Update 744 — January Preview, Part II:
Supplemental, FY24 Crowd Hill Agenda
Congress confronts a full agenda of must-pass-quickly items upon returning from recess in January. Members will have to complete work on the long-delayed national security supplemental package before seeking to resolve months-long impasses in the FY24 appropriations process. Watch out for a full-year CR, a fine solution for Republicans, and their proposals for extreme spending cuts. The associated nine percent cut in non-defense discretionary spending worries progressive and would promise contention in January.
Waiting in the wings: a floor vote on a tax package facing administrative time constraints and an effort to reform Supplemental Security Income. Both have bipartisan support and could get crowded out if not added to a must-pass bill. Overseas and domestic consequences would follow from Congressional failure to move on these priorities in their first month back from recess.
The year ended with the final notable economic stats drop of the year, as today’s PCE data reinforced an auspicious trend toward the Fed’s two percent target in November, with headline PCE falling by 0.1 percent over the month, for the first time since April 2020.
On that note, happy holidays and best wishes for a good outcome in 2024. See you in January…
Best,
Dana
Supplemental Negotiations Lead New Year’s Agenda
On Wednesday, Senate Majority Leader Chuck Schumer (D-NY) adjourned the chamber for 2023. The Senate has left for recess without making any legislative progress on the controversial items in border policy negotiations, which would unlock Republican support for the $110 billion national security supplemental package, providing vital funding for Ukraine, Israel, the Indo-Pacific, and the U.S.-Mexico border. Senate leadership seemingly accepted the grim reality that no deal on potentially the most significant border policy changes in decades would materialize in the final days of the extended December session.
This package not only provides military assistance and weapons to American allies, humanitarian assistance efforts by the Department of State and USAID would also receive $10 billion. While $46.6 billion of procurement assistance would be provided for investment in the U.S. industrial base. President Biden has highlighted the investment in key battleground states to hopefully shore up public and political support of Ukraine funding illustrated in this map distributed by the Department of Defense:
President Biden announced the final tranche of drawdown authority for Ukraine earlier this month. Funding for Ukraine now solely depends on Congressional action in January. Senate Majority Leader Chuck Schumer (D-NY) made clear a bipartisan group of Senators would continue their negotiations virtually for a border package through the holiday recess to prepare for “swift action” upon their return to Washington.
While details of the negotiations are tightly held among a bipartisan group of negotiators, discussions reportedly include raising the “credible fear” requirement for asylum seekers, strengthening border patrol enforcement, and creating policies that would deter migrants from reaching the border. Even if a bipartisan deal were to pass in the Senate, it would face a Republican-controlled House in which many members have already demanded even more extreme policies from H.R. 2. Republican support for Ukraine has faded over the past few months, but agreeing on border negotiations will be vital for their military to counter Russian aggression.
Negotiators have struggled to balance the need to shore up waning Republican support for any funding for Ukraine and worries from Democrats who will not accept H.R. 2-level policy changes. Any long-lasting changes to border policy will set a dangerous precedent and likely have ramifications for President Biden as he enters an election year. Congress will have to hit the ground running on these negotiations in January, as they already have a full docket, to avoid a partial government shutdown on January 17.
No New Action on FY24 Appropriations; Shutdowns Loom
With Fiscal Year 2024 (FY24) appropriations funding stuck behind the emergency supplemental package in the legislative queue, little progress has been made since Speaker Johnson’s laddered CR proposal was voted into law last month.
The laddered structure was supposed to simplify negotiations by breaking up FY24 funding decisions into two batches. Still, only seven of the 12 appropriations bills have passed the full House and three have passed the full Senate as we approach two partial government shutdowns. Proposed funding levels and the current status of each appropriation bill are highlighted below:
It appeared at first blush like a breakthrough when the House Freedom Caucus (HFC) ceded to the higher FY24 appropriations funding cap of $1.59 trillion this month, pursuant to the terms of the Fiscal Responsibility Act (FRA). But in the weeks since, it has become clear that this agreement is anything but a concession. Republicans, led by HFC member Chip Roy (R-TX), have continued to advocate for spending cuts and stated their opposition to $69 billion in non-defense discretionary (NDD) side-deal funding, a condition of Democratic support for the FRA.
Speaker Johnson, joined by House Republicans, has taken an omnibus spending package and another short-term CR off the table. The Speaker has not ruled out a full-year CR, which is the only option that will gain Republican support aside from full-year funding bills. But a full-year CR looks dubious to Democrats, as it would likely lead to a nine percent cut in NDD spending due to the absence of side deal funding and one percent across-the-board cuts that are triggered if Congress fails to pass all 12 appropriations bills by mid-April. 20/20 Vision urges Congress to stick to the terms of the FRA and avoid the harmful economic consequences of a government shutdown or full-year CR.
Tax Package and SSI Reform: Seeking a Vehicle
In addition to a supplemental funding package and FY24 appropriations bills, Congress is expected to take action on a tax package and a bill that reforms Supplemental Security Income (SSI) when they return from recess in January. Although there is bipartisan support for these measures, they will need to find a legislative vehicle to make it across the finish line.
Tax Package
Lawmakers have been working on a tax package that would address business tax provisions in exchange for an extension of the Child Tax Credit (CTC). This package would:
- Extend 100 percent bonus depreciation through 2025
The Tax Cuts and Jobs Act (TCJA) increased bonus depreciation from 50 percent to 100 percent, allowing businesses to deduct the full cost of property (usually equipment or software) in the first year of use. The 100 percent deduction began its phase-out in 2022 and will decrease by 20 percent each year until it reaches zero percent in 2027.
- Reinstate R&E expensing through 2025
The TCJA changed tax policies that allow immediate expensing of research and experimentation (R&E) costs. As of 2022, firms must amortize expenses over a 5-year (domestic research) or 15-year (international research) period. This change marks the first time companies can not immediately deduct R&E expenses since 1954.
- Delay tighter limit on interest deductibility through 2025
The TCJA changed the calculation used to determine interest deductibility, which has resulted in increased tax liabilities for many businesses.
- Expand the CTC through 2025
A temporary CTC expansion passed in 2021 as a part of the American Families Rescue Plan. Since the end of the CTC expansion, progressives have been calling for an extension of this valuable anti-poverty measure. Money for the CTC will be 1:1 with the cost of the three business tax provisions above.
Committee for a Responsible Federal Budget (CRFB) created a table showing full cost estimates of the tax package:
Source: CRFB
The timing of the tax package is crucial, as businesses must receive tax benefits for the 2023 tax year to ensure balanced costs with the CTC. The IRS will still likely be able to implement changes if this legislation passes in January. However, if Congress does not move quickly and provide the IRS enough time to apply them for the 2023 tax year, both sides will likely have to return to the drawing board.
Supplemental Security Income
Another piece of bipartisan legislation up for consideration in January will be the reform of the SSI program, which provides additional income for the elderly and people with disabilities. The asset thresholds of the program have not been updated in 40 years, and exclude individuals with more than $2,000 in assets and married couples with more than $3,000 in assets.
The SSI Savings Penalty Elimination Act, sponsored by Senators Bill Cassidy (R-LA) and Sherrod Brown (D-OH), would raise the asset thresholds to $10,000 for individuals and $20,000 for married couples. Additionally, it would ensure that these caps are indexed to inflation so that the program can continue providing the same benefits.
Representatives Brian Higgins (D-NY) and Brian Fitzpatrick (R-PA) have introduced a companion bill in the House under the same name, and both bills enjoy support from a bipartisan slate of legislators and organizations.
The Road Ahead Depends on a Vehicle
The terms for the carefully balanced tax package and much-needed reform to SSI have already been decided. But the agenda could force problematic delay if they remain standalone bills. Timely passage requires that they be grouped in with must-pass legislation to receive consideration at a time when there is already a logjam of other priorities. The most likely contenders as vehicles: FY24 appropriations bills, which will be second on Congress’ mind to deal is struck on the supplemental package.
While there is bipartisan support for the tax package and SSI reform, Speaker Johnson may be opposed to adding extraneous bills to FY24 funding legislation. 20/20 Vision urges Congress to pass these key pieces of legislation that provide increased assistance to families, children, and people with disabilities.