Tax Conference Committee Update 5/14: The Mother of All Tax Bills Begins to Take Shape

There are an infinite number of ways to meet a “net” global target of $3 billion of tax relief/tax bill spending in the current biennium and $1.3 billion in the out biennium.  The House’s interest has always been to a raise a lot of new revenue to spend a lot of money in the tax bill.  On the other hand, the Senate tax committee has demonstrated throughout the session a reluctance to raise General Fund revenue in the first place.  As a last minute addition to the Senate omnibus bill, the House’s worldwide combined reporting provision was reluctantly (at least from the Chair’s perspective) included to generate a little less than half of the new revenue the House was seeking over four years, but disappeared just as quickly as it arrived.

On Saturday evening, the Tax Conference Committee met to exchange and present their "global" tax offers.  Some type of revenue raising on the Senate side was guaranteed to be included; the questions were how much and how.  The answers are 1) everything the House is looking for, and 2) true to approach the House seeks.  In wrapping up the overview, a House conferree remarked “the movement that we have seen in the last 36 hours is incredible.”  That’s what capitulation by the leadership of a legislative body can deliver.

The Senate’s new revenue raising alternatives are consistent with putting the bullseye on corporations and high income individuals with total tax increases of $1.8 billion over four years

FY 24-25:  House $642 million,  Senate $641million
FY 26-27   House $1.269 billion, Senate $1.124 billion

Entering into the final week, it puts the Governor in the role of being the voice of moderation in revenue raising as his cap gains proposal is expected to “only” raise $1.3 billion over four years.

The Senate's proposal is:

• Taxing GILTI:  $237 million
• Reduced Deductions for Dividends Received (conforming to TCJA 50%/65%):  $43 million
• Standard/Itemized Deduction Phaseout Modifications (10% above $300k):  $354 million
• Net Investment Income Tax (.9% above $1m, excluding agricultural land sale gains, effective TY25) $157 million in FY 26-27

There are an abundance of “how” questions surrounding these provisions for which details are not available at this time.  Under normal circumstances these would/should get several hours of committee vetting, but whether they get the analysis and discussion they deserve is doubtful, especially in light of the significant amount of negotiations that are also required on the spending side of the bill.

The full House/Senate tax budget side by side can be found here.  With respect to aids and credits spending there are a lot of areas of agreement but also some major differences in both priorities and approaches that need to be ironed out.  Two areas that stand out to us are the design of the child tax credit effort, and property tax relief.  One no cost item almost certain to be a factor in the negotiations is the lengthy list of local sales tax requests which the House refused to hear this session.

The conference committee is meeting this afternoon.