Discussing Tax Bill in the New Year
TL/DR –
Negotiations over a potential tax bill remain ongoing in Washington, with lawmakers optimistic about a deal involving an expansion of the Child Tax Credit sought by Democrats and more generous incentives for businesses wanted by Republicans. However, there is uncertainty over whether the deal will be agreed in 2024. A potential agreement deadline is January 19, when funding for various government agencies is set to lapse.
Update: Tax Bill Negotiations Unchanged, Potential Deal in Sight
Optimism surrounds ongoing tax bill negotiations despite them being in nearly the same state as when lawmakers left Washington last month. Stakeholders, both inside and outside of government, are hopeful that the discussions among leading tax writers are productive and will lead to a deal. This optimism remains even though the clock is ticking down towards 2024, and the potential deal has been within reach for three separate calendar years.
The proposed deal would combine an expansion of the Child Tax Credit desired by Democrats with business incentives favored by Republicans. The next significant congressional deadline that could push an agreement is January 19, when funding for various government agencies is set to expire. This deadline could also serve as an opportunity to attach a tax agreement to a larger legislative vehicle, especially with the IRS anticipated to open the next filing season within weeks.
Hurdles for the Potential Tax Deal
Several obstacles could interfere with this potential tax deal, including finding a larger bill to attach the agreement to. Agreeing on the tax deal is a multi-step challenge. Not only do tax writers need to find the right legislative vehicle, but they must also convince congressional leaders, who have other top priorities, that a tax agreement is essential.
A spending deal crafted before the January 19 deadline could be an attractive vehicle. Yet, congressional appropriators and leaders have many issues to resolve to reach such an agreement, increasing the likelihood of a shutdown. The Child Tax Credit advocates hope that taxpayers could claim an expanded version in the upcoming filing season.
Offsetting Costs and The Global Tax Deal
While it’s uncertain if the cost of the tax bill will need to be offset, we know that negotiators have considered cutting off benefits for the Employee Retention Credit as a method to pay for a potential agreement. This approach would add another layer to the IRS’s efforts to curtail fraudulent efforts to claim the credit. However, business groups have opposed this idea, arguing that it would harm small businesses waiting on their legitimate tax credit filings.
As of now, parts of the global tax deal are officially in effect. Large corporations are now required to pay effective tax rates of at least 15 percent. Countries like Canada, Japan, South Korea, and the U.K. are starting to collect from the second pillar of the global agreement. However, legislation enacting the minimum tax is unlikely to happen in the U.S., given the Republicans’ power to stop it.
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