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.
The proposed SALT bill, titled the SALT Marriage Penalty Elimination Act, would raise the SALT deduction cap to $20,000 in 2023 for married couples filing jointly with income up to $500,000. The bill cleared the House Rules Committee with an 8-5 vote last week; however, it faces several hurdles and currently appears unlikely to become law.
Government funding
In January, Congress passed a continuing resolution to extend government funding through early March. Four of the 12 appropriations bills are funded through March 1, while the remaining eight are funded through March 8. Should Congress fail to prepare and pass the funding bills before the deadlines, they would need to pass another stopgap spending measure to avoid a government shutdown.
While Speaker Johnson and Senate Majority Leader Chuck Shumer (D- NY) previously agreed to a topline spending number for FY24, it wasn’t until last week that appropriators agreed to an allocation between the dozen appropriations bills. The final appropriations bills are expected to include the clawback of $20 billion in IRS funding provided for by the Inflation Reduction Act; this is an acceleration from the previously negotiated plan of $10 billion reductions in both FY24 and FY25.
We will continue to monitor government funding developments, particularly as they relate to potential tax legislation. If the Senate is able to pass the bipartisan tax deal, it could attach to an appropriations bill or another continuing resolution.
Other items
In addition to the tax policy items above, there are several other items we’re monitoring:
- President Biden’s FY25 budget proposal – the budget proposal and accompanying Green Book, which provides explanations of the budget’s tax proposals, are expected to be released on March 11.
- Moore v. United States – the Supreme Court’s decision on the Moore case, which could have far-reaching implications for US tax policy, is expected to be released in the spring of 2024. To read more, visit Supreme Court to determine constitutionality of section 965 transition tax.
- 2024 election – the 2024 election is certain to have a significant impact on the future of US tax policy, particularly as we approach the Jan. 1, 2026 expiration of numerous Tax Cuts and Jobs Act provisions. As we approach the general election and the candidates release their detailed tax proposals, we’ll provide additional details and insights.
Tax Strategy Playbook
Baker Tilly’s Washington Tax Council and tax policy department are excited to announce our inaugural Tax Strategy Playbook. The playbook provides relevant, insightful information on tax strategies and their impact on your business and personal tax. Explore the e-book today!
Questions?
Please reach out to your Baker Tilly advisor to discuss the impact of our tax policy updates.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.
