The Senate on August 1, by a vote of 48 to 44, fell short of the 60 votes needed to begin consideration of a $79 billion business and family tax relief bill (H.R. 7024) that had been approved by the House in late January by a vote of 357 to 70. The Senate vote was held after months of discussions between Republican and Democratic Senators that followed the bipartisan House action to approve legislation negotiated by House Ways and Means Committee Chairman Jason Smith (R-MO) and Senate Finance Committee Chairman Ron Wyden (D-OR). Three Republican Senators – Markwayne Mullins (R-OK), Josh Hawley (R-MO), and Rick Scott (R-FL) -- voted with Democratic Senators to advance the bill. Senator Joe Manchin (I-WV) and Bernie Sanders (I-VT), who caucus with Democrats, voted with Republican Senators against the motion to consider H.R. 7024. Senate Majority Leader Chuck Schumer (D-NY) changed his vote from yes to no to allow for him to possibly offer a motion to reconsider the vote later this year. Observation: Some Democrats voting no have expressed opposition to business tax provisions of H.R. 7024, and several Republican Senators voting no have expressed opposition to the child tax credit enhancements. Some Republican Senators who supported the substance of the negotiated agreement nevertheless voted no as an act of party solidarity because they characterized the timing of the vote as politically driven versus being a serious effort to legislate. As passed by the House, H.R. 7024 would have temporarily restored on an elective retroactive, seamless basis Section 174 expensing for US-based R&D investments, the EBITDA-based business interest limitation under Section 163(j), and 100% 'bonus' depreciation under Section 168(k) through the end of 2025. H.R. 7024 would have left in effect current law that requires R&E costs that are attributable to research that is conducted outside of the United States to be deducted over a 15-year period for tax years beginning after December 31, 2021. H.R. 7024 also would have provided an enhanced child tax credit provision, Taiwan double taxation relief, an expanded low-income housing tax credit, disaster tax relief, expanded Section 179 small business expensing, and Forms 1099-NEC and 1099-MISC information reporting relief. The $79 billion over 10 years cost of H.R. 7024 was proposed to be offset almost fully by accelerating the deadline for filing backdated COVID-related employee retention tax credit (ERTC) claims to January 31, 2024, and other ERTC changes.
The Senate action marks the likely end of efforts to restore on an elective retroactive, seamless basis the more business-favorable tax rules for Section 174 expensing, Section 163(j) interest deductions, and Section 168(k) ‘bonus’ depreciation that were originally in effect under the 2017 Tax Cuts and Jobs Act (TCJA). Observation: Efforts could be undertaken later this year to have the House and Senate consider a less generous, prospective-only version of bill’s business and child tax credit provisions that would apply generally for tax years after December 31, 2023 and through December 31, 2025. This effort could occur during the “lame duck” session of the current Congress that is expected to follow the November 5 elections. If no agreement can be reached later this year to address TCJA business provisions and child tax credit provisions on a prospective-only basis, there could still be interest during the lame duck session in a scaled-down tax bill to address the US-Taiwan and disaster tax relief provisions.
The new 119 th Congress that will begin in January 2025 could revisit the provisions of H.R. 7024, but the primary focus of tax legislation in 2025 is expected to be the more than $4 trillion of TCJA individual tax provisions that are set to expire at the end of next year, as well as other scheduled changes to roughly $1 trillion of business international and domestic tax provisions.
Business leaders will need to send a clear message to members of Congress that more business-favorable tax rules for Section 174 expensing, Section 163(j) interest deductions, and Section 168(k) ‘bonus’ depreciation continue to be a top priority for companies making investments and creating jobs in the United States.