May 2024 Policy Pulse

With the election less than six months away, we’re seeing Congress begin to shift their focus from policy to politics.

Bipartisan tax bill

The bipartisan tax bill’s prospects have further diminished over recent weeks. The proposed legislation, which passed the House of Representatives back in January by an overwhelming margin of 357-70, has met consistent opposition by most Senate Republicans, led by Senate Finance Committee Ranking Member Mike Crapo (R – ID). Discussion of the bill has all but ground to a halt, and the conversation has shifted to 2025 tax policy.

In what appears to be one final effort to get the bill across the finish line, Senate Finance Committee Chair Ron Wyden (D – OR) has stated he intends to file the House-passed version of the bill as an amendment to the Federal Aviation Administration (FAA) reauthorization act. It’s very unlikely Wyden will succeed, as attaching the bipartisan tax bill would endanger the FAA legislation, a must-pass bill that expires on May 10.

Expiring provisions and the 2024 election

Recently, we’ve seen increased attention from lawmakers on the Tax Cuts and Jobs Act (TCJA) expiring provisions. Under current law, the TCJA’s individual, estate and gift tax provisions and the Qualified Business Income (QBI) deduction, a deduction that allows certain pass-through entities to reduce their taxable income, will sunset at the end of 2025. The Congressional Budget Office estimates a full extension of these provisions would cost $3.5 trillion over ten years. For reference, this would add 10% to today’s current national debt of almost $35 trillion.

Generally speaking, Republicans would like to extend all TCJA provisions while President Biden and Democrats are hoping to let the individual tax cuts expire for taxpayers making over $400,000 per year. Both parties have expressed concern about tax policy’s impact on the ballooning national debt.

House Ways and Means Chair Jason Smith (R – MO) has set up ten “Committee Tax Teams” to examine the TCJA’s expiring provisions and identify potential legislative solutions. The working groups will cover the following areas of tax policy:

• American manufacturing
• Working families
• American workforce
• Main street
• New economy
• Rural America
• Community development
• Supply chains
• U.S. innovation
• Global competitiveness

Senator Crapo has indicated he is considering a similar approach within the Senate Finance Committee.

Given the significant and pervasive impact the TCJA sunsets could have on taxpayers, we expect tax policy will play a significant role in candidate platforms going into the 2024 election. We will share additional updates and insights into candidate tax plans as they are released.

Funding season

After four continuing resolutions, Congress was finally able to pass the final FY24 appropriations bills in late March. Now, mere weeks later, it’s time for lawmakers to begin work on the FY25 budgeting process.

It’s unlikely the FY25 appropriations bills will be passed before Sept. 30, 2024, the end of the fiscal year. With the election looming and Congress out of town almost all of August and October, we’re expecting a continuing resolution that will fund the federal government into the upcoming lame duck session.

IRS enforcement

On May 2, 2024, the IRS released their 2024 IRA Strategic Operating Plan and supplement, which outlines the service’s goals and progress using Inflation Reduction Act (IRA) funds. The additional IRS funding provided by the IRA was earmarked for enforcement, operations support, business system modernization and taxpayer services.

The additional funding allocated to enforcement has resulted in several major IRS campaigns focused on reducing the tax gap, which the IRS estimates is $683 billion annually. In an effort to boost collections, recent IRS campaigns focus on large corporations, large partnerships and high-income individual taxpayers, who the IRS believes are the most non-compliant taxpayers.

In its plan update, the IRS outlined increased audit rates goals for the 2026 tax year:

As the IRS pursues their ambitious goals, we expect to see new campaigns as well as increased effectiveness in audit selection as a result of increased reliance on data analytics. The report reiterates the IRS’s commitment to ensuring audit rates don’t increase for small businesses or taxpayers earning less than $400,000 per year.

Other items

In addition to the policy items discussed above, there are several other matters worth noting:

• Littlejohn data breach – the IRS has begun notifying taxpayers whose information was compromised by the leaking of tax returns by IRS contractor Charles Edward Littlejohn. If you have received an IRS notice, please reach out to your Baker Tilly tax advisor.
• Moore v. United States – the Supreme Court’s decision on the Moore case, which could have far-reaching implications for U.S. tax policy, is expected to be released this spring. To learn more visit Supreme Court to determine constitutionality of section 965 transition tax.

If you have questions, please reach out to your Baker Tilly tax 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. Baker Tilly US, LLP does not practice law, nor does it give legal advice, and makes no representations regarding questions of legal interpretation.