All eyes are on the election, the outcome of which will likely determine the future of tax policy. The stakes are exceptionally high as the United States is facing its largest tax cliff in decades. With that in mind, Baker Tilly has created a series of webpages providing details and insights on the 2024 election and what it could mean for taxpayers:
- Tax policy and the 2024 election provides an overview of the election’s impact on tax policy, discusses 2025 expectations, and gives taxpayers steps to take to ensure they are in the best position possible to adapt to future changes.
- Tax Cuts and Jobs Act and its impact outlines the history of the Tax Cuts and Jobs Act (TCJA), details the noteworthy expiring provisions, and explores the cost of extension.
- Election details and possible outcomes considers the White House and Congressional elections, discusses how each affects the legislative process, and details the impact of possible election outcomes.
- Comparing tax policy platforms provides broader party tax policy platforms as well as presidential tax proposals.
The balance of power heading into the 119th Congress will affect any potential tax reform, which will have financial implications for almost all U.S. taxpayers. Baker Tilly will continue to provide insights through the election and ultimate legislative resolution.
In case you missed it
Listen to a playback of our Tax Trends: Quarterly tax roundtable on tax policy outlook in an election year.
Government funding
As expected, Congress wasn’t able to pass any of the 12 appropriations bills needed to fund the federal government before the beginning of the 2025 fiscal year (FY25), which began on Oct. 1, 2024. After contentious debate about a six-month continuing resolution (CR), lawmakers ultimately passed a “clean” three-month CR that will keep the government funded at FY24 levels through Dec. 20, 2024. This marks the 28th year in a row that Congress has used a CR to avoid a government shutdown.
Congress won’t convene again until Nov. 12, after the general election, for a lame duck session. Lawmakers will face two must-pass legislations – FY25 government funding and the annual defense bill (the National Defense Authorization Act or NDAA).
Republicans and Democrats differ vastly on FY25 topline spending figures. Most democrats support adhering to the funding levels agreed to in the Fiscal Responsibility Act of 2023, negotiated by President Biden and then-House Speaker Kevin McCarthy (R-CA). Meanwhile, some more conservative Republicans believe non-defense spending should be significantly lower. Current Speaker Mike Johnson (R-LA) is also adamant Congress will not approve a December omnibus, a single bill that combines all twelve appropriations bills, which could complicate negotiations and result in another CR that extends funding into the next Congress.
Lawmakers will also have the opportunity to pass a year-end tax extenders bill in the lame duck session, though the prevailing sentiment is that a tax legislation is unlikely. The most pressing issues include the trio of business tax provisions that were included in the bipartisan tax bill that recently failed to advance in the Senate.
Stay Tuned! We’ll bring you post-election insights as both parties determine their lame duck priorities.
Federal debt ceiling
Congress will also need to address the federal debt ceiling in the lame duck session. The federal debt ceiling is “the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations.” The limitation doesn’t authorize new spending, as appropriations bills and continuing resolutions do, it simply allows the U.S. to incur debt on spending commitments authorized by other legislation. The federal debt limit is set by Congress.
Authorizing the United States to take on additional debt to meet its obligations has become a political bargaining chip over the last couple decades. The Fiscal Responsibility Act of 2023 included a debt limit suspension through Jan. 1, 2025. A failure to extend the suspension or increase the debt ceiling could have catastrophic consequences for the domestic and global economies.
IRS operations
The IRS announced new milestones since we last discussed enforcement activity in our July Policy Pulse. To date the IRS has collected:
- Over $1.1 billion from taxpayers with annual incomes over $1 million and recognized tax debts over $250,000.
- Over $172 million from taxpayers with incomes between $250,000 and $1 million who failed to file a return
The IRS received $80 billion in additional funding in the Inflation Reduction Act (IRA), $20 billion of which was clawed back via a bipartisan agreement last year. The bulk of the IRA funding was earmarked for enforcement efforts; the IRS has started a campaign to restore “fairness in tax compliance by shifting more attention onto high-income earners, partnerships, large corporations and promoters abusing the nation’s tax laws.”
As we reported in the May Policy Pulse, the IRS has outlined their goals and progress in their 2024 IRA Strategic Operating Plan and supplement.
IRS funding
Annual funding of the IRS has become a contentious debate. Democrats would like to continue funding the IRS at current levels and leave the remaining $60 billion of IRS funding in place. Some Republicans would prefer to claw back more IRS supplemental funding in addition to cutting annual appropriations, particularly targeting the money available for enforcement.
The Senate and House have taken vastly different approaches for FY25 IRS funding:
- Senate: The Senate Appropriations Committee approved a measure that would provide the IRS with $12.3 billion in annual funding for FY25, which matches current funding levels and the White House’s request and conforms to the Fiscal Responsibility Act. Of the total amount, $5.4 billion was allocated to IRS funding. The measure passed with a bipartisan vote of 27-0.
- House: House appropriators approved an IRS funding level of $10.1 billion for FY25. Almost the entire difference in funding levels comes from the IRS enforcement budget, which would only be allocated $3.4 billion. The measure passed on a pure party line vote 33 – 24.
The majority of the IRS budget comes from annual appropriations. Lawmakers will need to address this as part of the FY25 government funding debate in the lame duck session.
Employee Retention Credit
This summer, the IRS began moving on long-stalled Employee Retention Credit (ERC) claims. Taxpayers with outstanding ERC claims have begun to receive payments or denial letters, depending on the ultimate IRS determination on the validity of the claim. Businesses that received a Form 105-C denying or disallowing an ERC claim now have two years from the date of the letter to request an appeal.
In addition to beginning the approval process for outstanding claims there have been several other ERC developments:
- Reinstatement of the Voluntary Disclosure Program: The IRS reinstated the voluntary disclosure program through Nov. 22, 2024. Eligible taxpayers may disclose and repay 85% of ERC claims.
- Moratorium remains in place: The IRS is only processing claims filed through Jan. 31, 2024 (it previously was only processing claims filed by Sept. 14, 2023). The moratorium on claims filed after that date currently remains in place. IRS commissioner Daniel Werfel stated the date “not only aligns with where we were in processing and digitizing the paper inventory, it also preserves that date should the [bipartisan tax legislation] go through”
- Introduction of Employee Retention Credit Repeal Act of 2024: In September Senators Thom Tillis (R-NC), Mitt Romney (R-UT) and Joe Manchin (I-WV) introduced a bill that would terminate the ERC as of Jan. 31, 2024. The proposal comes from the stalled bipartisan tax bill. There is bipartisan support for this concept but passing it as a standalone measure may be difficult as it is a revenue raiser that many lawmakers would like to use to offset their other policy objectives.
Questions?
If you have questions, please reach out to your Baker Tilly advisor to discuss the impact of our tax policy updates.
