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.
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