Congressional Update

Last Friday marks the end of a whirlwind week in Washington as Congress averted a government shutdown by passing a Continuing Resolution (CR) to fund the government at current levels until November 14—but did so at the expense of now-former Speaker of the House Kevin McCarthy’s (R-CA) job. The abridged version is that after failing to pass a 30-day CR that included spending cuts and other Republican priorities on border security and immigration, Speaker Kevin McCarthy put forward a “clean” CR that was essentially the version crafted by the Democratically controlled Senate minus funding for Ukraine. This version passed the House and Senate with significant bipartisan support and was signed into law last Saturday night, shocking Washington and averting a shutdown most expected to last at the very least a few days, but some expected to last for weeks.

Unfortunately for Mr. McCarthy, several hardline members of the House Republican Freedom Caucus decided this was the last straw, and, led by Rep. Matt Gaetz (R-FL), took action to remove the Speaker. With eight Republican House members joining the whole Democratic conference, Speaker McCarthy became the first Speaker to be removed from office, and Rep. Patrick McHenry (R-NC), Chairman of the Financial Services Committee and a longtime McCarthy ally, was named Acting Speaker (officially Speaker Pro Tempore). He will now be tasked with finding overseeing the process for finding a new speaker (he has said he is not interested in the position). So far, Majority Leader Steve Scalise (R-LA) and Rep. Jim Jordan (R-OH) have made their interest in Speaker known (with the latter receiving an endorsement from Former President Trump), and they are expected to make their respective cases to the conference Monday ahead of, hopefully, a vote Tuesday. Despite all that, much is unclear about (1) whether Mr. McCarthy stays in Congress or resigns, (2) whether any of the proposed Speaker candidates can secure enough votes to win a gavel, (3) whether there is retribution towards Gaetz and the eight from the rest of the Republican conference, and (4) what happens with the government funding fight on issues like spending cuts and Ukraine under a different Speaker. With less than 40 days to another potential government shutdown, time is ticking for Congress to act, and the House is currently frozen until a new speaker can be chosen, halting the wheels of government for the time being.

Still, while Congress may be paralyzed, other aspects of the government are not. As such, there has been a lot of activity on the Hill regarding IRS-related matters like new 1099-K requirements thresholds and moratorium on employee retention tax credit (ERTC). Regarding the former, in the past, individual workers who were involved in more than 200 transactions totaling $20,000/year were required to submit 1099-K forms. A provision in the American Rescue Plan Act (ARPA) changed this threshold, and now anyone involved in any number of transactions must complete the form if they receive more than $600 – a steep drop from $20,000. As a result of this change, the IRS expects it may receive more than 44 million forms—about twice as many as it expected. Since opponents say this will be a burden for individual taxpayers, their employers, and the government, and, as a result, a number of groups have been lobbying to have these levels increased from $600. It is unclear what that would be, but for the time being there may be an increased threshold on both transactions and the dollar amount needed to trigger this reporting. Regardless, this is only relevant if Congress can pass a law to change it, and given the current state of Congress, it may be a reach. Regarding ERTC, due to significant fraud, the IRS has decided to pause applications for the tax credits. In response, the National Federation of Independent Business (NFIB), as well as House Ways and Means Chair Jason Smith (R-MO), have said this was too extreme a move, instead calling for IRS to address fraud, but to do so in a way that allows those who would benefit from the ERTC to continue to do so.

Finally, the Supreme Court has announced it will hear a case from the North Dakota Petroleum Marketers Association, North Dakota Retail Association, and Corner Post challenging the Federal Reserve’s (Fed) cap on debit card transaction fees. Specifically, they argue that the cap is set too high, and that the Fed violated the Durbin Amendment to the Dodd–Frank Wall Street Reform and Consumer Protection Act. At the core of the dispute is an issue of when the statute of limitations would be triggered—whether it is (a) when the regulation was published in the federal register (the Government’s position) or (B) when injury from the rule took place (Corner Post’s position). Previously, a District Court and Appellate Court had both ruled in favor of the Fed, noting that the time to challenge this rule has passed, but if the Supreme Court overturns those rulings, it could lead to a lower cap on debit card transactions going forward. The case will be heard sometime this year, with a ruling sometime next summer.