INFOGRAPHIC | February 08, 2023
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.
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.
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.
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 takes 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 still could address any unresolved tax issues from 2022, and there are several. The omnibus package signed into law on Dec. 29 did not address the tax treatment of research and development expenses (section 174), the deductibility of business interest expenses (section 163(j)) nor regulations governing bonus depreciation of qualified property.
Any substantial tax policy negotiations, however unlikely, 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. Realistically, though, any big headlines are more likely to revolve around messaging bills with dubious viability.
State of the Union address
February 7, 2023
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.
State of play in 2023
President Joe Biden noted two tax policy objectives—a billionaire minimum tax and the quadrupling of the 1% tax on stock buybacks—when he laid out his administration’s agenda in his State of the Union address before a joint session of Congress on Feb. 7.
His proposed billionaire minimum tax and the quadrupling of the 1% tax on stock buybacks are designed to make “the wealthiest and biggest corporations begin to pay their fair share;” help fund “investments in our future,” such as clean energy and health care initiatives; and reduce the federal deficit, Biden said. The enactment of such proposals in a divided government is highly unlikely.
The billionaire minimum tax that the White House proposed in March 2022 would require households with a net worth exceeding $100 million to pay a tax rate of at least 20% on their full income, including unrealized capital gains income on unsold investments.
Biden also proposed increasing the tax on corporate stock buybacks from 1%, as established by the Inflation Reduction Act of 2022, to 4%. He hopes an increased rate would incentivize large companies to make long-term investments instead of repurchasing its own stock.
Biden also made passing mention of a few additional tax items. In saying to Congress, “Let’s restore the full child tax credit,” the president referenced a Democratic priority that has affected long-running negotiations to reverse the unfavorable change in tax treatment of research and experimental costs (section 174) beginning in 2022. He also touted a pair of tax items in the Inflation Reduction Act—clean energy credits and increased funding for IRS enforcement.
Again, the tax proposals Biden discussed have limited prospects of passage, but his mention of them helps frame the tax policy dialogue in 2023. These and other tax proposals that were part of his FY23 budget could be proposed again in the FY24 budget that Biden will submit to Congress, as well as the accompanying “Green Book” explanation of provisions from Treasury. The president’s FY24 budget is expected to be released in March.
President’s budget request and Treasury Green Book
March 10, 2023
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.
State of play in 2023
The Biden administration on March 10 released its fiscal year 2024 budget, essentially a wish list of proposed investments and tax increases that are noteworthy despite the high improbability that the divided Congress will enact them into laws.
The budget features more than 100 tax proposals, many of which either appeared in President Biden’s budget request for fiscal 2023 or reiterate revenue-raising concepts the administration has expressed in recent months.
The Treasury Department supplemented the budget by releasing its so-called Green Book, which provides additional details on the tax provisions. For the most part, it is very similar to Green Book explanations the Biden administration has issued previously.
The tax proposals are projected to raise more than $4.7 trillion in new tax revenue over the next 10 years and are designed to reduce the deficit over that span by almost $3 trillion, according to the Office of Management and Budget.
Although the proposals are unlikely to be enacted by the divided Congress, certain components of the president’s budget, such as proposed changes to reform the international tax system that would bring it into compliance with the OECD Pillar 2 global minimum tax regime, are noteworthy.
It is also worth noting these proposals as part of the prologue to the 2024 presidential election and in the context of the 2025 expiration date for many provisions in the Tax Cuts and Jobs Act of 2017.
Congressional August recess
July 31-Sept. 4, 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.
State of play in 2023
Days after Congress in mid-June passed bipartisan legislation to prevent the U.S. from defaulting on its debt obligations, the House Ways and Means Committee introduced a legislative package that includes a bill addressing three tax rules affecting middle market businesses: tax treatment of research and development expenses (section 174), the limitation on the deduction of business interest expense (section 163(j)), and bonus depreciation.
Although this tax legislation in its initial form does not have a realistic chance of becoming law in a divided Congress, it may kick off a protracted series of tax policy debates and discussions among lawmakers that could continue to at least the end of December.
Generally, companies did not realistically expect section 174 to be addressed as part of the debt ceiling negotiations, understanding all too well that this hot-button tax issue invokes deeper divides on matters such as an expanded child tax credit, cost, and retroactivity considerations, among other things. And despite continued bipartisan support for relief, the search for a legislative vehicle remains elusive, with most factors suggesting year-end action as the most likely scenario.
In the meantime, with default averted, lawmakers could shift their summertime focus to the appropriation process and decide how the government spending cuts will be allocated across the various governmental agencies. That process must be completed by Oct. 1, the beginning of the government’s new fiscal year.
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.
State of play in 2023
Congress will contend with storm clouds on the horizon upon its return from August recess. The urgency of discussions on Capitol Hill to fund the government and avoid a shutdown by the Oct. 1 deadline will likely keep tax policy matters on the back burner until closer to the end of calendar year 2023.
Congress may pass a continuing resolution, essentially a stopgap measure that would keep the government from shutting down until lawmakers could reach a more permanent agreement on appropriations. In fact, Congress has passed at least two continuing resolutions every fiscal year since fiscal 1997.
The House Ways and Means Committee in June helped chart the tax policy course by proposing changes to three tax rules affecting middle market businesses: tax treatment of research and development expenses (section 174), the limitation on the deduction of business interest expense (section 163(j)), and bonus depreciation.
Although there is bipartisan support particularly for reallowing the immediate deduction of R&D expenses in the year in which they’re incurred, enactment of legislation to that effect will likely require lawmakers to work through some Democrats’ desire to pair corporate tax changes with tax changes for individuals, such as the child tax credit. Those negotiations could drag into 2024; however, given that the proposed change to the immediate deduction of R&D expenses is retroactive to tax year 2022, the end of the calendar year looms as a meaningful deadline.
This article was written by RSM US LLP and originally appeared on Feb 08, 2023.
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