The annual tax policy cycle and current state of play
INFOGRAPHIC | November 17, 2022
Authored by RSM US LLP
The legislative cycle for federal tax policy is a function of political will, competing agendas, and deadlines, both informal and actual. Like many policy matters, it is often unpredictable. So how can you gain clarity amid that uncertainty?
RSM’s understanding of the cycle stems from our experience navigating key dynamics and our engagement with various policy stakeholders on Capitol Hill. Our policy team, which includes professionals with experience serving the IRS and Department of the Treasury, translates legislative developments and gauges the political winds so you can clearly understand how your organization is affected.
This annual timeline highlights milestones in the legislative cycle as they come into view. Find out more details about the latest state of play for each season, or skip ahead to learn what’s happening now.
State of now:
Start of the fiscal year for the federal government
Oct. 1, 2022
Legislative deadlines precede the start of the federal government’s fiscal year at the end of the previous year. It is common for appropriations to expire on Sept. 30 and for Congress to require a continuing resolution to remain operational.
State of play in 2022
With the tax changes in the Inflation Reduction Act signed into law on Aug. 16, Congress returned to session in early September with a packed agenda led by priorities anchored outside of the tax world.
One of those priorities is passing a continuing resolution by Sept. 30, 2022, to keep the government operational until Congress passes a new budget. Congress has passed at least one continuing resolution each year since 1998.
As lawmakers negotiate a continuing resolution, they will take note of their colleagues’ priorities, which could help shape a possible extender package by the end of the calendar year.
Exempt organization inflation adjusted items for 2023 >
IRS releases 2023 tax inflation adjustments >
Inflation Reduction Act: Reducing carbon footprint and tax liability >
Taxes and the Inflation Reduction Act: What businesses should know >
Nov. 8, 2022
Election Day in the United States occurs annually on Tuesday following the first Monday in November. Elections to the U.S. House of Representatives are held biennially in even-numbered years. Elections to the Senate occur at the same frequency, but, unlike in the House, only approximately one-third of seats are contested biennially. The next presidential election is in 2024.
State of play in 2022
If Republicans win control of either the House or Senate, dynamics of a divided government will shape Capitol Hill discourse about tax policy, and it would all but extinguish the possibility of significant federal tax law changes for at least the next two years.
The administration could then turn to regulations to shape tax policy. It is unclear what issues the administration would attempt to address or if it would take this approach at all. However, the administration laid out its priorities in late May in the so-called Green Book, published by the Treasury Department. One area worth closely following is wealth transfer methods.
If Democrats retain their majorities, they could reassess and pursue their priorities for the next two years.
Congressional midterm election results anxiously awaited >
More tax changes coming? Midterm elections may hold the answer >
Calendar year ends
Dec. 31, 2022
It is common for tax law provisions to expire on the final day of the calendar year. This threat of expiration can compel lawmakers—sometimes in a lame-duck session following the recent general election—to postpone expiration by passing so-called extender bills. Also, in an election year, an impending shift in congressional majorities could either drive legislative activity or delay it, depending on the political dynamics.
State of play in 2022
Republicans’ win of a narrow majority in the House of Representatives represents a shift in the balance of power for the 118th Congress beginning in 2023. Before then, both parties’ eagerness to clear their to-do lists and get organized could increase the likelihood of year-end tax legislation.
Three tax issues stand out among those that could be addressed in a year-end bill in 2022: the tax treatment of research and development expenses (section 174), the deductibility of business interest expenses (section 163(j)) and regulations governing bonus depreciation of qualified property.
Year-end accounting and tax issues update for financial institutions >
Business tax considerations amid economic headwinds >
Year-end tax planning considerations >
Congress begins its annual session
Early January 2023
Congress sits for a two-year term comprised of two sessions that begin each year on Jan. 3 or shortly thereafter. New members who were elected in November take office.
State of play in 2023
Divided government will take hold when the 118th Congress is seated on Jan. 3. The narrow Democratic majority in the Senate and slim Republican edge in the House of Representatives combine for a political dynamic in which significant tax legislation is improbable for the next two years. Regulation could factor heavily instead of legislation.
Congress certainly could address any unresolved tax issues from 2022, but any big headlines are more likely to revolve around messaging bills with dubious viability. Any substantial tax policy negotiations could feature the Democratic priority of the expanded child tax credit and the Republican objective of making permanent some provisions in the Tax Cuts and Jobs Act.
Divided government: Impact on federal and state tax policy >
State of the Union address
The president traditionally addresses a joint session of Congress sometime during the first three months of each calendar year. In discussing the state of the nation, the president often reveals priorities that implicitly or explicitly have tax ramifications, setting the course for lawmakers’ tax policy discussions.
President’s budget request
Each spring, the president usually publishes a budget request for the upcoming fiscal year and supplements it with explanations of the revenue proposals. The explanations are published by the U.S. Treasury in the so-called Green Book. The budget request is not legislation but serves as a guidepost for lawmakers’ tax policy discussions.
Congressional August recess
Early August 2023
Both chambers recess annually from August through Labor Day. When Congress reconvenes, previous unfinished business commonly slips into jeopardy because the attention typically turns to the upcoming budget deadline and general election.
End of the fiscal year for the federal government
Sept. 30, 2023
The last day of the federal government’s fiscal year includes legislative deadlines. It is also common for appropriations to expire on this day.
This article was written by RSM US LLP and originally appeared on 2022-11-17.
2022 RSM US LLP. All rights reserved.
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