Divided Government Begins In Washington

After a wild week in the U.S. House of Representatives a new season of divided government is ready to kick off in earnest. Barring a national emergency, major legislative initiatives may be difficult in the months ahead — particularly with a presidential election just over the horizon. But while messaging and oversight efforts may dominate headlines, room could exist for incremental progress on policies important to ECFA members. 

Rep. Kevin McCarthy (R-Calif.) finally won the House Speaker’s gavel at the end of last week following a multi-day marathon of votes and intense negotiations within Republican ranks. With that contest at last resolved Congress can now take necessary organizational steps required at the beginning of every new session. The chamber’s rules and committee assignments — including chairmen — are often worked out in advance so a new majority can hit the ground running, but McCarthy’s December difficulties, which spilled out on the House floor last week, prevented that from occurring.

Of particular interest for ECFA members is the make-up of committees like the House Judiciary Committee and the House Ways and Means Committee. Rep. Jim Jordan (R-Ohio), who is highly regarded among conservatives for leadership on First Amendment and other constitutional matters, secured the Judiciary chairmanship in December. However, the leadership of Ways & Means remained unclear until this week. Reps. Vern Buchanan (R-Fla), Adrian Smith (R-Neb.), and Jason Smith (R-Mo.) had jockeyed for that premiere tax policy post for months. Despite Buchanan’s seniority, Speaker McCarthy’s ally Jason Smith ultimately prevailed.

After his victory Chairman Smith, a populist leader who raised his profile by contending with Democrats on inflation and spending, emphasized the importance of the committee’s upcoming work as the sunset of the GOP’s 2017 major tax bill approaches.

“Ways and Means Republicans will build an economy that is strong by prioritizing our most valuable economic resource, the American worker,” he said. “We will build on the success of the Tax Cuts and Jobs Act and examine how our policies can reward working families with a tax code that delivers better jobs, higher wages, and more investment in America.”

Potentially previewing some battles to come on that legislation, Smith added, “We must also examine whether it is in the best interests of the American people to continue showering tax benefits on corporations that have shed their American identity in favor of a relationship with China.”

Smith also intends to conduct heavy oversight over the IRS. He suggested that the agency’s chief will “spend a lot of time before our committee” for taxpayer information leaks and its “history of targeting conservative Americans.”

On the other side of Capitol Hill the terrain is more familiar with Sen. Chuck Schumer (D-N.Y.) continuing as Majority Leader, Sen. Ron Wyden (D-Ore.) chairing the Senate Finance Committee, and Sen. Dick Durbin (D-Ill.) expected to retain the Judiciary Committee. With a slight but significant expansion of their majority to 51 seats, Senate Democrats are likely to prioritize Biden administration policies and nominees — and to thwart Republican initiatives passed out of the House.

Dave Camp, who chaired the Ways and Means Committee a decade ago, recently told reporters, With a divided government, I think it will be a challenge to do large pieces of tax legislation.”

Instead many observers expect investigations, messaging, and the laying of legislative groundwork for potentially more fertile political terrain to come after the next presidential election. Indeed, House Majority Leader Steve Scalise’s (R-La.) projections for the first several weeks of the new GOP House majority seem to confirm a focus on messaging conservative priorities (which will likely be countered or ignored in the Senate). Among his early plans are pro-life legislation and a bill that would strike new funding provided by the Inflation Reduction Act for the IRS - funds Republicans claim are intended to hire 87,000 agents to scrutinize taxpayers.  

Still there may be room for less politicized issues to gain ground this Congress. For example, the Universal Charitable Deduction for non-itemizers that helped fuel giving increases in 2020 and 2021 appears to have bipartisan sympathy. We are committed to urging legislators to value the contributions of ECFA members in their home states and around the world, and we will continue to encourage them to extend and expand charitable giving incentives, especially the successful UCD. ECFA will remain watchful for opportunities on this and other matters in this new season of divided government.

 


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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