An open door for new tax legislation in December

Accounting

In the waning hours of the fiscal year on Sept. 30, Congress passed a continuing resolution to sustain current funding levels and avoid a government shutdown. What comes next? The continuing resolution allows the government to continue operating until Dec. 16, 2022, but after that Congress will need to pass an appropriations bill or another continuing resolution, which may be packed with many additional tax-related provisions. 

The midterm elections may have a slight or a significant impact, depending on the outcome. 

The resolution enables Congress to avoid a shutdown, but an end-of-year package could be costly, according to Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

“It’s become routine for Congress to wait until the very last minute before an urgent deadline to spring into action,” she stated. “This will make the eighth time out of the last 10 years in which lawmakers have waited until the very last week of the fiscal year to pass a stopgap measure to avoid a full or partial government shutdown.”

“When lawmakers don’t bother to set spending priorities, it shows how truly broken the federal budget process is,” she said. “While it seems both chambers can’t agree on much these days, they should at least be able to agree on this: We should not run our country without a budget.”

“It’s like Civics 101,” agreed Roger Harris, president of Padgett Business Services. “The situation illustrates the difference between how things should work as opposed to how they actually work today.”

“After the election they’ll have to do something else,” he continued. “The difference is that in December we’ll know what the new Congress will look like. If the Republicans win control, they may decide to punt. Or the Democrats may want to do something more aggressively. The Democrats will still control the White House, but the Republicans may be able to get a few of their own ideas into legislation. But if the Democrats still are in control, they won’t get anything.”

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Stefani Reynolds/Bloomberg

The continuing resolution creates one more opportunity in December for potential tax legislation, Harris noted: “The problem in Washington is to find something you can attach your wish list to that can pass, and get it signed by the president. Government funding is one of the leading candidates for this.”

“In the old days, they had committee hearings on the budget, with different committees offering their ideas on what was needed,” he noted. “Then they came together on one government funding bill from all the various committees, and they put together what they thought the government ought to do during the next year, and what they needed to accomplish it. Now they negotiate a political settlement to keep the government open.”

“It’s all negotiated in back rooms, and members are told, ‘This is what the bill is,'” he added. “The Inflation Reduction Act was passed without a single public hearing. The whole idea of committees and how they operate has gotten lost in the political world we now live in.” 

The upshot is that we may be headed for additional spending and tax measures, according to MacGuineas. “There is a very real risk that lawmakers will try to add more spending, tax cuts and borrowing as a part of the end-of-the-year package,” she stated. 

The continuing resolution, and whatever comes afterward, are part of the uncertainty facing preparers as we head into another filing season, according to Dan Gayor, tax senior manager at Top 100 Firm Baker Newman Noyes. “With the midterms coming up, there is a lot that can change between now and the end of the year,” he observed. 

Although members of Congress have adjourned until after the midterm elections, appropriations staff are continuing negotiations over a final fiscal year 2023 spending bill. If a final spending bill is not enacted by Dec. 16, 2022, a new continuing resolution will need to be passed or there will be a government shutdown. An extenders bill is also expected to be addressed during the lame duck session when Congress reconvenes.

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