Omnibus Funding Bill Scraps Most Tax Provisions; Includes Retirement Savings Bill

Early this morning, Senate Appropriations Committee Chairman Patrick Leahy (D-VT) released the text for the $1.7 trillion fiscal year 2023 omnibus appropriations bill. The package contains 12 separate appropriations bills providing a total of $772.5 billion in nondefense spending—a $42.5 billion increase in topline funding. House and Senate lawmakers are expected to begin procedural votes on the bill as early as today. Final passage is expected before the Dec. 23 deadline to avoid a government shutdown.

Though lawmakers on both sides of the aisle had expressed support for a broad range of tax objectives, a deal could not be reached on any of these items. These failed objectives include extensions to expiring Tax Cuts and Jobs Act (TCJA) business credits, as well as an expansion of the current Child Tax Credit (CTC). This tax extenders effort reportedly failed earlier this week after House Ways and Means Chair Richard Neal (D-MA) rejected an offer from Ranking Member Kevin Brady (R-TX) that would have extended several TCJA provisions in exchange for a small expansion to the Low-Income Housing Tax Credit (LIHTC). Additional tax measures were left out, including the extension of the following pandemic-related proposals: (1) an elective deferral of last in, first out (LIFO) accounting provisions, (2) deferral of cancellation of debt income and (3) deferral of built-in gains income.

Despite failed efforts to include bipartisan tax provisions, lawmakers successfully attached retirement legislation to the omnibus—this is included within the SECURE 2.0 section of the bill. Provisions in this section seek to simplify the savings process and afford greater flexibility for individuals nearing retirement and those who have retired. A pay-for in the retirement section would disallow some tax benefits for certain syndicated charitable conservation easements. That provision is modified from the Senate Finance Committee version of the bill to exclude historic easements.

The draft omnibus legislation also contains a slight funding decrease for the IRS, lowering the agency’s budget by $275 million to $12.3 billion for the coming year. This effort is a small success for Republicans who sought to limit IRS expansion after the agency was provided the nearly $80 billion over 10 years in additional funding through the Inflation Reduction Act (IRA). This funding reduction is $1.3 billion less than the $13.9 billion in IRS baseline funding proposed by House and Senate Democrats. The bill also requires the IRS to furnish a report within 120 days of enactment on what steps the agency will take to address recent congressional recommendations concerning the protection of sensitive taxpayer data.

IRS Funding: 2022 vs. 2023

Above-Baseline IRS Funding Enhancement by Year Enacted

by the Inflation Reduction Act

Also included in the bill is $45 billion in funding to support Ukraine amid Russia’s ongoing invasion, as well as $38 billion in emergency disaster assistance. However, apart from these items, most of President Joe Biden’s other supplemental funding requests were not included in the final deal.

Senate Minority Leader Mitch McConnell (R-KY) expressed his support for the deal earlier today, touting a “substantial real-dollar increase to the defense baseline and a substantial real-dollar cut to the nondefense, non-veterans baseline.” The Senate is expected to take up the bill today, with the House voting soon after—likely this Friday.

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