⚡️ 2025 Tax Special Edition: The bumpy road for the Trump tax cuts

IN THIS EDITION

The big year ahead in tax

Digging into Trump’s tax wish list

Not all Republicans want the ACA premium credits to go away

Why an Illinois tax tweak is spooking the bank lobby

THE TOP

The big year ahead in tax

Happy Wednesday morning.

Welcome to a special edition on all things taxes! We’re here to give you all the news you need to know about a massive year ahead for tax policy in Washington.

In this edition, we’ll set the stage for what to expect in the months ahead, dive into President Donald Trump’s pet tax issues and check in on how the tax debate is intersecting with key health policy and state-level fights.

Work in both chambers on extending the 2017 tax cuts has really picked up steam this month. The Senate will vote on its budget resolution this week and the House is expected to do the same when members return to Washington next week.

It’s been a bit of a messy process so far, but these fiscal blueprints are key to unlocking the filibuster-proof reconciliation legislation that Republicans want to use to enact Trump’s agenda.

We’ve been giving you all the up-to-the-minute details on how negotiations are going. But for our special edition, we want to take a step back to explain all the difficulties that lie ahead for tax.

First, this is an absolutely huge moment for the future of tax policy. Most of the 2017 Trump tax cuts expire at the end of the year. Letting them go poof would be a political disaster for Trump and Republicans.

Here is your guide to what could trip up Republican efforts to extend the signature domestic policy issue of Trump’s first term and GOP leaders’ plan to make sure failure isn’t an option.

Let’s get into it.

Process problems: The Trump tax cuts expiring include individual income tax cuts, a bigger standard deduction, a larger child tax credit and the 20% deduction for owners of pass-through businesses, which covers many small businesses.

The process that Republicans are trying to use to get the tax cuts done is a frequent tool in Congress in recent years – budget reconciliation. That will allow Republicans to avoid a filibuster in the Senate.

Here’s the rub. The two chambers can’t agree on the best tactic for achieving their goals.

Senate Republicans are forging ahead with a plan for a border security, defense and energy-focused bill. That would put a tax bill on pause until later in the year as part of a second reconciliation package. That could easily slip until December.

But House Republicans are adamant about passing a single package out of anxiety that with a razor-thin majority they have to put all Trump’s priorities in one package to secure the needed votes.

The GOP needs to agree on this very basic strategic question to move forward. The dispute is dragging out even this very early – and simpler – stage of the reconciliation push.

Trump factor: Negotiating a massive piece of legislation is difficult enough when navigating the differences between the two chambers. Throw in some Trump unpredictability and it’s that much harder.

Case in point, Wednesday morning Trump posted on social media that he supports the House’s “one, big beautiful bill” approach – while the Senate is in the midst of considering its budget resolution. It’s a win for Speaker Mike Johnson and Ways and Means Committee Chair Jason Smith (R-Mo.). This won’t be the last time Trump shakes up negotiations.

The priorities: When Republicans do settle the process fight, then comes the hard work of squeezing a lot of tax priorities into a limited space.

Here are the large-scale goals the GOP is looking to achieve:

– Extending expiring pieces of the 2017 tax law. This will cost north of $4 trillion over a decade. The wrinkle here is how Republicans handle the cap on deducting state and local taxes. It was $10,000 in 2017, but a handful of blue-state Republicans want it to be much higher. They’ll eventually be forced to accept some cap, but getting there won’t be easy.

– Reviving business benefits for research and development, interest expenses and purchases of short-lived assets like equipment and machinery. These tax breaks have been lapsed for a bit now under the 2017 law, but there’s a lot of Republican support for bringing them back.

– Trump’s new tax priorities include a lot of proposals he pitched during the campaign. With pressure from House deficit hawks, it’s unlikely that Trump’s full wish list has a shot of getting done long-term, but the GOP is conscious of delivering something for Trump. We have more on this below.

– Repealing clean energy tax credits from Democrats’ Inflation Reduction Act. This raises money, so that’s a big plus for Republicans who want to offset the cost of tax cuts. But some House GOP members representing swing districts that benefit from the IRA provisions aren’t up for a large-scale repeal. And there are Republican senators who like some of the credits. So Republicans will need to thread that needle – or turn to other options to offset spending on tax cuts.

What to watch: There are a number of decision points on the horizon.

(1) Will Senate Republicans’ gambit to force a two-bill reconciliation strategy work? Smith has warned that would put a tax bill in peril. Notably, Trump’s backing for one bill this morning is a huge boost for the House strategy to win out.

(2) Will tax writers get more breathing room? The House budget resolution would currently allow the House Ways and Means Committee to spend $4.5 trillion on net cutting taxes – though that number could shrink if the GOP can’t find bigtime spending cuts.

Senate Republican leaders want to make it so extensions of tax policy currently on the books are considered cost-free. The tax cuts would grow the deficit nonetheless, but this helps navigate some reconciliation rules and makes it plausible to extend tax cuts permanently. The Trump administration wants permanent tax cuts too.

(3) The big one: What’s in the bill? Once everything else is settled, then the nitty-gritty decision-making will happen. Republicans know what they want to do with the tax bill and generally agree. But on the margins, there’s a whole lot to iron out – especially if they have to go down the hard road of finding ways to raise revenue.

Nobody is going to get everything they want.

The conventional wisdom is that Republicans will find a way to extend the Trump tax cuts and maybe add in some of the president’s new ideas. To not do so would be disastrous for the party.

But it’s going to be a tense ride filled with anxiety, plenty of recriminations and the winners and losers changing by the day. We’ll be there along the way bringing you all the tax news you need to know.

If you’re interested in getting more of our tax coverage, you can sign up here to become a Premium Policy member.

– Laura Weiss

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THE WHITE HOUSE

Digging into Trump’s tax wish list

Republicans have a lot of big priorities for the tax code but limited space to get them all done. That’s because of pressure from House deficit hawks who are checking ambitions for the scope of the GOP’s tax bill at the moment.

In the weeks or months ahead, Republicans will have to weigh different tax priorities, including what President Donald Trump wants.

The Trump administration has outlined a list of proposals on top of permanently extending the portions of the 2017 Republican tax cut law that expires at the end of the year.

We’ve got your guide to the dynamics around the items on Trump’s tax wish list that could affect whether or how they make it into the final tax bill.

No tax on tips: This idea took on life during the presidential campaign with Republicans and Democrats getting behind the Trump pitch. In the White House, Trump has made clear that getting rid of taxes on tipped wages remains a priority.

Republicans will need to settle how to structure a “no tax on tips” provision, and it’ll need limits to make sure it doesn’t become a loophole. Tax writers have talked about options like making the benefits industry-specific or capping them based on income.

Boost for seniors: Trump wants to cut taxes on Social Security benefits. But there’s a clear hurdle for this one. Republicans are using the reconciliation process to pass their tax bill because it avoids a Senate filibuster.

Reconciliation rules don’t allow for packages that include changes to Social Security, however, so they’d likely need to find another way to give a boost for seniors.

Overtime pay: Trump argued on the trail that cutting taxes on overtime pay would be an incentive for people to work. But this is a challenging tax policy to craft for lawmakers, and it could get expensive.

Made in America benefit: Republicans have been exploring different ways to follow through on Trump’s campaign pitch to give another corporate rate cut for companies that manufacture in the United States.

There are lots of different ways that the GOP could craft the “made in America” boost. But whatever the structure, look for Republicans to argue this one helps grow the economy and lessen the budget hit from other tax cut priorities.

SALT: The 2017 tax bill that Republicans want to renew capped deductions for state and local taxes at $10,000. The “SALT cap” expires with other tax cuts at the end of December.

But most Republicans want to extend it, which puts blue-state GOP House members who oppose the limit in a bind. Trump has now said repeatedly that he wants to do more on SALT this time around.

It’s a win for New York, California and New Jersey Republicans fighting for SALT relief. But a cap of some sort is pretty much certain to stick around. This will still be a sticky battle on Capitol Hill.

Carried interest: Trump wanted to get rid of beneficial treatment for this form of income — which benefits investment fund managers and private equity firms — back in 2017. That didn’t happen.

Now Trump is back on the issue again. But some Republicans, including Senate Majority Leader John Thune, have been opposed to cracking down on the “carried interest loophole.” So this isn’t a slam dunk for the administration.

A crackdown on sports team owners: This was the surprise entry on the Trump administration’s list for many tax lobbyists and aides.

It’s not clear what exactly Trump wants, but there are a number of ways that lawmakers could go after benefits that end up flowing to sports team owners if they want. For one, Republicans could change the treatment for municipal bonds used to finance stadiums, which are currently tax-free.

Still, it’s unlikely this is a major revenue raiser, which would come in handy for Republicans as they try to make room for huge tax cuts.

– Laura Weiss

HEALTH X TAXES

Not all Republicans want the ACA premium credits to go away

The fight over “Obamacare” will never go away, and it’s a looming tax battle for this year.

Allowing enhanced “Obamacare” premium tax credits to expire at the end of 2025 may not be the easy task the GOP had hoped.

Democrats expanded a refundable tax credit for low-to-moderate-income households on their health insurance in 2021 and later extended that boost to last until 2025, lining it up with the expiration of President Donald Trump’s 2017 tax law.

Republicans had been eyeing the expiration of these expanded tax credits over the past year. The Congressional Budget Office last year found that making the more generous credits permanent would add $335 billion to the deficit — and also add 7 million more people to marketplace plans — over 10 years.

There’s one problem for the GOP on this issue: Sen. Lisa Murkowski (R-Alaska.).

Murkowski has signaled she’d rather not see the credits completely expire. The CBO has also reported that if Congress doesn’t extend the enhanced benefits, premiums will rise by 7.9%. Another 3.8 million Americans would go uninsured altogether, according to the report.

There would be a significant impact on Alaskans, Murkowski told us.

“For us in Alaska, that’s been a very significant help and benefit, so I’m not one that is anxious to see them expire,” Murkowski said.

More moderate Republicans in recent weeks have been expressing concern over proposed cuts to Medicaid, SNAP and other aid programs. Some of them may also want to see some version of the expanded credits remain, especially if health care is getting squeezed elsewhere.

Price Check: Most House Republicans don’t like the price. They’re already under pressure to find savings wherever they can. Adding another costly tax extender to their to-do list isn’t enticing.

House Energy and Commerce Chair Brett Guthrie (R-Ky.) said it’s time for Republicans to “get a handle” of the Affordable Care Act’s health care costs.

“You keep extending the tax credits, like college tuition, the more you help, the higher the price goes,” Guthrie said.

Any extension of the expanded credits could be enacted through the party-line reconciliation bill or separately with Democrats. It’s difficult to pass any stand-alone tax bills, though, and it’s unlikely there would be much appetite for a tax title in an end-of-year omnibus given the reconciliation push.

In any scenario, Democrats are likely to use the impending expiration as another line of attack on the GOP over the coming months.

– Samantha Handler

STATES OF THE UNION

Why an Illinois tax tweak is spooking the bank lobby

If you thought a special edition focused on tax would be safe from the credit card wars, you were wrong!

The Land of Lincoln has become the center of a pitched lawsuit between banks, credit card companies, merchant groups and even the federal government. The fight is making financial services advocates nervous far beyond the Midwest.

Back in May, Illinois enacted the Interchange Fee Prohibition Act, a first-of-its-kind piece of legislation that would carve out specific portions of transactions from swipe fees – sales taxes and tips.

Banks sued in August, and the case is ongoing. But the banking lobby has not been entirely successful in stopping the law from going into effect. A judge granted a partial injunction for national banks as the lawsuit proceeds, but not Illinois banks.

State law, federal concerns: This is one case where banks and credit card providers aren’t worried about the money, per se. The carveout just doesn’t amount to a lot of profits lost, at least compared to what the lobby thinks it could lose if something like the Credit Card Competition Act became law.

But banks, forever in the long game, are worried about what comes after Illinois if the law stands. Pickup from other states has been limited so far, though there’s legislation in Pennsylvania that would mimic the Illinois law.

But the more states fiddle around in this space, the more banks will see greater potential for dysfunction. Eventually, that could build the case for Congress to intervene. Already, a bipartisan group of lawmakers has warned the current state of swipe fee costs in the United States is unsustainable.

Banks have the advantage for now. As we reported last week, House Financial Services Committee Chair French Hill (R-Ark.) isn’t interested in letting swipe fee reform advance under his watch. But we’ll have to wait and see what those pesky laboratories of democracy have in store.

– Brendan Pedersen