Congress Welcomes the New Year with a Budget and Tax Showdown

During the last several months of 2023 Congress rewrote the rules of inefficiency. In the House, Republicans spent nearly a month selecting, re-selecting, and finally electing a new Speaker of the House. The full House unsuccessfully attempted to pass appropriations bills, leading to a temporary “laddered” continuing resolution (CR). They then rounded out the year by expelling now-former Rep. George Santos (R-N.Y.). 

The late-2023 Senate floor schedule reads like the guest list of an Elizabethan Era social gathering: Name, State, Agency. Beyond that, the levers of power in the upper chamber spent their time squabbling over supplemental funding for Ukraine, Israel, and the U.S.-Mexico border. 

The fiscal year (FY) 2024 spending showdown is a tale of two parts: the incentivizing provisions within the Fiscal Responsibility Act (FRA), and the laddered CR passed on November 14, 2023. The FRA includes incentives for passing full-year appropriations bills. This includes automatic spending cuts if the government is operating under CRs for any budget account on January 1, 2024 – or 2025. The first such cut went into effect this week. The total discretionary budget was reduced by $3.77 billion (0.24 percent). If operating under a CR at the dawn of 2025, total discretionary spending will be reduced by $19.67 billion (1.22 percent).

Under the current CR, funding for 4 of the 12 budget accounts will expire on January 19th. With the laddered approach of the existing CR, the remaining 8 budget accounts will expire two weeks later on February 2nd. 

As part of a funding agreement, congressional Republicans’ top priorities are to accelerate cuts to IRS funding and include supplemental funding for border security. As a fiercely divided conference, many may stall to try and secure the additional cuts in 2025. Others are comfortable shutting down the government entirely if their goals are not met. 

The last time Congress passed all its appropriations bills on time was 1997. Since 2020, not a single standard appropriations bill has become law. From FY 2010 to FY 2023, only seven out of the possible 168 appropriations bills have become law (five of those were in 2019). This track record provides a grim outlook for enthusiastic fans of Congress meeting its basic Article I responsibilities.

Also making a rightful push to center stage is highly anticipated tax reform. Several provisions from the historic 2017 Tax Cuts and Jobs Act (TCJA) are set to expire at the end of 2025. Securing the extension or permanence of TCJA should be a crucial part of Congress’ agenda. Under the leadership of Chair Jason Smith (R-Mo.), the House Ways & Means Committee advanced the American Families and Jobs Act. This tax package provides for a new Guaranteed Deduction Bonus, inflation-adjusts IRS reporting rules, stops the Biden administration’s attack on the gig economy, and includes full business research and development expensing. 

While not all of these provisions may make the final cut, negotiations between tax authorities on the House Ways & Means and Senate Finance Committees seem to suggest an air of bipartisanship. Republicans remain interested in business-oriented tax policy, while Democrats seek to extend the Child Tax Credit. Notably, Democrats have indicated their desire for the Child Tax Credit to apply to the 2024 filing season, meaning an agreement would have to be made expeditiously and could be included in the ongoing appropriations battle.

With just eight session days and 16 total days until the January 19th deadline, Congress must move quickly to prevent a partial shutdown, the ripple effects of which cost the economy $11 billion in 2019. Hopefully for taxpayers, Congress leaves dropping the ball in 2024 to Times Square.