February 2024 Policy Pulse

While it’s been a busy few weeks on Capitol Hill, the tax policy items we’re tracking all remain in process. The Senate is considering a substantial bipartisan tax deal, the House is likely to bring a state and local tax (SALT) cap reform bill to the floor in the coming days, and both chambers are staring down an upcoming federal government funding deadline.

Bipartisan tax deal

On Jan. 31, 2024, the House of Representatives voted 357-70 to pass the Tax Relief for American Families and Workers Act of 2024 with decisive bipartisan support. The $78 billion deal, which we explore in more detail in Bipartisan tax deal framework released, contains enhancements to the child tax credit and reinstates several business tax provisions including:

• Expensing of domestic research and experimental expenditures (§174)
• A more taxpayer-favorable calculation of the business interest expense limitation (§163(j))
• Immediate expensing of qualified property (100% bonus depreciation under §168(k))

The bill is almost entirely paid for by terminating the Employee Retention Credit (ERC) as of Jan. 31, 2024, increasing the statute of limitations for ERC claims, and increasing penalties for ERC promoters.

The bill is awaiting action in the Senate, where its prospects are currently uncertain. Several prominent Senate Republicans have stated they intend to block the deal, which will need 60 votes to pass the chamber, unless they are given the opportunity to amend the legislation. Significant changes to the bill or delays in bringing it to the floor could imperil the deal, as it contains provisions that are retroactive to 2023 and, in some cases, 2022.

We continue to monitor developments as the Tax Relief for American Families and Workers Act of 2024 moves through the Senate and keep you updated with additional details and insights.

SALT deduction bill

The bipartisan tax deal does not include any modifications to the $10,000 limitation on the deduction of state and local income tax (SALT). In the days leading up to the House vote, a group of moderate New York Republicans threatened to stall legislative action over the absence of a SALT provision. In exchange for standing down, Speaker Mike Johnson (R-LA) and Ways and Means Committee Chair Rep. Jason Smith (R-MO) promised to bring a standalone SALT legislation to the floor.