TAKING STOCK OF A TAX DEAL (AGAIN): It’s almost like the tax policy version of “if a tree falls in the woods and no one is around to hear it, does it make a sound?” Think of it as “can there be a backlash to a tax deal that probably never was going to happen?” Sure, it’s too soon to say there definitely won’t be a tax deal, though the vibes still aren’t great and the broader forces assembled against negotiators haven’t gone anywhere. And for whatever it’s worth, more groups are speaking up against a hypothetical tax deal that would involve both expanding the Child Tax Credit and reviving some tax breaks for business. For instance, the Committee for a Responsible Federal Budget on Friday called that prospective agreement fiscally irresponsible — arguing, quite rightly, that the projected $100 billion cost of the floated deal almost certainly understates the long-term lost revenue. MORE ON THAT IN A BIT, but first thanks for joining this pre-Thanksgiving version of Weekly Tax. You should all know that we’ll follow the hottest tax trials whenever, wherever they are. (Alright, we’ll see ourselves out.) Watch out, trombonist: Today marks 41 years since something called “The Play,” which ended a college football game between Stanford and California — and in which the Stanford band somehow also plays a prominent role. Do you have an extra point to make? Let us hear about it. Email: bbecker@politico.com, bfaler@politico.com, bguggenheim@politico.com and teckert@politico.com. You can also reach us on Twitter at @berniebecker3, @tobyeckert, @brian_faler, @ben_guggenheim, @POLITICOPro and @Morning_Tax. LET’S TALK FISCAL RESPONSIBILITY: As it stands, the basic idea is that a more generous CTC and reversing three business tax increases from the GOP’s 2017 tax law would each cost around $50 billion. The basic idea also is that those policies would be enacted until the end of 2025, when the individual provisions from the Tax Cuts and Jobs Act are also set to expire. So you can see the objection from budget hawks like CRFB, which projects that a short-term $100 billion measure could balloon into $800 billion in tax cuts if all those policies are extended for good in a 2025 negotiation. And that, of course, would be on top of other potential tax cut extensions that could add trillions more to the deficit.
“With debt approaching record levels, lawmakers should avoid a year-end tax cut binge,” CRFB wrote on Friday. “Policymakers should also be transparent about costs, rather than rely on arbitrary expirations to hide the future costs if they continue making the same actions.”
TAKING A STEP BACK ON THIS TAX DEAL: One of the more striking features of this current batch of tax negotiations is how much they’ve happened in slow motion — if you can say there has been any motion at all. (Seriously, look at this rundown of the tax talks from almost exactly a year ago and tell us how much has changed.) Not surprisingly, practically all of the tax people that Weekly Tax reached out to on this issue have said that the even more extreme than usual dysfunction on Capitol Hill, driven by House Republicans, is the major culprit for why these tax talks have been so stuck in the mud. But it’s also true that Congress has hashed out far more complicated bipartisan tax deals in the last decade, during a span when the Capitol wasn’t exactly known as the most functional workplace. For instance, lobbyists have pegged those basic contours of a tax deal — $50 billion for each side’s priority, running through 2025 — for months now. Or to put that another way: The actual negotiations over the tax policy is the simple part here. So is there anything else that might have gotten in the way? People in the know point to a variety of micro issues, while still stressing that the macro issue -- the House Republicans -- is the major issue. For starters: The House GOP’s current laser focus on appropriations hasn’t helped prospects for a tax deal — and also underscores that a tax agreement hasn’t been a top priority for lots of people over the last year or so. Reversing those TCJA tax increases — which would bring back more favorable deductions for research costs and interest paid on debt, as well as full expensing of capital investments — probably has been the prime tax concern for companies over the last year or two. Still, it does appear that lots of folks in the business community thought other issues were more important overall, like appropriations or the bipartisan work to promote more domestic semiconductor production. At the same time, congressional leadership in both parties and both chambers hasn’t found much to be excited about with this potential tax deal, either. Some timing issues, too: It’s also worth noting that it was only around this time in 2022 that Democrats really made it clear that they wouldn’t agree to any year-end tax deal that didn’t expand the CTC. (Or maybe it was around this time that more people started to realize they were serious about that idea.) The essential bones of a potential deal coming together so late made it more difficult for an agreement to materialize before the end of the last Congress, pushing it forward and on to the to-do list of this narrow House GOP majority. For instance, Democrats privately admitted last year that they knew a bipartisan tax deal wouldn’t revive their 2021 expansion of the child credit, which turned the incentive into a monthly payment program. But with tax talks stuck in a standstill for basically the last year, it’s only recently that news leaked out that Senate Democrats were floating a $49 billion, two-year CTC expansion. Meantime, GOP lawmakers in general don’t seem to have any overwhelming objection to further expanding the child credit right now, as long as it includes some kind of work requirement. But around a year ago, many Republicans did recoil at expanding the child credit in exchange for bringing back immediate deductions for research expenses — a proposal that has bipartisan support. Finally: For better or worse, it’s quite possible that these particular tax talks could spill into a third separate year, even as it seems like an uphill climb that much will come of them. The most recent stopgap spending bill kicked the next appropriations talks into 2024, taking away the most obvious broader vehicle for a tax bill in December. It’s perhaps not ideal to potentially talk about cutting taxes for 2023 next year, after the latest filing season has started. But people in both parties don’t expect that conversations over a tax agreement will to come to an end if a deal isn’t cut by the end of this year.
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