Congress Begins Moving a Bipartisan Tax Bill
On January 17, Senate Finance Committee Chairman Ron Wyden (D-OR) and House Ways and Means Committee Chairman Jason Smith (R-MO) announced bipartisan, bicameral tax legislation, the Tax Relief for American Families and Workers Act of 2024 (TRAFA). To summarize, TRAFA would extend three business tax breaks from 2017’s Tax Cuts and Jobs Act and expand the child tax credit, with these and other provisions partially paid for by ending the Employee Retention Tax Credit at an earlier date. In short, the bill, if enacted as introduced, would:
- Allow taxpayers to deduct rather than amortize research and development (R&D) costs until 2026 per IRC Sec. 174. Under current law, domestic R&D expenditures incurred after Dec. 31, 2021, must be amortized over a 5-year period.
- Allow taxpayers to calculate their IRC Sec. 163(j)[1] limit on interest deductions without regard to any deduction for depreciation, amortization or depletion, for tax years 2024-2026. This provision would generally increase the limitation and allow greater interest deductions for taxpayers.
- Retroactively extend the 100% bonus depreciation per IRC Sec. 168(k) for qualified property placed in service after Dec. 31, 2022, until Jan. 1, 2026. IRC Sec. 168(k) is phasing out and generally limited to 80% for property placed into service during 2023, 60% for 2024 and 40% for 2025.
- Increase the maximum refundable portion of the child tax credit from $1,600 to $1,800 in 2023, $1,900 in 2024 and $2,000 in 2025. These provisions would revert to a maximum $1,000 in 2026.
- End the period to file employee retention tax credit claims for 2020 and 2021 as of Jan. 31, 2024, instead of April 15, 2024 and 2025, respectively, and increase penalties for aiding and abetting the understatement of tax liability by “COVID-ERTC promoters.”
The House Ways and Means Committee cleared the $78 billion TRAFA (H.R. 7024) by a 40-3 vote on Jan. 19, and the House passed it by a vote of 357-70 on Jan. 31. However, there was much wrangling between House leaders and various House factions who are unhappy with provisions that are in the bill or have been left out.
Some Republicans dislike the bill because it expands the child tax credit and some Democrats think it doesn’t expand the child tax credit enough, while Republicans from high-tax states such as New York are unhappy because the bill doesn’t restore the state and local tax (SALT) deduction that’s been capped at $10,000 by the Tax Cuts and Jobs Act.
The desire by some Democrats to expand the child tax credit beyond $2,000 didn’t get much traction in the House. But the concerns of some Republicans about the manner in which the child tax credit is being expanded and others about the SALT cap will be addressed by bringing up a second bill on the House floor to address those issues in parallel to TRAFA.
With TRAFA (and possibly a parallel bill) passing the House, the legislation goes to the Senate where senators have their own ideas as to what should or should not be in TRAFA. Getting the right balance won’t be easy in the Senate, either, where 60 votes are needed to pass most bills.
