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TAX TAKE: Who's Gonna Drive You Home Tonight? Drivers for the Lame Duck Tax Package

Tax Alert

As policymakers and taxpayers turn their attention to a potential lame duck tax package, #TaxTake is focused on what provisions will really drive consideration of a tax title to any year-end legislation. Although the to-do list of potential tax items is quite long, traditionally one or two provisions serve as the catalyst for a year-end package. These provisions generally have significant bipartisan support, are often time-sensitive in nature and have a relatively tolerable fiscal impact. In the past, specific components of the so-called extenders package – such as the extension of then-temporary research and development (R&D) tax credit and individual AMT patch – traditionally served as the drivers of annual year-end tax packages. So, what will be the drivers for a year-end package in 2022?

The most likely candidate is the R&D amortization fix, which was addressed in the House-passed version of the Build Back Better Act (but ultimately not included in the Inflation Reduction Act) despite being a creation of the 2017 Tax Cuts and Jobs Act. Indeed, the R&D amortization fix checks all the boxes – (i) it has significant bipartisan support, with introduced bills in the House and Senate, both having a significant number of bipartisan co-sponsors, (ii) it is time-sensitive as taxpayers have been subject to R&D amortization since the beginning of this year, and (iii) it has a relatively low revenue impact (a four-year extension through 2025 in the House-passed BBBA was scored at a $4 billion revenue cost).

Another likely candidate is not a single provision but a series of provisions – the pending retirement security package. Retirement security has been under consideration for quite some time with significant bipartisan support, as evidenced by a 414 to 5 vote of a House-passed package, and unanimous votes of similar packages passed by both the Senate Health, Education, Labor and Pensions Committee and the Senate Committee on Finance. And while arguably not as time-sensitive as the R&D amortization fix, which needs immediate retroactive relief for 2022, the retirement security package is a priority of both House Committee on Ways and Means Ranking Member Kevin Brady (R-TX) and Senator Rob Portman (R-OH) – two long-time champions of the package who are both retiring at the end of the year and view its passage as a legacy item. In addition, the retirement security package is expected to be fully paid for, making it quite attractive from a fiscal perspective.

It is hoped either the R&D amortization fix or the retirement security package becomes the driver for a lame duck tax title that can be a legislative vehicle for a wider group of tax priorities to be considered and enacted before year-end. #TaxTake

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