It was supposed to be a slam dunk for lawmakers to pass a tax administration bill out of both chambers and pass a retirement bill out of the House before Memorial Day. But resistance from some Democratic members about a few provisions in these measures slowed or stalled these bipartisan bills, showing yet again the difficulty of moving tax legislation quickly in Congress.
“There are no easy lifts around here,” said Rep. Ron Kind (D-Wis.), a House Ways and Means Committee member. “For the last 20 years, the bipartisan muscles have atrophied.”
Five months into the new Congress, lawmakers seem far away from addressing other tax issues such as extending expired tax breaks or fixing errors in the 2017 tax law.
Although lawmakers in Congress like to talk about bipartisanship, the dynamic of a Democrat-majority House and a Republican-majority Senate complicates efforts. The politics of the 2020 election are also already playing a part in how lawmakers perceive some legislation.
“It’s all about the next election. I don’t think it’s anything about what we’re trying to do right now,” said Ways and Means member Mike Kelly (R-Pa.).
Kelly said passage of any substantive legislation could be perceived as a win for President Donald Trump. Hence, the Democratic reluctance, he said.
Still, all hope isn’t lost. A House floor vote on the retirement expansion bill (H.R. 1994) is expected this week. Attached to it will be a fix to an error in the tax law that is placing a higher tax on certain survivor benefits for military families.
The bill retooling portions of the Internal Revenue Service (H.R. 1957) also could find some new legs, with Senate Finance Committee ranking member Ron Wyden (D-Ore.) saying recently that removing a problematic provision could be an option to pass it out of the chamber.
What’s the Holdup?
The House quickly passed the IRS restructuring bill April 9 after it was introduced March 28.
The hurdles facing that bill in the Senate is notable because the measure was pre-negotiated between Democrats and Republicans.
Negotiating bills before they are introduced help lawmakers ensure their top priorities won’t flame out after they are introduced. When those agreements don’t hold up, it can leave them flat-footed.
Senate Democrats quickly took issue with a provision in the IRS bill that they worried could keep the IRS from offering its own free tax-filing option. A series of articles in ProPublica that showcased how tax prep companies shield free options from consumers brought even more attention to the provision.
If the Senate does succeed in passing the measure, any changes would mean it has to be sent it back to the House for another vote.
The retirement bill offers tax breaks aimed at expanding retirement savings, and has been championed by House Ways and Means Committee Chairman Richard Neal (D-Mass.).
Although Ways and Means approved the bill April 2, disagreement over a provision regarding tax-advantaged education savings plans lasted several weeks.
Republicans wanted to allow 529 plans to cover some home-schooling costs. A May 16 manager’s amendment from Neal removed that language and included the fix for military families. The House Rules Committee is set to consider the measure May 20, before a vote this week.
Passing the bill out of the House isn’t the only challenge. The Senate is exploring several of its own retirement bills, meaning the Senate version of a retirement package could look different from what passes the House. If that is the case, the House and Senate will have to reconcile the differences.
Ways and Means Democrats fear that Senate Finance Committee Chairman Chuck Grassley (R-Iowa) might add other tax provisions to bills once the House passes them. That could be a problem when trying to move legislation quickly, because provisions backed by the Republican-majority Senate may not have legs in the House.
The House controls tax bills because they have to originate there, said Sen. Ben Cardin (D-Md.).
“So when they send us over a bill, they always run the risk that we could use it as a shell and initiate legislation on our side,” Cardin said. “So there is that concern.”
The challenge of passing tax legislation so far is also an indicator of the more liberal wing of the House asserting its power, said Rohit Kumar, a former top aide to Senate Majority Leader Mitch McConnell (R-Ky.), who now works for PwC.
Lawmakers will likely overcome the issues slowing down the IRS and retirement bills, “but it’s certainly been more challenging than had been expected,” he said.
Democratic lawmakers also haven’t forgotten how they were shut out of the process of writing the 2017 tax law. That is one reason why they remain reluctant to fix errors in the law: While there is agreement on the issue facing military families, resolving other errors isn’t so easy.
“Some of my Democratic colleagues are still not exactly thrilled with the tax reform we did, so that kind of throws sand in the gears,” said Senate Finance member Pat Toomey (R-Pa.).
The battle over Trump’s tax returns also has the potential to complicate relations among lawmakers in the tax-writing committees.
Republicans have accused Neal of weaponizing the tax law. And already, Wyden is seeking answers from Treasury Secretary Steven Mnuchin about how he arrived at his decision to not hand over Trump’s tax returns.
Rest of the Year
The pressure on both sides is building, with some hoping that Congress will pass tax legislation, like extenders, in the second half of the year. On May 16 Grassley and Wyden announced a Senate Finance task force to examine the utility of these tax breaks.
“There are a lot of things that need to be addressed on the tax front, I hope sooner than later, like extenders and everything else, because a lot of friends that have talked to me and need to make an investment,” said Rep. Vern Buchanan (R-Fla.). “They need to know where Congress is going to be on this stuff.”
Dozens of extenders expired at the end of 2017. The perks help industries such as biodiesel and short line railroads.
Sen. Sherrod Brown (D-Ohio) mentioned tax extenders as one issue that he wants to tackle before the end of the year. Expansion of the Earned Income Tax Credit is another idea that Brown has been pushing, while other Democrats are focused on giving tax-relief to the middle-class.
But Pascrell wasn’t super hopeful about increased cooperation between the two parties in the coming months.
“That is not going to change much as we head toward the election year,” Rep. Bill Pascrell (D-N.J.) said.