The Ways and Means Committee of the U.S. House of Representatives last night approved three tax bills, with amendments:
The tax bills address a variety of issues, including expired and soon-to-expire tax incentives, disaster relief, private foundation investment income, exempt organization fringe benefits, the estate tax, same-sex marriages, the earned income tax credit, the child tax credit, and dependent care assistance.
The bills include some proposed changes to provisions enacted as part of the 2017 tax legislation commonly called the “Tax Cuts and Jobs Act” (TCJA) (Pub. L. No. 115-97). They do not, however, include any technical corrections to the TCJA.
[The links to the bills above are to the texts of the bills as introduced. Other documents, including descriptions and revenue estimates prepared by the staff of the Joint Committee on Taxation (JCT), are linked to in the discussions of the bills below.]
The Ways and Means Committee favorably reported H.R. 3301 (with amendments) by a party-line vote of 25 to 17.
H.R. 3301 includes provisions relating to certain temporary tax incentives, disaster relief, and the excise tax rate applicable to investment income of certain private foundations. It also includes a revenue-raising provision relating to the temporary estate tax changes made by the 2017 tax legislation.
H.R. 3301 generally would extend through 2020 many temporary tax provisions that expired in 2017 or 2018, or that are scheduled to expire at the end of 2019. These provisions include:
The bill also would extend various other temporary provisions, but does not address special cost-recovery rules for race horses. Further, the Ways and Means Committee approved an amendment by voice vote during the markup that would eliminate the production credit for Indian coal facilities from the provisions that would be extended by the bill. The JCT estimated that extending the provisions that were in the bill as introduced (i.e., prior to eliminating an extension of the Indian coal credit) would cost approximately $33.19 billion over a 10-year period.
Disaster relief title (with private foundation provision)
H.R. 3301 includes various tax provisions relating to disaster relief (including a provision relating to payments to possessions with “mirror tax systems”).
In addition, the disaster relief title of the bill includes a provision that would change the current two-tiered excise tax rate applicable to investment income of certain private foundations (Code section 4940(a)) to a single 1.39% rate. This would increase the excise tax paid by some private foundations and decrease the amount paid by others.
The JCT estimated that the disaster relief title of the bill would cost approximately $9.265 billion over a 10-year period.
Estate tax revenue-raiser
The bill includes a revenue-raising provision that would modify an estate, gift and generation-skipping transfer tax change enacted as part of the 2017 tax law (TCJA). The TCJA temporarily increased the basic exclusion amount from $5 million to $10 million for decedents dying or gifts made before January 1, 2026. H.R. 3301 would replace the January 1, 2026 “sunset” date for the increased exclusion amount with January 1, 2023.
The JCT estimated that this change would raise approximately $37.56 billion over a 10-year period (i.e., more than the $33.19 billion cost associated with extending the expired and soon-to-be expiring provisions).
The Ways and Means Committee favorably reported H.R. 3300 (with amendments) by a vote of 22-19. The 22 “aye” votes were all from Democrats; however, three Democrats voted against the bill.
H.R. 3300 would:
Some of these changes would be temporary.
The bill also would repeal a provision in the 2017 tax law (TCJA) that requires the inclusion of certain fringe benefit expenses in unrelated business taxable income (Code section 512(a)(7)). The repeal would be effective retroactive to the effective date of the change made by the TCJA.
A technical amendment to the bill was approved through adoption of an amendment in the nature of a substitute. In addition, amendments relating to the child tax credit and the dependent care deduction were adopted during the markup.
With respect to H.R. 3300 as introduced (i.e., prior to modifications made during the markup), the JCT estimated that, over a 10-year period, the changes to the EITC would cost approximately $30.24 billion; the changes to the child tax credit would cost approximately $50.73 billion; and the changes to dependent care assistance would cost approximately $18.82 billion. The JCT also estimated that the fringe benefit provision would cost approximately $1.93 billion over a 10-year period.
The Ways and Means Committee favorably reported H.R. 3299 by a voice vote. This bill would amend the Internal Revenue Code to clarify that all provisions apply to legally married same-sex couples in the same manner as to other married couples. It also would allow legally married same-sex couples to change their filing status for federal income tax returns outside the statute of limitations. A technical amendment to the bill was approved through adoption of an amendment in the nature of a substitute.
The three bills approved last night face an uncertain future. Although they include some provisions on which there is potential for bipartisan agreement, they also raise some issues that can be expected to be controversial—including whether, to what extent, and how the estimated costs of revenue-losing provisions should be offset. Nonetheless, last night’s action may serve as a starting point for future discussions as to what to include if there is an appropriate vehicle for a significant tax package this year.
As a threshold matter, it is not clear when the bills might be voted upon by the entire House of Representatives and in what form that could happen. It is possible that the three bills could be combined into one or two bills in some manner. It is also possible for the House Rules Committee to recommend modifications to the text of the bills as approved by the Ways and Means Committee prior to any House floor consideration or to allow certain amendments to be offered. Thus, any bill (or bills) that might end up passing the House could end up differing from the measures approved yesterday, perhaps in significant respects.
Assuming the measures pass the House in some form, they also face an uncertain future in the Senate. For example, while a bipartisan bill addressing some of the extender provisions was introduced by Senate Finance Committee Chairman Charles Grassley (R-IA) and ranking member Ron Wyden (D-OR) in February 2019 (read TaxNewsFlash), that bill differs from H.R. 3301 in a number of significant ways—including that the Grassley-Wyden bill did not include any revenue offsets. Indeed, Senate Republicans are likely not only to strongly oppose carving back significant cuts made by the TCJA, but also to resist including “revenue raisers” as offsets for extending provisions that are currently part of the Code.
Moreover, the Senate Finance Committee has not yet marked up any of the provisions addressed in the three bills, this year, and its members—and members of the Senate more generally—may have additional or different priorities as to what should be included if there is an opportunity to move significant tax legislation this year. For example, if some technical corrections to the TCJA are not included in a tax bill that ultimately passes the House, Senators might be expected to try to attach at least the most popular technical corrections to a larger tax package. [For more on technical corrections, read KPMG report: Twenty questions about possible technical corrections to 2017 Tax Act.] Likewise, individual Senators might try to attach other measures that are of particular interest to them and their constituents.
More generally, even if Republicans and Democrats, and the House and Senate, could agree on the substance of a tax package encompassing extenders and other significant matters, such a package might have to be attached to a larger legislative vehicle to become law. This year, the most likely potential vehicles appear to be legislation funding the government for the upcoming fiscal year and legislation increasing the debt limit. It seems unlikely these larger legislative vehicles can move through the legislative process and become law until later this year—perhaps some time in the fall (if not winter).
Finally, keep in mind that there’s a chance that Congress and the White House ultimately might agree to keep government funding and debt limit measures “clean” of “extraneous” provisions—particularly given the large number of issues individual members of Congress might otherwise try to attach to those measures. So, although there may be pressure to address extenders and other tax provisions to these “must pass” bills, there’s no guarantee that a tax title may be able to hitch a ride—further complicating the prospects of the measures addressed by Ways and Means last night.
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