Lawmakers Brace for Showdown as Return to Spending Nears

“Congress Returns with Looming Government Funding Crisis: Impact on Tax Legislation Prospects”
As Congress prepares to reconvene, an immediate government funding crisis awaits, potentially influencing the trajectory of tax legislation.

The Senate is set to convene on September 5, followed by the House on September 12. Within these few weeks, lawmakers must strike a deal on government funding before it expires on September 30. Crafting a comprehensive omnibus bill or completing individual appropriations bills by the deadline seems unlikely. A more plausible scenario is the implementation of a continuing resolution (CR), although the Freedom Caucus’ demands for concessions could complicate matters, raising the specter of a government shutdown.
The alignment of timing and the substance of a spending agreement holds significance for tax policy. A spending deal could serve as one of the few legislative avenues available to carry a tax package. Should a short-term CR be passed, and a broader spending agreement reached before the year’s end, the potential for a year-end deal incorporating tax priorities emerges. Conversely, if only incremental spending agreements are attained and a partial or full CR extends well into 2024, optimism for a comprehensive tax package diminishes.

However, before such considerations, lawmakers must bridge differences concerning the tax package itself. Current indications suggest that consensus remains distant regarding trading enhanced child tax credits for the restoration of research expensing under Section 174, the revival of 100% bonus depreciation, and addressing the Section 163(j) limit on interest deductions. While Republicans express openness to child tax credit relief, Democrats insist that such relief align with business provisions. Nonetheless, numerous obstacles loom that could disrupt any potential agreement. Some Republicans stipulate work requirements for new child tax credit benefits, a stance at odds with Democrats. Furthermore, the heightened focus on deficits complicates the passage of an expensive tax compromise without revenue offsets.

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