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Congressional Tax Writers Look for Opening to Move Legislation

Dec. 2, 2019, 9:45 AM

Tax writers will press for a package that can be attached to must-pass legislation as Congress starts its year-end legislative sprint.

That means billions of dollars in temporary tax breaks for individuals and companies, as well as the chance of any significant tax package becoming law this year, are facing a do-or-die moment. A tax package could include the renewal of expired tax breaks known as extenders and expanded clean energy incentives.

A year-end tax package could check off issues that lawmakers have hoped to address all year, but had little momentum to advance without a hard deadline. Lawmakers return to Washington needing to reach an agreement to fund the federal government beyond Dec. 20, but reaching a deal on taxes won’t be easy in a divided Congress. The current status of negotiations remain in the air, juggled alongside other priorities like the United States-Mexico-Canada Agreement and prescription drug pricing.

House Ways and Means Committee ranking member Kevin Brady (R-Texas) said any tax deal would have to make reforms to extenders and correct errors in the tax law. Democrats so far have been hesitant to agree to corrections to the law, and would need to weigh several priorities in return for advancing those corrections.

“You got to start with the proposition that you are going to have a balanced package,” Senate Finance Committee ranking member Ron Wyden (D-Ore.) said. “We will keep talking in good faith.”

Promised legislation from Democrats to undo, at least temporarily, the $10,000 cap on federal deductions for state and local taxes could be an initial ask, but is seen as unlikely to pass the Senate.

Republicans put in place the cap to help offset the budgetary cost of cutting business and individual tax rates in the 2017 tax law, and several freshmen Democrats successfully ran on undoing the cap during the 2018 midterms. House passage of a SALT cap bill could give those House Democrats something to point to as they run for re-election in 2020.

Potential for Agreement

A green energy package Ways and Means Democrats released Nov. 19 was meant to spur discussion with industries and other lawmakers.

“I’m hopeful that we can have a discussion on some of the renewable provisions there, I think we can find some common ground,” Brady said.

House Democrats didn’t detail how they would offset the cost of the green energy package, but prior Congressional Budget Office scoring of tax packages have considered extended breaks to be budget neutral for continuing existing law. Expanded benefits, like those proposed for electric vehicles and storage infrastructure from solar or wind sources, would need to be accounted for.

The measure would also extend through 2021 a credit for biodiesel at $1 per gallon, before phasing out the perk through 2024. Senate Finance Chairman Chuck Grassley (R-Iowa) has been a champion of tax breaks for the biofuel sector.

“Obviously, Mr. Grassley has his interest. Can we do something that ties things together? That’s going to be the focus,” Rep. Dan Kildee (D-Mich.) said.

Kildee is the architect of the package’s proposed expansion of a electric vehicle credit, originally introducing it as a standalone measure (H.R. 2256). The credit for electric vehicle buyers, which tops out at $7,500, begins to phase down once a manufacturer sells 200,000 vehicles. Tesla Inc. and General Motors Co. have already hit that milestone.

The bill would decrease the credit for vehicles sold above that limit by $500, up until 600,000 vehicles.

SALT in the Mix

House Democrats plan to soon release legislation that would either temporarily repeal or raise the state and local tax cap. What happens after that is up in the air, an aide said.

Democratic Ways and Means members Bill Pascrell (N.J.) and Tom Suozzi (N.Y.) are pressing for a markup once the package is introduced.

The SALT bill’s prospects look slim in a Republican-controlled Senate, but House Democrats, especially those in high-tax blue states like New York, New Jersey, and California, hope to use a vote to lift the cap as part of their campaign platform.

“Folks are nervous that we’re not keeping an eye out for the districts that helped get us in charge,” said another House Democratic aide following the SALT issue, who asked for anonymity to speak candidly.

To contact the reporters on this story: Kaustuv Basu in Washington at kbasu@bloombergtax.com; Colin Wilhelm in Washington at cwilhelm@bloomberglaw.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com