Legislative Lowdown

BBBA Comeback? President Biden’s first State of the Union address appears to have reignited discussions around a revised version of the Build Back Better Act (BBBA), though the president did not reference the legislation by name. During his address, President Biden pared back his priorities to include only a handful: drug pricing and health care reform, child care assistance, home- and community-based services, affordable housing and clean energy. Click here for a complete overview and analysis of the State of the Union address.
 
Following the address, Sen. Joe Manchin (D-WV) said he could accept spending on “climate” and left-over funds might go toward “social issues” in a renegotiated package. He said revenue should be raised through drug pricing reform and by amending the Tax Cuts and Jobs Act so that taxes are increased on high-income earners and corporations. Under Manchin’s proposal, half the revenue raised would be dedicated to deficit reduction. Manchin’s tax proposal will face roadblocks. Sen. Kyrsten Sinema (D-AZ) has previously opposed increases to the corporate rate. At the same time, however, Sinema has supported a corporate minimum tax for large corporations, a new surtax on individuals earning above $10 million and an excise tax on corporate stock buybacks. It is unclear if Manchin will support these provisions, but he acknowledged last week he will have to coordinate with Sinema, saying he is “happy to look at [Sinema’s proposals],” and adding that “Kyrsten is a really good friend.”
 
Senate Majority Leader Chuck Schumer (D-NY) sought to spur additional momentum on Monday when he sent a Dear Colleague letter that said Senate Democrats are prepared to move on legislation “to lower the rising cost of energy, prescription drugs and health care, and the costs of raising a family.” The letter also said Senate Democrats and Republicans are cooperating on bipartisan legislation to address insulin and meat prices.
 
Emergency Appropriations Week. Congress is again running up against a government funding deadline. The current continuing resolution (CR), which has retained Trump-era government funding, expires this Friday, March 11. Without passage of additional funding legislation, whether that be another CR or an omnibus, the government will be forced to shut down. This is unlikely to happen.
 
To avoid a shutdown, though, Congress must pass another CR or a $1.5 trillion omnibus, the latter of which is more likely. A short-term CR, which would be the fourth of the current fiscal year, could also be necessary, allowing lawmakers additional time to finalize and approve text.
 
In addition to finalizing last-minute issues on the omnibus, lawmakers are preparing supplemental spending language that would provide humanitarian, military and economic aid to Ukraine and replenish COVID-19 response programs that have been depleted. The tax components within each are explored in greater depth below:

• COVID-19 Supplemental. The $15 billion COVID-19 supplemental request originally contained $29.7 million for Internal Revenue Service operations support for “conducting criminal investigations and enforcing criminal statutes related to violations of internal revenue laws and other financial crimes.” According to an explanation of the request, the funds would be used for “entity linking analysis, digital asset tracing, attribution of concealed efforts and identifying true beneficial ownership.”

• Ukraine Supplemental. The $12 billion Ukraine assistance request contains $9.7 million for the Department of Justice Criminal and Tax Divisions to assist attorneys supporting “task forces with tax-specialists to ensure sanction evaders are prosecuted.”

Speaker Nancy Pelosi (D-CA) said in a Dear Colleague letter over the weekend that “the Congress intends to enact this emergency funding this week as part of our omnibus government funding legislation.” As of this writing, lawmakers hope to release the text on Tuesday and vote on the measure on Wednesday before House Democrats head to Philadelphia for a policy retreat. If the House is unable to approve the measure before then, they may have to return on Friday for a vote. As of this writing, the text had not yet been released, but it appears no tax title will be included.
 
The supplementals could run into Republican opposition, however. With respect to the COVID-19 supplemental, some Republicans have pushed against additional funding since “there’s a lot of unspent money” that has already been appropriated for COVID-19 programs, according to Senate Appropriations Committee Ranking Member Richard Shelby (R-AL). Similar concerns were also raised by Senate Minority Whip John Thune (R-SD), who said last week, “there’s going to be a lot of resistance on our side to” additional COVID-19 aid. That resistance materialized on Wednesday, March 2 when 36 Senate Republicans sent a letter to President Biden saying, “it is not yet clear why additional funding is needed.”
 
The Ukraine supplemental is likely to enjoy more widespread Republican support, although the package ran into early trouble over the source of Ukraine aid. Democrats originally proposed pulling the supplemental aid directly from Defense Department funding, which was met with resistance from Republicans.
 
Republicans Clash on Tax Agenda. Sen. Rick Scott (R-FL), a first-term senator who chairs the National Republican Senatorial Committee, released an 11-point plan in February that he says Republicans should pursue if they win the Senate majority next Congress. The so-called “Plan to Rescue America” contains multiple tax and budget provisions, including:

• Requiring all Americans to pay some income tax, even a small amount, “to have skin in the game.”
• Drastically simplifying the tax code, eliminating advantages for those who can afford tax lawyers.
• Cutting IRS funding and workforce in half.
• Prohibiting institutions of higher education from receiving federal funding and claiming tax-exempt status if they “favor or discriminate against students based on race or ethnicity in the application process.”
• Prohibiting tax laws from rewarding people for being unmarried or discriminating against marriage.
• Requiring federal assistance recipients to be disabled or “aggressively seeking work.”
• Balancing the federal budget and prohibiting increases to the debt ceiling absent a declaration of war.

The impetus for the plan was a response to longstanding accusations from Democrats that Republicans have no positive legislative agenda—only efforts that undermine and obstruct the Democratic agenda. Scott hopes the plan will provide voters with a clearer understanding of what Republicans will do if they regain the majority in 2023.
 
The plan has been met with sharp criticism from Scott’s colleagues, including Senate Minority Leader Mitch McConnell (R-KY). McConnell, for instance, said last week to reporters: “let me tell you what will not be a part of our agenda: we will not have as part of our agenda a bill that raises taxes on half the American people and sunsets Social Security and Medicare after five years,” referring to part of Scott’s plan that would sunset all federal legislation after five years.
 
McConnell also responded to reports that former President Trump has been urging Scott to run as the Senate Republican leader next Congress. McConnell said, “If we’re fortunate enough to have the majority next year, I’ll be the majority leader.”
 
Other Republicans are concerned Scott’s plan could expose them to attacks in the midterm elections.
 
Sen. John Cornyn (R-TX), who is a top contender to replace McConnell when he leaves the Senate, said Scott’s plan “is not an approach embraced by the entire Republican conference.” Instead, Cornyn said the conference will keep its “focus on inflation, crime, the border and Afghanistan,” adding only that “some of these other things are things to think about … after the election is over.” For now, however, Senate Republican leadership reportedly has no alternative plan in the works.
 
In response, Scott published an opinion article in the Wall Street Journal last week defending his plan, saying, “Republicans and independents demand […] a plan to save our nation. They see no point in taking control of Congress if we are simply going to return to business as usual.” He specifically responded to opposition that has arisen against requiring all Americans to pay at least some income tax. Scott wrote that he is “a tax cutter—always have been, always will be,” adding that he wants “to require those who are able-bodied but won’t work to pay a small amount so we’re all in this together.”

1111 Constitution Avenue

Tackling the Backlog. The Internal Revenue Service (IRS) plans on hiring around 10,000 new full-time workers to address the processing backlog, according to reports. The new hires, which are expected to occur over the next two years, would represent a 14% increase in the agency’s existing workforce.
 
According to National Treasury Employees Union President Tony Reardon, “the IRS has been granted Direct Hire Authority for roughly 10,000 entry-level positions in submission processing and accounts management.” This authority will allow the IRS to circumvent the ordinarily time-consuming vetting procedures involved with federal hiring.
 
The agency plans to hire 80 new positions ranging from entry-level workers to tax attorneys and technology professionals to assist with IT modernization efforts. Many of the new hires are expected to require months of training, ultimately delaying the speed with which the new hires will be able to contribute to the backlog reduction. Relatedly, National Taxpayer Advocate Erin Collins said last week it would not be until the end of March that it will become clearer as to whether the current IRS plan to address the backlog is effective.
 
IRS Takes Down CTC Webpage. The IRS has taken down an online tool designed to help low-income taxpayers collect Child Tax Credit payments. The administration reportedly feared the portal, which was intended to assist those who did not earn enough income to have to file a return, would cause confusion during the current filing season. The administration was primarily concerned that taxpayers who do file annual returns would use the online tool and create more confusion for IRS personnel as they work through the existing backlog.
 
The Biden administration said the site would again be online after the fling season concludes on April 18. However, for the current filing season, the administration urged low-income earners to file a traditional tax return.
 
IRS Stands Up Taxpayer Experience Office. The IRS established a new office on Friday designed to improve taxpayer experience. The aptly named Taxpayer Experience Office will be responsible for “all aspects of taxpayer transactions with the IRS across the service, compliance and other program areas, working in conjunction with all IRS business units and coordinating closely with the Taxpayer Advocate Service,” according to an IRS release.
 
The office will, according to the IRS, “identify changing taxpayer expectations and industry trends, focus on customer service best practices, and promote a consistent voice and experience across all taxpayer segments by developing agency-wide taxpayer experience guidelines and expectations.”
 
The office already has a near-term agenda, which includes expanding customer callback, expanding payment options, securing two-way messaging and providing more services for multilingual customers. Over the next five years, the office will look to implement the commitments outlined in President Biden’s Executive Order on Transforming Federal Customer Experience and Service Delivery to Rebuild Trust in Government, which requires the Treasury Department to “design and deliver new online tools and services to ease the payment of taxes and provide the option to schedule customer support telephone call-backs” and “consider whether such tools and services might include expanded automatic direct deposit refunds based on prior year tax returns, tax credit eligibility tools, and expanded electronic filing options."

Global Getdown

Tax Committees Ukraine Response Plan. On Monday, the chairs and ranking members of the Senate Finance Committee and the House Ways and Means Committee announced agreement on legislation designed to suspend normal trade relations with Russia and Belarus. In a corresponding statement, the leaders announced they “have agreed on a legislative path forward to ban the import of energy products from Russia and to suspend normal trade relations with both Russia and Belarus.” According to a press release, the legislation would:

• Provide the president authority to further increase tariffs on products of Russia and Belarus;
• Require the U.S. Trade Representative to use the voice and influence of the United States to seek suspension of Russia’s participation in the World Trade Organization (WTO) and halt Belarus’ WTO accession; and
• Provide the president with authority to restore normal trade relations with Russia and Belarus subject to certain conditions and congressional approval.

At a Glance

• A group of leading academics and former government officials—including former Joint Committee on Taxation Chiefs of Staff David Brockway and Ronald Pearlman; former Treasury Assistant Secretaries for Tax Policy Mark Mazur and Pamela Olson; and former IRS Commissioners Fred Goldberg, Lawrence Gibbs, David Kautter, Steven Miller, Charles Rossotti and Daniel Werfel—sent a letter last week to the chairs and ranking members of the House and Senate Appropriations committees asking them to “to provide the IRS with sufficient funding to work down its backlogs this year while putting the agency on a path to effectively process tax returns, provide adequate taxpayer services, and efficiently collect revenue.”

• Last week, the Independent Community Bankers of America (ICBA) sent a letter to the leadership of the House Ways and Means Committee and the Senate Finance Committee asking Congress to adopt legislation that would require federal credit unions to file IRS Form 990, “Return of Organization Exempt from Income Tax,” to provide transparency into their tax-exempt expenditures.

Brownstein Bookshelf

• Last week, Sen. John Kennedy (R-LA), introduced the Require Employees To Uniformly Return Now (RETURN) Act. The bill would require teleworking IRS employees to return to the office to address backlog concern.
• The Wall Street Journal editorial board published an article entitled “Say It Ain’t So on Taxes, Joe Manchin.” In the article, the board called on Sen. Joe Manchin (D-WV) to “save the country again by calling the whole thing off,” referring to the BBBA.
• The New York Times published an article on Friday explaining the continuation of difficulties ahead for the IRS.