Capitol Hill is scrambling to arrive at a deal to fund the government into the new year, but a handful of tax issues remain unresolved and the incoming Congress may need to hash out some when it takes over in January.
From revamping the Internal Revenue Service to renewing expired tax breaks, House Ways and Means Chairman Kevin Brady has tried to push several tax provisions through Congress before he hands over the gavel at the end of the year. But so far, he and interests off of the Hill have been unable to muster the political support to get the measures to the president’s desk.
“We’ve done everything one could possibly do to talk to leadership and talk to members on the committee,” said Mike McAdams, president of the Advanced Biofuels Association. “And it’s really up them to figure out what plan they can get through at the end of the year. So we’re all in a wait-and-see mode.”
A few tax provisions may make it onto an end-of-year funding bill lawmakers hope to complete by Friday, but many will be held over until the next Congress, when Rep. Richard Neal and Sen. Chuck Grassley take the gavels of their respective tax-writing committees.
McAdams’s organization has pushed for an extension and phase-out of the $1-per-gallon biodiesel tax credit, one of about 30 expired tax breaks collectively known as extenders that are renewed regularly. The biofuels group and others pushing for a renewal of the extenders had their hopes dashed when Brady released a second version of an end-of-year tax bill that scrapped the idea of renewing the breaks, though senators have said they are working to include extenders in any funding deal.
The 30-odd tax extenders include credits for biodiesel and energy-efficient homes, and more controversial breaks for racehorses and improvements to NASCAR race tracks. Congress retroactively renewed extenders in a budget deal early this year, though that was for tax year 2017.
A GOP aide said that a phase-out of the biodiesel tax credit is included in Brady’s revised version and a tax credit for railroad-track maintenance at a 30 percent rate would be made permanent in the bill, but didn’t mention other extenders.
But that bill, like its predecessor released in November, has its challenges advancing in Congress.
Brady’s first effort proposed a series of technical corrections to the 2017 tax-code overhaul, provisions encouraging retirement savings, a renewal of tax extenders, and a bipartisan administrative overhaul of the IRS the House had passed earlier in the year. House leadership pulled that bill from a floor vote, however, because of a lack of Republican votes.
Brady’s second effort threw out the extenders language and instead proposed delays to three Affordable Care Act-related taxes: a medical-device tax, a tax on high-priced health plans called the “Cadillac tax,” and the Health Insurance Tax. Those taxes have been delayed on a bipartisan basis before, most recently in a budget deal this January.
House leadership is counting potential votes for that bill now, but its passage in the Senate, where it would need a handful of Democratic votes, is unclear. The bill would also repeal the so-called Johnson Amendment, which prevents nonprofit organizations such as churches from supporting or opposing a political candidate. Democrats have long been opposed to the repeal effort and are unlikely to support legislation including the language.
House tax writers have identified about 80 drafting errors in last year’s tax overhaul, and Brady pushed to include fixes for at least five of the most noncontroversial in his first end-of-year tax proposal. But Democrats—who can scuttle a technical-corrections bill in the Senate—have expected concessions on parts of the overhaul for going along with editing the legislation.
Congress has already fixed an error for farmers who sell grain to agricultural cooperatives. The highest-profile error now prevents some retail and restaurant owners from writing off improvements to their property.
But with Democrats holding the House majority next year, there is little incentive for them to help pass technical corrections until they have more leverage in January, when Neal plans to hold hearings on the 2017 tax law. Moreover, there is little time to hash out concessions with only a few days until the Dec. 21 funding deadline.
Also in the hopper are several tax-related retirement issues stemming from Brady’s Tax Reform 2.0 legislation, which passed the House earlier this year but didn’t advance in the Senate. The proposals would revamp 401(k) accounts and make it easier for companies to offer plans to employees. Despite some bipartisan support, the provisions haven’t been able to advance through Congress.
“There are bipartisan things in both the House and the Senate, but they’re not the same,” said Mark Mazur, director of the Tax Policy Center.
Mazur added that lawmakers aren’t likely to resolve the split in the few days left in this Congress. Differences between the House and Senate versions of the plans—such as the House proposal that tax-advantaged retirement plans can be used for non-retirement purposes—have stymied their progress.
The 2017 tax bill also made parking benefits that churches and other nonprofit organizations offer to workers taxable—which, while not a drafting error, created an accounting headache for some groups. Religious groups are protesting the language, and some GOP members have said they would work to change it. So far, lawmakers haven’t been able to find a vehicle to include the change, however.
Brady’s initial and revised end-of-year tax packages also proposed language that would allow victims of this year’s natural disasters such as the California wildfires and Gulf Coast hurricanes to tap into their retirement accounts without penalty, along with other tax relief.
Not included in either tax package, but still an outstanding issue, is the $7,500 tax credit for consumers who buy an electric vehicle. The credit has a cap for companies that sell more than 200,000 electric vehicles, which Tesla was the first to hit, according to a Friday statement by the IRS.
Some lawmakers want to keep the incentive going, but time is running out for action and many of the credit’s backers, like Sen. Dean Heller and Rep. Diane Black, won’t be returning next year.
Despite the impulse for Democrats to hold out on some tax issues until next year, Dean Zerbe, a former senior tax counsel for the Senate Finance Committee, said that moving some issues in the lame-duck session could be easier. A big tax package by Neal early next year could take on a lot of extra baggage.
“You suddenly begin to attract all sorts of other priorities and interests, particularly in the new Congress and the new year, and you begin to pick up a lot of additional provisions,” Zerbe said.