Congress moves erratically on budget, tax issues

The House and Senate are working toward FY 2024 appropriations, but not even a negotiated agreement has kept the chambers moving in the same direction. Today, the Senate appropriations committee directed its subcommittees to produce bills that align with the slight reduction in non-defense spending agreed to in the debt ceiling agreement reached earlier this month. However, after House Freedom Caucus members revolted over the agreement, the House appropriations committee decided to direct its subcommittees to produce bills  that cut another $119 billion from the level agreed to as part of the debt ceiling deal. The exact figures being used in each chamber can be seen in the figure below.

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The current status of the FY 2024 appropriations process is not entirely unusual, as the House and Senate have advanced appropriations bills written to different funding levels many times in recent years. What is unusual this year is that the chambers did reach an agreement before one chamber decided to move in its own direction anyway. Given this sequence of events, it is unclear when or how the chambers will come back together to pass FY 2024 appropriations bills.

Meanwhile, the House Ways and Means Committee advanced a tax bill that would allow companies to resume deducting the full cost of their R&D expenses (for background on this issue, see SSTI’s prior coverage). While this proposal has strong bipartisan support, the entire bill, which would also repeal several incentives for clean energy investment, does not. The R&D language could pass separately as its own bill or as part of a broader package, and this is likely what advocates will encourage Congress to do, but the reality may be more complicated. One reason is that the circumstances appear to parallel last session, when the Senate passed a bill focused on this issue with a 90-5 vote but then broader disagreements over tax policy prevented R&D tax changes from being included in any of the bills that moved last year. Another reason is that requiring companies to amortize their R&D expenses was estimated to have saved the government nearly $120 billion, and at least the House is likely to insist that the costs of reverting to a deduction be offset with other tax changes. In short, the same House and Senate that could not make an agreement on FY 2024 funding levels last two weeks will have to set aside concerns about broader tax issues and revenues to restore the R&D tax deduction.