This transcript has been edited for length and clarity.

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: tax bill revisited.

Following House passage with broad bipartisan support, the Tax Relief for American Families and Workers Act has run into roadblocks in the Senate. So what's holding things up, and are we going to see a vote on this bill anytime soon?

Here to talk more about this are Tax Notes Capitol Hill reporters Cady Stanton and Doug Sword. Cady, Doug, welcome back to the podcast.

Doug Sword: Hi, Dave.

Cady Stanton: Great to be here.

David D. Stewart: Now, before we get started, I should mention that we're recording this on Tuesday, March 19, and as always with legislation, things are always subject to change. With that out of the way, Doug, could you remind listeners what all is in this bill?

Doug Sword: Yeah, this is a $79 billion collection of tax provisions. The main portions are an expansion, particularly on the refundability, of the child tax credit for lower-income households. That costs $33 billion, and that's balanced with a retroactive extension and renewal of some tax breaks that had been tightened in the Tax Cuts and Jobs Act — that there's a little bit of buyer's remorse and they're trying to bring those back. And those are the research and development full expensing, bonus depreciation, and net interest expensing. Added onto that are a few other items: an expansion of low-income housing tax credit, the Taiwan tax agreement, and there's some SECURE 2.0, the retirement bill, some technical corrections to that.

David D. Stewart: All right, so what all has happened since we last spoke in February?

Doug Sword: Back in those very optimistic days of early February. I think it's safe to say that the odds of this tax bill passing have been trending in the thumbs down direction for the last seven weeks. Back on January 31 when the House passed the bill 357 to 70, there was an awful lot of confidence about the bill becoming law. After all, 89 percent of Democrats had voted for it in the House, 78 percent of Republicans had voted for it, and Senate Finance Chair Ron Wyden, D-Ore., was kind of basking in that lopsided vote in the early days. And he liked to say you couldn't get that high of a percentage of House members agreeing to order a 7-Up.

But now, that confidence has since dissipated, and the bill appears stuck in the Senate with no clear path forward. That's largely because we found out later that Senate Finance ranking member Mike Crapo, R-Idaho, had sought changes to the refundability features of the bill's child tax credit provisions. Those weren't made, and the bill's authors, Wyden and House Ways and Means Chair Jason Smith, R-Mo., went ahead without Crapo's support. That's costing them now, as the Senate GOP is backing Crapo, who has developed an even longer list of changes he and other senators want made to the bill.

A source, highly regarded former federal tax official told a group of reporters, including myself, that Senate Minority Leader Mitch McConnell, R-Ky., had told Senate Majority Leader Chuck Schumer, D-N.Y., that even though there is Republican support for the bill, Republicans would unite in opposing any effort to bring it to the floor outside of a negotiated settlement with Crapo. So then we're looking at a cloture motion. It takes 60 votes to bring a bill to the Senate floor. So Democrats need nine Republicans. And there may well be nine Republicans who would vote to support what is a very popular bill on final passage. They just won't vote aye on a cloture motion to bring it to the floor.

So some observers think that Schumer will eventually file cloture anyway, either hoping that nine or more Republicans buck their caucus or else kill it so Democrats don't get blamed for this bill's demise.

David D. Stewart: So what are the issues in this that are holding up the bill?

Cady Stanton: Sure. So Senator Crapo surveyed members of his caucus in recent weeks to determine their issues with the bill, all part of an attempt to build support from the majority of Republican senators on the legislation. The largest sticking points among Senate Republicans, including Crapo himself, are provisions related to that child tax credit expansion in the bill.

Specifically, one of the biggest issues is with the income lookback provision that Doug mentioned that allows taxpayers to use prior-year income to determine how they qualify for the credit. And so some Senate Republicans have concerns about how that relates to work and income for taxpayers claiming the credit. There's also been some issues taken with a provision related to the identification number requirements for children, i.e., the TIN [taxpayer identification number] versus Social Security number and how that might coalesce with undocumented people possibly claiming the credit.

But also beyond the child tax credit, there are at least a few other issues that Senate Republicans voiced to Crapo and to reporters with the bill. One of them, somewhat surprisingly that we learned about recently, was an issue with the retroactivity of the business tax breaks on the bill. And at least one senator, Senator Thom Tillis, R-N.C., has said a red line for him on the bill is the provision that is used as a pay-for for it. That provision would lead to an early sunset of the employee retention credit, which has a history of fraudulent claims, to help offset the cost. And he said he wouldn't support the bill if that provision is included within the deal.

In addition to concerns about the provisions in terms of what's in the bill, there's also been some pushback about procedure. Ultimately, these Senate Republicans want their chance to try to amend or change the bill on the issues that they have that we mentioned, whether that's in the Senate Finance Committee through a markup or, ideally for them, through an amendment process on the floor. So that's something that they've sought since early on when the deal progressed and went through the House, and is what they're sticking to really just to have a chance to voice what they would like changed on the legislation.

Something that's important to note here is that opening up the bill for amendment also means that amendments could come from Democrats as well. Some progressive Democrats both in the House and the Senate have said that they would love to expand the child tax credit even further than it does in this deal, to get it closer to the pandemic-era American Rescue Plan [Act] expansion that included a lot more money through the credit, full refundability, monthly payments, etc. So really opening up this bill for amendment when it's already gotten a lot of support in the House, as Doug mentioned — it's already been negotiated, seen all of that support — would really be a can of worms on all ends in the Senate here right now.

David D. Stewart: Now nothing happens in a vacuum. So are there other issues maybe not specifically to do with the bill that are slowing things down?

Doug Sword: Absolutely. Maybe the biggest thing holding up this bill is that Congress has yet to do the one thing it has to do each year, and that's pass a spending bill. So if Congress isn't doing the number one thing in its job description, it's not all that surprising that they're not doing something optional like this.

Also fueling all this inactivity is election-year politics. Both parties are looking for wins and aren't particularly interested in sharing credit. [The] later we get into the year, cooperation may become more and more unlikely. Also, Republicans are asking themselves if they can do better by waiting a year. In 2025 they could well have a Republican in the White House and control of both chambers. That would put budget reconciliation back on the table, and that would provide a poetic boost.

TCJA passed in 2017 via reconciliation without a single vote from Democrats, and maybe the same path could be followed in 2025 to extend a TCJA redo that is entirely crafted by Republicans. Otherwise, a split government would have to reach a compromise, and Democrats would share in taking credit for extending lower tax rates for most of the brackets and other popular breaks like the doubled standard deduction.

Then there's also the procedural issue. Once the second minibus is gone, there's not really another vehicle until September for this bill to latch onto. Also, this is the time of year where senators and members want to be home talking to voters. So Congress is adjourned during four of the next 10 weeks. That's between now and June. And that eats up an awful lot of the clock before election season kicks into high gear.

David D. Stewart: Now, what are the big names on both sides of the aisle saying about this?

Cady Stanton: Yeah, so as we mentioned, the big names at play here are Senate Finance Committee Chair Ron Wyden, ranking member Crapo, and then also House Ways and Means Committee Chair Jason Smith as well.

So those are kind of the main people we've been trying to get updates from in recent weeks. And Wyden in particular at first spoke in pretty glowing terms about the House vote on the bill, as Doug mentioned with that extended 7-Up metaphor. But he's also gone on to make clear that he's aware that senators are "not potted plants," meaning that they have strong opinions and they're not going to sit idly by as a bill like this passes without a chance to offer amendments and push for changes.

He's also described this long list of issues from Senate Republicans with the bill as an "amorphous smorgasbord." So in all here, a lot of creative language to describe the deal without often sharing specific details on how negotiations are going.

On the other hand, Senator Crapo started off by being pretty tight-lipped about how negotiations were going on moving forward in the Senate and has often said to reporters that he won't be sharing details on negotiations in public, those should remain behind closed doors. But slowly but surely more of that information has come to light from him or from his office, including the idea of those dozens of issues. And he and other Senate Republicans have shared enough that Doug and I were able to identify at least six or seven of those issues as we spoke about earlier.

On the other hand, House Ways and Means Chair Jason Smith at an event a few weeks ago shared details about how negotiations went before the deal was released. As Doug alluded to, Crapo was involved in those tax deal talks until a rift happened about the child tax credit lookback provision, and Smith and Wyden ultimately decided to move forward without his support. When Chairman Smith shared those details, those comments didn't appear to go over particularly well with Crapo, who ended up confirming that he didn't sign off on the deal because his concerns ultimately were not resolved on that lookback provision.

Getting to more of a current state of affairs, Senator Wyden has said repeatedly that because Republicans haven't sent a formal offer in terms of what they would like in changes to the bill, Wyden has said that they're holding up getting these breaks to families and businesses. Crapo has said, as we mentioned, that Republicans should have a chance to push for their changes on the bill, especially since the deal went forward without them in negotiations before it was released. Some outlets have reported that both Wyden and Crapo have exchanged some offers for changes to the bill, but those offers have been rejected on both sides.

David D. Stewart: So with all of this going on, is there any chance that we're going to see this bill on the Senate floor anytime soon?

Doug Sword: You can pretty much forget about a tax bill passing before April 15. First of all, if Congress averts a shutdown after March 22, both chambers are adjourning for a two-week break. And when they come back, tax may not be high on the list to come to the floor. And keep in mind, a stand-alone bill like this would eat up a full week of floor time probably. And meanwhile, Schumer appears to rank other issues as being ahead of this tax package.

There's the budget supplemental, the aid for Ukraine, Israel, and Taiwan. That's a very high priority. It's the impeachment trial of Homeland Security Secretary [Alejandro] Mayorkas, that'll take up some floor time. And earlier this month, Schumer listed bills on insulin pricing, cannabis banking, rail safety, and executive compensation as being priorities for floor consideration. And he neglected to mention the tax bill.

But the end of tax season isn't a hard deadline on this anyway. The IRS says it can make changes to the child tax credit at six to 12 weeks without the need for amended returns, and businesses get extensions anyway and tend not to file until the fall. So the April 15 is Wyden's deadline, and Wyden initially wanted to get the bill passed before the January 29 start of the filing season. So blowing past another deadline wouldn't be surprising, and it also wouldn't by itself be fatal to the legislation.

David D. Stewart: Is it possible that this is just going to end up being punted until next year?

Cady Stanton: That's an idea that has definitely been brought up by reporters, especially given how slowly and really no progress has been made on it in the Senate. So this idea that Republicans may want to wait until 2025, as Doug also mentioned, that would give them time after the 2024 elections to possibly have control of the Senate, the White House, etc.

Republicans do feel their chances for a clean sweep are getting better. So an idea that a full Tax Cuts and Jobs Act extension via reconciliation, given the majority of those provisions expire at the end of 2025, could help get Republicans everything that they want without having to give in on child tax credit expansion and other wishes from Democrats.

I've spoken to some off-Hill policy sources who likely say that the bill isn't delayed specifically because of the election. It's been posited that some people think Democrats might get a win from passing this tax deal because Wyden helped negotiate it. But the sources I spoke to said that's likely not going to have a huge influence on the election. It's more about timing and the ability to address a lot more than what is talked about in the small bill in 2025.

Now, among Senate Republicans, there's some differences on whether that is something they either want to do or are currently doing. Senator Crapo, for example, has denied that plan, that the slow walking is intentional to move to 2025. But according to reports, some other senior Republicans in particular have said that waiting that year might not be such a bad idea for them.

David D. Stewart: Well, all right, Cady, Doug, thank you so much for this update, and thank you for keeping an eye on these things.

Doug Sword: Sure, Dave.

Cady Stanton: Thanks so much for having us.

David D. Stewart: And now, coming attractions. Each week we highlight new and interesting commentary in our magazines. Joining me now is Senior Executive Editor for Commentary Jasper Smith. Jasper, what will you have for us?

Jasper B. Smith: Thanks, Dave. In Tax Notes Federal, William Gale proposes four major revenue-neutral sets of federal income tax reforms. Hale Sheppard examines two Tax Court cases involving return preparer fraud.

In Tax Notes State, Darien Shanske and David Gamage examine California's projected budget deficit and possible solutions. Dario Arezzo explores the Massachusetts farming and fisheries tax credit and farm syndication rules.

In Tax Notes International, Ahmed Altawyan explores the intricacies of Saudi Arabia's evolving tax landscape. Roberto Ramos Obando examines efforts to overhaul Honduras's tax system.

And finally, in Featured Analysis, Joe Thorndike examines Beardsley Ruml's Pay-As-You-Go tax plan of the 1940s.

David D. Stewart: That's it for this week. You can follow me online @TaxStew, that's S-T-E-W, and be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.

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