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After Tax Day, Several Tax and Budget Policy Issues Gain Prominence

S.J. Steinhardt
Published Date:
Apr 18, 2024

With tax season over and a presidential election season already in full swing, there are plenty of tax-related issues to follow, Accounting Today reported.

Many of them involve the outlines of President Joe Biden’s proposed fiscal year 2025 budget, which includes protecting and expanding the Affordable Care Act, providing an annual mortgage tax credit for new homebuyers, restoring the Child Tax Credit and introducing a minimum tax on billionaires.

Others include ongoing technology improvements at the IRS, such as retiring and replacing legacy systems and updating programming languages, giving taxpayers tools to access their data and use online services, and ensuring continued security and privacy of taxpayer data.

"We're catalyzing this transformation because a digital-first IRS is a generational imperative," said IRS Commissioner Danny Werfel, outlining his vision of the future for the agency during a speech at the Kogod School of Business at American University in March. "It's how most taxpayers want to interact with us in the 21st century."

But some experts have cast doubt on Werfel’s and Biden’s hopes and plans, given the uncertainty of the outcome of November’s elections.

"If the past is any indication of the future, it won't be an easy road ahead," said John Gimigliano, principal-in-charge of federal legislative and regulatory services in the Washington national tax office of KPMG, in an interview with Accounting Today. "As with any election year, a lot still remains uncertain—and all eyes are on November."

A key element of tax and budget policy concerns provisions of the 2017 Tax Cut and Jobs Act (TCJA). The November election will determine whether the Trump tax cuts will be extended, or whether Biden's proposals will pass in a Congress that could be controlled by either party or remain closely divided ,as it is now. "The budget is a wish list," Christopher McLoon, a member of the law firm Cozen O'Connor in Philadelphia, told AccountingToday. "There's so much of this that, at least under present conditions, absolutely will not be law."

As Werfel targets a “digital-first IRS,” his aspirations could be foiled by more funding rescissions. Despite the $21 billion reduction in the original $80 billion IRS allocation, the agency still plans to move ahead with its planned improvements consistent with its strategic operation plan.

"With historic funding through the new law, we're building an IRS where all taxpayers can meet all their responsibilities, including all interactions with the IRS—from questions to payments to resolutions—in a completely digital manner if they choose," he said in his American University speech.

Another question is whether the Section 199A qualified business income (QBI) deduction for certain pass-through owners will expire. While Section 199A has yielded  substantially profits to wealthy owners, hundreds of thousands of eligible taxpayers who could have taken advantage of the provision haven't claimed the deduction, a Congressional Research Service report found. Proponents argue that the exemption gives small businesses a tax rate closer to the lower ones for C corporations that helps generate jobs and capital investment in the economy, but the exemption’s unclear impact on jobs and investment could lead Congress to make major changes to it or let it expire after 2025.

Werfel was also proud of the free Direct File pilot program that launched in 12 states, and that the IRS hopes to expand. In his testimony before the U.S. Senate Committee on Finance earlier in the week, the commissioner said, “After a successful testing phase, we announced on March 12 that all eligible taxpayers in the 12 states—representing 19 million taxpayers—could use the system at any time.”

“The tens of thousands of taxpayers who used Direct File this year collectively saved millions on fees they would have paid to one of the tax software giants,” said the committee's chair, Sen. Ron Wyden (D-Ore.). “The website was user-friendly. It was quick and easy to use. It didn’t hassle users with upcharges for add-on services they didn’t need.”

In his State of the Union address, President Biden proposed tax increases on the wealthy and large corporations, along with some new tax credits. He also discussed the upcoming expiration of a tax credit in 2025 related to health insurance premiums from the Affordable Care Act, called for a new mortgage tax credit to make home buying more affordable amid high inflation and mortgage rates, and also called for higher taxes on the wealthy and corporations as a way to reduce the deficit.

But, Mark Friedlich, vice president of government affairs at Wolters Kluwer Tax & Accounting, told AccountingToday that “[m]ost of his tax-related goals are not likely to see the light of day given the divisive environment in Washington, D.C."

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