Programming Note: Taxation & Representation will return on June 4, after the one-week congressional recess.
Legislative Lowdown
Ways and Means, Budget Committees Advance Tax Bill: On May 14, after 17 hours of debate and dozens of amendment votes, the House Ways and Means Committee favorably reported its tax title for the fiscal year 2025 budget reconciliation bill by a party-line vote of 26-19. During the markup, 38 Democratic-supported amendments were offered, but none were adopted. Brownstein published coverage of the committee’s markup, as well as a section-by-section summary of the tax title.
The committee transmitted its tax title to the House Budget Committee, which is responsible for consolidating the legislative packages reported by the other House committees with instructions under the budget resolution. The Budget Committee, however, failed to advance the 11-title package on a 16-21 vote on June 16 after hardline conservatives on the committee—Reps. Chip Roy (R-TX), Ralph Norman (R-SC), Josh Brecheen (R-OK) and Andrew Clyde (R-GA)—raised concerns about the level of spending cuts in the package and urged accelerated sunsetting of the Inflation Reduction Act (IRA, Pub. L. 117-169) tax credits. Late on Sunday, May 18, the four Republican members voted “present” and advanced the legislation by a 17-16 vote after negotiations with House Speaker Mike Johnson (R-LA) over the weekend.
The package now advances to the House Rules Committee, which is set to meet at 1:00 a.m. EDT on May 21 to consider the rule governing debate in the House of the reconciliation bill. The committee is expected to favorably report the rule, allowing the full House to debate and vote on the reconciliation bill this week. Along with hardline conservatives who are concerned about spending levels in the package, two other groups of House Republicans may threaten to prolong negotiations or vote against the full package on the House floor. Members representing districts in high-tax states have called for repealing, or significantly increasing, the state and local tax (SALT) deduction limitation. Similarly, while the fiscal conservatives continue to advocate for more aggressive cuts to the IRA energy credits, other members have raised concerns that the modifications to the IRA credits adopted by the Ways and Means Committee are too aggressive. President Trump spoke to members of the House Republican Conference on Tuesday morning to rally support for the budget reconciliation package.
Following the expected passage of the House version of the bill, the Senate will take up the legislation with Republican senators indicating strong interest in modifying several aspects of the package—including the tax title. Senate Republicans are particularly focused on ensuring the bill makes permanent the Tax Cuts and Jobs Act policies generally expiring at the end of this year, and are concerned about the level of cuts to Medicaid and IRA energy credits, as well as the fiscal balance of the bill.
House Republicans Urge Colleagues to Retain and Reform IRA Credits: Led by Rep. Jen Kiggans (R-VA), 14 House Republicans issued a joint statement to the House Republican Conference on May 14 calling for House leadership to modify the Ways and Means Committee’s tax title to make changes to the energy-tax provisions contained within the bill. The lawmakers commended the phase-out schedules for certain credits, but urged the committee to make three changes: (1) provide companies more time to reorganize supply chains before Foreign Entity of Concern (FEOC) restrictions go into effect, (2) replace the “placed in service” standard with a “beginning of construction” standard, and (3) allow the transferability of energy tax credits throughout the entire phase-out schedule. The lawmakers said that making these changes will allow for a bill that commits to “a responsible, realistic energy future that restores American energy dominance and supports families, workers, and businesses.”
Faulkender Points to August for Earliest ‘X-Date’: In an interview on May 15, Deputy Treasury Secretary Michael Faulkender said that August is the earliest the “X-Date”—the date that the United States runs out of borrowing authority—could be reached. Faulkender also expressed confidence that the 5% increase in federal tax receipts this year, compared to last year, would help ensure that the United States would not exceed its federal debt limit in the next two months. The House Ways and Means Committee included in its title of the budget reconciliation bill a provision to raise the statutory debt limit by $4 trillion.
Energy-Tax Mainlines
Ways and Means Tax Bill Includes Several Repeals, Sunsets, and Restrictions on Energy Credits: The House Ways and Means Committee’s tax title includes several energy provisions, mostly focused on repealing, sunsetting or applying strong foreign entity of concern (FEOC) restrictions, to reverse major portions of the Inflation Reduction Act (IRA Pub. L. 117-169). These provisions, contained in Subtitle C, Part 1 of the bill, help raise $500 billion to pay for other tax provisions within the bill. Among the most significant modifications to the IRA credits include repeal of incentives to purchase electric vehicles (Sections 25E, 30D, 45W, and 30C), as well as repeal of home-related energy credits (Sections 25C, 25D, and 45L), both at the end of 2025, largely eliminating the individual IRA benefits. The bill also proposes to repeal the Section 45V Clean Hydrogen Production Credit, prohibiting hydrogen facilities that do not begin construction before the end of 2025. Transferability of IRA credits generally would be repealed after 2027. Finally, the bill incorporates stricter FEOC restrictions on the remaining IRA credits, eliminating the ability of a taxpayer to claim a credit if they are controlled or influenced by the governments of China, Iran, North Korea or Cuba or receive material assistance from businesses associated with such countries.
1111 Constitution Avenue
Senate Finance Committee to Take Up Billy Long Nomination: On May 13, Senate Finance Committee Chairman Mike Crapo (R-ID) announced that the committee will hold a hearing to consider the nomination of former Congressman Billy Long (R-MO) to be the commissioner of the Internal Revenue Service (IRS). Long’s nomination has been pending consideration by the Finance Committee since then-President-elect Trump announced his intention to nominate him on Dec. 4, 2024.
Long’s nomination has stirred controversy amid allegations that Long may have advised clients to claim nonexistent “Tribal Tax Credits,” as well as his potential involvement with tax and financial advising companies that advised clients to claim the Employee Retention Tax Credit (ERTC) even if ineligible. Long is expected to receive scrutiny from committee Democrats about his advocacy for these credits, as well as questions concerning whether Long is adequately qualified to lead the IRS and whether the agency will continue to be politically independent under his leadership.
Democratic scrutiny over Long’s involvement with these companies, some of whom donated money to Long to repay $130,000 in debts incurred during Long’s 2022 Missouri Senate campaign, has continued. On May 15, Senate Finance Committee Ranking Member Ron Wyden (D-OR) and Sens. Elizabeth Warren (D-MA) and Sheldon Whitehouse (D-RI) sent letters to seven companies Long was reportedly involved with who donated to Long’s campaign fund, claiming that the “size and timing of these donations” suggest that they are connected to Long’s potential service as commissioner and “may constitute a violation of federal anti-bribery laws.”
IRS Seeks to Bring Back Fired Probationary Workers: According to an internal email on May 17, the Internal Revenue Service (IRS) has asked all probationary employees placed on administrative leave as part of the Trump administration’s directive to reduce the size of the federal workforce to return to work. Many of the probationary workers were hired in enforcement and modernization roles by the Biden administration.
Tax Worldview
Tax Bill Includes Extensions of Current Law, Retaliation Measure for Unfair Foreign Taxes: The House Ways and Means Committee’s tax title includes provisions extending the international tax provisions originally enacted as part of the Tax Cuts and Jobs Act (Pub. L. 115-97), as well as new legislation retaliating against “unfair foreign taxes.” The bill extends and makes permanent the current 50% deduction with respect to global intangible low-taxed income (GILTI), and preserves the current 37.5% deduction for exports of domestically produced goods under the Foreign-Derived Intangible Income (FDII) deduction. The bill also makes permanent the 10% (11% for banks and registered security dealers) tax rate and preserves the current treatment of tax credits under the Base Erosion Minimum Tax (BEAT) tax.
The bill includes a section titled “Enforcement of Remedies Against Unfair Foreign Taxes,” which adds a provision increasing the tax of an “applicable person” of a foreign jurisdiction levying unfair foreign taxes by 5 percentage points per year, up to a maximum of 20 percentage points. An “unfair foreign tax” includes undertaxed profits rule taxes, digital services taxes, diverted profits taxes and certain extraterritorial and discriminatory taxes. The retaliatory measure is intended to provide a counter measure against countries that have adopted the Organisation for Economic Co-operation and Development’s (OECD) global tax regime as well as digital sales taxes that predominantly affect U.S. multinationals.
Hearings and Events
House Ways and Means Committee
The House Ways and Means Committee has no tax hearings scheduled for this week.
Senate Finance Committee
On May 20, the Senate Finance Committee held a hearing to consider the nomination of William (Billy) Long to be the Commissioner of the Internal Revenue Service.