A handful of popular tax provisions in the Tax Cuts and Jobs ACT (TJCA, PL 115-97) set to expire soon could drive lawmakers to enact tax extender legislation during the current Congress, but competing interests combined with time running out may force lawmakers to boot such legislative action into 2023.
Extenders are generally popular and very non-controversial and often get dumped into end of the year bills without any issue. This time around though there is a lot of controversy around certain TCJA-related items which have significantly raised the profile of extenders this year.
At the top of the tax provision list most on lawmakers’ minds are extensions of:
- Code Sec. 174 R&D expensing;
- a Code Sec. 163(j) business interest expensing ramp-up;
- the child tax credit; and
- a phasedown of bonus depreciation in 2023.
These ‘extenders,’ however, are similar to policy changes that tend to draw battlelines on both sides.
A recent KPMG podcast agreed that Democrats are unanimous in their support of the expanded child tax credit while Republicans want to extend the business tax breaks. Both sides have expressed a desire to pass extender legislation this year and compromise is in the air, but neither party has coalesced around an agreement.
When bipartisan support exists, KPMG pointed out, there is less worry about fiscal responsibility and whether bills of these nature aren’t truly “paid for.” Inflation concerns may not be that critical as there is a common belief that extenders are “baked-into” historical spending as they are already part of the fabric of the IRC, so they shouldn’t be factored into for inflation analysis purposes.
There are other factors which could prompt congressional extenders action during this session. Neither party can take the strategic position that it makes sense to go home and try to get a better deal during next Congress, according to KPMG. In addition, there are a significant number of retirees in Congress who may want to pass “legacy” bills to boost their career profiles, so they will likely want to heavily prioritize certain bills (which could include extensions of TCJA provisions). In addition, congressional leaders that have lost elections and are true lame ducks may not exercise a great deal of scrutiny on casting their votes.
Extenders legislation, however, faces a slew of competing interests in the remaining few weeks of the year. Annual appropriations, which fund the federal government, must be passed or government agencies will be forced to rely on a continuing resolution (CR) at 2022 funding levels. The current CR expires on December 16 and lawmakers are already looking at extending that to December 23 or beyond.
The National Defense Authorization Act (NDAA) is also a must pass and like the possible omnibus bill, neither measure has been resolved and when that does happen, it can take up to a week to get legislation on the floor. A retirement security bill, or SECURE 2.0 has bipartisan support and is one meeting away from completion, according to Senate Finance Committee member and Maryland Democrat Ben Cardin.
Other issues clamoring for lawmakers’ attention in the final days of the current Congress, include: A fix for Medicare reimbursement rates which will be changing significantly in the new year; promised regulatory reform on energy structure; and car dealerships are pushing hard for LIFO relief due to historically low vehicle inventory and ongoing supply chain issues.
If tax extenders legislation comes to pass this year it will be attached to one of the two must pass bills; an omnibus spending bill and the NDAA. If Congress punts action into next year, KPMG believes that if the funding extension (CR) goes through early 2023 (February or March), there is a good chance that that extenders will be taken up at that time. If the extension is through the 2023 fiscal year (September 30) or the 2023 calendar year (December 31), extenders will become much more of a difficult proposition as there may not be an appropriate bill to move extenders before those dates.
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