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Senate Democrats and Republicans could reach an agreement to extend expiring tax provisions

The emerging agreement by Congressional leaders to extend the continuing resolution (CR) funding government operations through December 20 provides negotiators both on spending and tax a month or so of additional time to reach agreement, and the negotiators (the “four corners” – chairs and ranking members of the appropriations and tax-writing committees, and top Leadership) are hoping that as a late holiday adjournment deadline approaches their colleagues will be more willing to compromise.

Employers get a tax credit of
$1,200 to $9,600

On the tax side there are indications that if left to their own devices Senate Democrats and Republicans could reach an agreement to extend expiring tax provisions, enact some technical corrections and policy changes to Tax Reform, and weather disaster relief provisions, with relative ease, as well as some modest Democratic priorities. Key Senators on both sides of the aisle understand that the tax package will not be offset even though House rules require otherwise (this rule will have to be waived). By contract there is a great deal of daylight between Senate Republicans and House Democrats (and even Senate Democrats and House Democrats) over demands for a major expansion of the Earned Income and Child Credits – EITC/CTC – (worth around $150 billion) as the “price” for extending expired and expiring tax provisions. Senate Republican Leaders, including Finance Committee Chairman Charles Grassley (R-Iowa) have warned their House Democratic colleagues that they may be overestimating the desire of Senate Republicans to agree to the tax extenders; basically Senate Republicans favor the extenders but not at the price that their House Democratic colleagues are demanding. Moreover, Senate Republicans (and some Democratic colleagues as well) bristle at claims by some House Democrats that the extenders are business provisions of interest only to Republicans given that at least half of the provisions were championed by Democrats.

Despite these considerable disagreements, there are reliable reports that the four corners are meeting regularly and that their staffs are also meeting regularly, and that the discussions are becoming more substantive. For much of the year the discussions centered on the issue of whether to hold substantive talks and as a result, the current posture is a breakthrough.

It is possible that the House Ways and Means Committee next week (prior to adjourning for the Thanksgiving Holiday for a week) will consider a clean energy package which should have strong support from the environmental community. One possible approach down the road could be for the Democratic Leadership in the House to suggest that the tax extenders be linked to the energy package putting the far more expensive and controversial EITC/CTC package aside for now with the hope that this move will keep a sufficient number of Democrats on board for a final deal. The EITC/CTC package is a very tough lift in the Senate; Republicans point out that they practically doubled the CTC in Tax Reform and a further expansion is premature.

Congressional staff following the four corners discussions suggest that the outcome could be a small package, which might consist of little more than the extension of expiring provisions through the end of 2020 and little else, or a medium package, which might include some technical fixes to Tax Reform in exchange for some modest Democratic priorities (some Senate Democrats would like to expand tax credits for electric vehicles), or a much larger package that will also contain some policy changes to Tax Reform and some larger Democratic priorities, possibly a less expensive version of an EITC/CTC expansion. While the potential components of a year-end tax package are now on the table, what has yet to emerge is a consensus on what should be included; in other words, the politics of a year-end deal have yet to be worked out.

The impeachment process will affect the timing of any deal as well. The House is expected to vote on impeachment close to the anticipated December 20 adjournment date with a vote on a year-end spending and tax package within the same time frame. The Senate would likely begin an impeachment trial in January making it difficult to complete any other legislative business until March or so when the Senate would vote on whether the President should be removed from office. As a result, Congressional Leaders will likely reach a deal on a robust appropriations/tax package by December 20 that covers the rest of the fiscal year, or may have to settle for another CR that could go until the Spring when the impeachment trial is over.

With no other clear legislative vehicles in sight the tax package will likely ride on the spending bill and if the appropriators fail to reach a long-term deal by December 20, the tax package may have to wait.

The transition to substantive discussions on a possible tax bill is progress but by no means is the outcome a done deal. Tax writers and their staffs, and Leadership, recommend that advocates of provisions that could go into a final deal persist in contacts with Congress, especially on the grassroots level, and especially with House Democrats, to urge them to finish the job on a tax and spending package before they leave for holiday in late December, and to highlight the harm that will come if they fail to act.