Capitol Hill Recap: After the Shutdown

The longest shutdown in American history is over. But the uncertainty about the future continues.

Congress on Wednesday night passed a measure funding most of the government through Jan. 30, officially bringing the shutdown to a close, 43 days after it began. That legislation fully funds a few government departments through the next fiscal year, but most agencies face the prospect of another funding lapse in only a few months. While lawmakers hope to pass the full slate of appropriations bills by that time, the contentious atmosphere in Congress may make that a heavy lift.

The final agreement to end the shutdown, passed over the objections of Democratic leaders in the House and Senate, does not include any tweaks to the enhanced Affordable Care Act’s tax credits. Those enhancements are set to expire at the end of the year, and Democrats had demanded that any legislation to continue government funding include an extension. Without the enhancement, premiums on the statewide ACA exchanges are set to increase, although there is some disagreement about how much those increases are due to the expirations.

What Democrats did secure was a commitment from Senate Majority Leader John Thune to hold a vote on an extension, likely sometime in December. Whether or not that vote is successful, many Republicans say they want to work with Democrats on the issue. Proposals for a fix include everything from a new income cap, to President Donald Trump’s idea of giving money to enrollees directly, rather than having it available through insurance plans. (This could include pre-funding tax-favored health savings accounts or flexible spending accounts.)

In a short period when Congress has a lot to juggle, lawmakers may not have the bandwidth to work on a full overhaul of the healthcare system. But there’s at least some hope that enough members of both parties want to reach across the aisle and find a way to mitigate a sharp spike in insurance premiums.

Recent Tax Pieces:

What’s Next for Obamacare Fight After Government Shutdown Ends – Jonathan Tamari and Lillianna Byington, Bloomberg Tax ($):

Major stumbling blocks remain in the way of any deal on a law that has proven to be among the most divisive in US politics. New, ongoing negotiations could bring a compromise, or competing proposals that fail, leaving the fight to continue through Election Day next year.

The tax credits, which help lower premium payments for ACA enrollees, were temporarily increased during the Biden administration, and Congress removed an income limit so more people could benefit. Those enhancements expire at year’s end, setting up the debate over what happens next.

The I.R.S. Tried to Stop This Tax Dodge. Scott Bessent Used It Anyway. – Andrew Duehren, The New York Times:

Like many firms on Wall Street, Mr. Bessent’s hedge fund, Key Square Capital Management, was set up as a limited partnership. Through that structure, Mr. Bessent avoided paying roughly $910,000 in Medicare taxes on money he made running his hedge fund in 2021, 2022 and 2023, according to a memorandum prepared by Democratic Senate staff for Mr. Bessent’s confirmation hearing in January.

The memo, viewed by The New York Times, was based on a review of Mr. Bessent’s tax returns and also indicated that Mr. Bessent paid Social Security taxes in full.

Nevada Dems, GOP battle over ‘no-tax-on-tips’ – Danny Nguyen, Politico:

The Democrats’ counteroffensive is part of a larger portrait Democrats have spent months drawing up in hopes of demonstrating that the GOP’s promise of beefier refund checks next filing season will be moot for the working class. They’ve pointed to several statistics: Over a third of tipped workers do not make enough money to pay federal income taxes. Two in five tipped workers rely on Medicaid and other public assistance that the GOP has slashed or could let expire.

And they note that the tax break will lapse in three years unless Congress extends it, while the cuts to public benefits would be permanent.

“D.C. Republicans are giving temporary crumbs to working families,” said Lindsay Reilly, a spokesperson for the Democratic Congressional Campaign Committee, the party’s House campaign arm. “Meanwhile, millions of families are at risk of losing their health care, hundreds of hospitals could close, and countless Americans could lose their jobs — all to pay for permanent tax cuts for billionaires.”

What’s in Store for the Johnson Amendment? – Marie Sapirie, Tax Notes ($):

The priority guidance plan item seems to indicate that the IRS is thinking about formalizing the agreement in National Religious Broadcasters for all religious services, not just those of the parties to the case, said Samuel D. Brunson of Loyola University Chicago School of Law. If the Trump administration wants the ideas in that agreement to apply more broadly, there are a couple of choices, he said. First, it could largely ignore the Johnson Amendment as it did in the 2017 executive order, especially regarding churches. Second, it could issue regulations or other guidance removing statements made in sermons or religious worship services from the definition of endorsements proscribed by the Johnson Amendment. Continued informal nonenforcement retains the status quo, along with the attendant risks for exempt organizations, especially in the long term.

Trump Pulls Korb’s IRS Top Lawyer Nomination After Loomer Blast – Zach C. Cohen, Bloomberg Tax ($):

Korb, a counsel at Sullivan & Cromwell LLP who held the chief counsel role during former President George W. Bush’s administration, was scheduled to be confirmed next week. Senate Majority Leader John Thune (R-S.D.) took procedural maneuvers this week to advance his nomination over Democratic objections.

But Laura Loomer, a political activist aligned with Trump, questioned Korb’s party loyalties. Citing reporting and an Insight published in Bloomberg Tax, she challenged Korb’s “by-the-book” style and criticism of whistleblowers.

She also lambasted his political donations to Democrats and pointed out Sen. Sheldon Whitehouse’s (D-R.I.) support for his nomination in committee.

Capitol Hill Recap: After the Shutdown

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Alex Parker