January 2024 Policy Pulse

Introduction

Each month, Baker Tilly’s tax policy department will bring you a summary of key legislative and regulatory tax developments. The tax insight pieces contained in our Tax Counsel Email will provide additional detail on how these developments may impact your tax situation.

This week, both the Senate and the House of Representatives returned to kick off the second session of the 118th Congress. Lawmakers returned to a flurry of activity as they face two major deadlines for funding the federal government and a potential new tax bill.

Potential tax bill

Over the last several days bipartisan negotiations on a bill that would address three critical business tax provisions and the child tax credit has been making headlines. Efforts to find a compromise have been led by Senate Finance Committee Chair Ron Wyden (D-OR) and Ways and Means Committee Chair Jason Smith (D-MO). The deal is expected to include:

• Business interest deduction limitation – reversion to the more taxpayer friendly pre-2022 business interest limitation deduction calculation through 2025
• Bonus depreciation – reinstatement of full expensing for qualified property in the year placed in service, via bonus depreciation through 2025
• Research and experimental expenditures – restoration of the deduction for domestic research and experimental expenditures retroactive to 2022 and through 2025
• Child Tax Credit – expansion of the child tax credit, possibly to 2021 levels, subject to some adjustments. The deal could also index the current and expanded credit to inflation beginning in 2025.

The proposal’s framework and text have not yet been released, meaning the details and effective dates of the proposed changes are not available. The cost of the overall deal is reported to be generally evenly split between Republican priorities, which include the three business provisions, and the Democratic child tax credit priority. The total cost, which was initially estimated to be $100 billion, has been scaled an estimated $70 billion in recent days. While the reduced price tag may make the bill more palatable to deficit hawks, it almost certainly means there will be concessions on the size and scope of some or all of the provisions. Negotiators are pursuing adjustments to the Employee Retention Credit as a revenue-raiser to offset the cost of the compromise.