Post-election Ways and Means leadership will be familiar
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Muni lobbyists expect longtime ally Rep. Richard Neal to return to the chairmanship of the House Ways and Means Committee if Democrats reclaim a House majority in the coming elections, while a Republican victory would likely keep Chairman Jason Smith in power.
“I think Chairman Smith remains popular with his rank-and-file membership, so I fully assume him to retain the gavel,” said Brett Bolton SVP, Bond Dealers of America. “As for Speaker Johnson, I don’t think anyone knows what will happen next year with his leadership position.”
Neal, D-Mass., the ranking Democrat on the committee, held the position from 2019 to 2023 and is generally viewed as more muni friendly than Smith.
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“Democrats, over the past years with Chair Neal in control have been advocates of muni-related issues on the Hill,” said Bolton. “But they have yet to get major provisions across the finish line. Entering 2025 would bring a fresh opportunity for issues such as advance refundings and the state and local tax deduction caps to be deliberated.”
The Tax Relief for American Families and Workers Act which passed the House in
Retaining the cap on SALT deductions, which was part of The Tax Cuts and Jobs Act, is still considered a viable way to provide the revenue needed to reduce the national debt that the Treasury, currently pegs at about $34 trillion.
As of May 2024, it’s costing $728 billion to maintain the debt which computes to 16% of the federal budget. The TCJA is scheduled to sunset at the end of 2025 and both sides are busy fortifying their positions.
“Proponents of extending elements of the Tax Cuts and Jobs Act will be scrubbing budget data to find revenue “pay-fors” given the fiscal situation,” said Edwin Oswald, a tax partner at Orrick Herrington & Sutcliffe in Washington D.C.
“Depending on the results of the coming-elections and which party controls the Congressional chambers, retaining the current SALT cap may be such a pay-for.”
Many muni leaders remain
“I would suspect a lot of familiar faces would stay within Committee leadership,” said Brian Egan, director of Government Affairs, National Association of Bond Lawyers.
“Many of them are already well aware of the importance of municipal bonds to their districts. Still, tax-exempt bonds are not an insignificant tax expenditure, and the immediate focus for municipal market groups is getting it (interest exemption) off the table as soon as possible.”
The U.S. Constitution requires that all tax bills make a stop at Ways and Means. The leadership of Ways and Means will be determined by which party controls the House. Assuming the Republicans remain in charge, major changes are not expected.
Republican House Speaker Mike Johnson took over from Kevin McCarthy who was ousted after far-right flanking maneuver last October. McCarthy appointed Jason Smith, the current Chairman of Ways and Means to the position in January 2023, in what was then a surprise move.
Traditionally the most senior member of the Committee who belongs to the majority moves into the job, but Republican Reps. Vern Buchanan of Florida and Adrian Smith of Nebraska were both bypassed.
Chairman Smith’s reign has been marked by a high level of oversight as opposed to actual tax legislation. Smith has been a vocal critic on Hunter Biden’s travails while the Committee has held “field hearings” in Erie, Pennsylvania, Scottsdale, Arizona, Denton, Texas, and Chicago.
In April the Chairman announced the formation of ten Republican-only “tax teams,” to study key tax provisions of the TCJA while also soliciting public comments – both novel approaches. “I think Chair Smith is setting the parameters for next year’s tax fight by setting up the tax working groups,” said Bolton.
“He has really gone out of his way to empower his rank-and-file membership and follow their lead, something his Republican predecessor did not do. It seems he is relying on the policy knowledge to help guide next year’s debate guard rails.”
Tax team leaders are also firing salvos. “While Democrats are getting ready to raise taxes on workers, families, and mom-and-pop businesses on Main Street, Ways and Means Republicans are defending the Trump tax cuts that resulted in the strongest economy in American history,” said Rep. Mike Kelly, R-Pa., who chairs the Community Development Team.
At this point both parties agree on retaining certain provisions of the TCJA.
“My sense is that for most of the TCJA expirations, particularly for lower- and middle-income taxpayers, there’s support for extension from both parties,” said Erica York, senior economist, research director, the Tax Foundation.
“Depending on who wins, I’d imagine a significant difference in prioritization across the expiring provisions, as well as major differences in how to offset the revenue reductions from the tax cuts that are selected for extension.”
The possibility of a split decision between the presidency, the House and the Senate also has to be considered.
“The extension of the expiring elements of the TCJA are a big priority for the GOP in 2025,” said Oswald. “If the GOP happens to win the ‘trifecta’ of the House, Senate, and White House, I would expect the GOP to pursue some form of TCJA extension on an expedited basis through the budget reconciliation process.”
“On the other hand, if the GOP retains the House and nothing else, Smith will still push hard for some form of compromised extension, presumably around retaining some individual income tax rates due to expire on Dec. 31, 2025.”
The hard deadline at the end of 2025 will force lawmakers into making some difficulty choices either way.
“Discussion and action on tax reform seem likely next year, regardless of who wins in November,” said Egan. “Both sides have made promises that make total inaction unlikely. Split control in Congress will complicate the process of finding a deal, but possibly in a good way.”
