-MO) to assemble the legislative package without his participation. "[E]fforts to pressure the Senate to 'take it or leave it' and categorically dismiss a Senate regular order process have only amplified calls for changes and amendments," he said. "This was the risk of announcing a deal without my support and with no near-term path forward in the Senate."

Sen. Crapo has also raised concerns about making CTC changes that affect the current tax-filing season, which is already half over. He also suggested adding to the bill an unspecified number of additional tax extensions and a needed correction to the rules for catch-up contributions to retirement accounts.

Sen. Thom Tillis (R-NC) also came out swinging with an op-ed in the Wall Street Journal arguing against the CTC expansion. "The fundamental problem with the bill is that Republicans made a major concession to Democrats—allowing the child tax credit to begin to transition into a de facto welfare program...," he wrote. He also winced at scoring the elimination of the Employee Retention Credit as new revenue because the program was initially enacted without an offset. "It's like paying off a credit-card balance with another credit card."

It is worth noting that Sen. Tillis, while taking a partisan line on the Tax Relief for American Families and Workers Act, was one of only six Republicans to vote to confirm Marjorie Rollinson as the next IRS Chief Counsel. She won confirmation last week on a 56-41 vote. Fellow GOP tax writer, Senator Bill Cassidy (R-LA), also voted to confirm. It's not a step forward on tax policy per se, but we'll take it as a sign that bipartisanship is still alive in Congress. #TaxTake

Upcoming Speaking Engagements and Events

Loren will speak at the Federal Bar Association 2024 Tax Law Conference on March 5, 2024. She will present, as a part of a panel, "The Interaction of Pillar Two and the Foreign Tax Credit."

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