Washington Report - January 23, 2024

Tax

We picked up some good news last week on the tax front. The chairs of the House and Senate tax writing committees unveiled an $80 billion tax package that includes, among other things, the WIA-supported extensions of key business tax incentives that had expired or are phasing out. Specifically, the package retroactively extends the research and development tax credit through 2025. That credit expired in 2022. Likewise, the package retroactively restores the 100 percent bonus depreciation benefit on investments in machinery and equipment and extends full expensing through 2025. This credit began to phase down in 2023. The measure also increases limitations on depreciable business asset expensing under Section 179. Specifically, the language in the bill increases the maximum amount a taxpayer may expense to $1.29 million, up from the current $1 million, reduced by the amount by which the cost of qualifying property exceeds $3.22 million. The $1.29 million and $3.22 million amounts are adjusted for inflation for taxable years beginning after 2024. The proposal applies to property placed in service in taxable years beginning after December 31, 2023. And finally, the measure restores the more generous Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) standard for calculating interest expense deductibility. 

In the non-business tax category, the package restores the upper limit on the Low-Income Housing Tax Credit (LIHTC). In calendar years 2018 through 2021, the 9 percent LIHTC ceiling was increased by 12.5 percent, allowing states to allocate more credits for affordable housing projects. This provision restores the 12.5 percent increase for calendar years 2023 through 2025 and is effective for taxable years beginning after December 31, 2022. The bill also makes more robust the Child Tax Credit. Under current law, the maximum refundable child tax credit is limited to $1,600 per child for 2023. This provision increases the maximum refundable amount per child to $1,800 in tax year 2023, $1,900 in tax year 2024 and $2,000 in tax year 2025, along with the inflation adjustment factor. 

The bill was marked up in the House Ways & Means Committee on Friday and passed out of committee on a 40-3 vote. Chairman Jason Smith’s (R-MO) opening statement at the markup may be found here.

Members that we spoke to that sit on the Committee indicated that the goal is to pass the bill through the full House the last week in January on the suspense calendar and send it to the Senate. 

The path forward in the upper chamber is less clear. Although Senator Ron Wyden (D-OR), Senate Finance Committee Chairman, helped craft the deal, the Ranking Member on his committee (Senator Mike Crapo (R-ID) is lukewarm on the package and has not endorsed it. WIA will continue to keep pressure on our champions in the Senate for expeditious action on this important measure. 

Career and Technical Education

On Thursday January 18, the House Education and Workforce Committee’s Early Childhood, Elementary and Secondary Education Subcommittee held a hearing to take testimony on how CTE could help address the nearly 9 million job openings in the U.S. that remain unfilled. A good summary of the hearing that the committee compiled may be found here. 

A number of common themes that we have heard over the years in our advocacy for CTE were raised at the hearing--namely that parents and educators remain stuck in a “college-for-all” mentality and a shortage of resources for CTE and career-oriented learning. A number of witnesses testified that a main obstacle in growing CTE programs and skills learning is a national shortage of CTE teachers. 

Late last year, this committee reported a Workforce Innovation and Opportunity Act (WIOA) reauthorization bill that we summarized in our December report. Although 2024 is an election year and legislating will become increasingly difficult as we progress farther into the year, WIA remains hopeful that a comprehensive WIOA reauthorization bill with ample funding for CTE will make it to the President’s desk. We will keep you apprised of developments. 

A controversial new law enacted by the European Union is creating considerable angst throughout the forestry and forest products supply chain ranging from wood pellet producers to sawmills to the pulp and paper sector. In short, the new law requires companies trading in cattle, cocoa, coffee, palm oil, rubber, soy and wood, as well as products derived from these commodities, to conduct extensive diligence on the value chain to ensure the goods are “deforestation free”—meaning they are not derived from lands that were recently (post 2020) deforested. Beginning in 2025, producers will be banned from placing product into the EU marketplace unless they can demonstrate compliance. 

The definitions in the EUDR are problematic in that they are broad. For wood products, the term “deforestation free” means that the wood is derived from a forest that has been harvested without inducing “forest degradation” after December 31, 2020. The term “forest degradation” is then defined as structural changes to forest cover taking the form of conversion of primary forests or naturally generating forests into plantation forests or planted forests. 

One of the more vexing problems with the EUDR is its geolocation requirement for companies to ensure that fiber used to make products has not been illegally harvested. Even for companies producing products in countries that are considered “low risk,” producers have to demonstrate through geolocation where the wood fiber to make the product is harvested—essentially down to the exact plot of land. Evidently there is technology currently in the marketplace that is used by hunting apps that has this granular geolocation capability, but whether this will satisfy officials in the EU is unclear. 

U.S. government officials from the U.S. Department of Agriculture and the U.S. Trade Representative have pushed back on their European counterparts arguing that this law is unworkable in the U.S. Likewise, European wood industry trade groups are beginning to communicate with the European Commission that they also cannot comply with the EUDR requirements. WIA will continue to monitor progress of negotiations on this measure and report on developments as they emerge.